Facts and Key Points of A Distribution Agreement

A distribution agreement lays down the different rules and requirements under which a manufacturer can have its products distributed by a specialist distribution company. The agreement will also specify the rights and obligations of the parties to the agreement.

When Do You Need A Distribution Agreement?
Generally, manufacturers should only look at entering into a distribution agreement once they have the final product that they want to release to the market.

Why Do You Need A Distribution Agreement?
Promoting and selling products can be challenging for manufacturers, especially for those that either have no experience in distribution or lack the necessary infrastructure, resources and funding. Whereas, specialist distributors are usually well established and have developed networks of retailers in their portfolio. You can significantly benefit from distributors, whether in terms of negotiating better rates or reaching difficult territories.

Key Points Of A Professionally Drafted Distribution Agreement

Expand Gradually
Align only with a new distributor if the distributor is proven in a territory. Furthermore, make sure that you assign a territory that is not too large initially.

Termination Of Distribution Agreement
The best distributor agreement allow for termination for cause and for termination for convenience. Under this clause, a termination notice requires a 30 days’ notice period. The clause and responsibility for cause need not be argued, helping all parties to focus on their respective objectives. Additionally, the distributor agreement must spell out responsibilities of both parties during and after the life of the agreement.

Annual Termination And Semiautomatic Renewal
This is a routine procedure among experienced players and requires no cause when placed in effect. Under this point, the agreement provides for opportunities to call for termination of the agreement, usually at the end of the first full calendar year and thereafter, after the agreement is first placed in effect. A Notice of Intention to Not Renew is required 30 days before the year-end.

Exclusive Or Nonexclusive
There are times when distributors require an exclusive territory as an incentive to allocate adequate resources. Proceed with care here, and find alternative ways to promote performance in agreements without restricting yourself or the distributor.

Price Fluctuation
To protect yourself in uncertain economic times, for example during periods of inflation, you need to ensure that you have the opportunity to pass along any increases in cost. Fundamentally aggressive price increases are by law not allowed. A well-thought out distribution agreement can ensure that it allows you and the distributor a price increase, when necessary, by simply serving a 30-day notice. This greatly reduces any opportunity for conflict whilst maintaining the principle of fairness in the partnership.

Conclusion
Distribution agreements are important to maintaining a successful relationship between a distributor and a supplier. A poorly drafted distribution contract often leads to a legal skirmishes that takes up unnecessary resources including management time, financial resources and legal representation and proceedings.

A well-written agreement will help eliminate these stresses and allows the distributor and manufacturer to focus on things that matter.

Net Lawman Australia can help you with professionally drafted Distribution Agreements for your specific situation. Net Lawman Australia does this by ensuring that you understand real law in plain English.