Distribution Agreement

What is a Distribution Agreement?

A distribution agreement is a legal contract between a supplier and a distributor that outlines the terms and conditions for the distribution of goods. It defines the rights and obligations of both parties, including the distributor's authority to market and sell the supplier's products, the supplier's responsibilities for product supply and support, and the profit-sharing arrangement.

A distribution agreement includes contract tenure, sales territories, the maximum retail price, margins for the distributor and distribution procedures. The distributor can also provide a range of post-sale services such as technical support and repairs.

Under this arrangement, the distributor has to comply with specific terms and legal obligations, and is often responsible for inventory maintenance, marketing, warehousing, and transportation of the product. The distributor also undertakes the risks associated with the sale of products including loss or theft, damage, cancellation and currency variation for international dealings.

Distribution agreements can be categorized as:

• Exclusive: Where one distributor has exclusive distribution rights over a particular locality

• Sole Distribution: Similar to exclusive distribution, with the supplier retaining their rights to sell directly to customers

• Non-Exclusive: Where suppliers can appoint as many distributors as they like in each particular territory

• Selective: Where suppliers create networks of distributors that meet additional special criteria, like the ability to provide special services

Why is a Distribution Agreement important for business today?

Having a comprehensive set of all distribution agreements enables your company to:

• Monitor the compliance of your distributors with the terms of your agreements
• Keep track of when distribution agreements are coming up for expiry and being managing the process of their renewal or re-tendering early

Why is it important for an event tomorrow?

Having a comprehensive set of all distribution agreements is important for an event tomorrow, as it helps potential investors to:

• Better assess information on the key distributors of your product, their sales contribution and performance over time
• Identify the channels used to distribute your products and their effectiveness
• Access existing and established distribution channels
• Aggregate accounts to create an efficient review process of distributors

Pros of addressing Distribution Agreement

• Improved monitoring of distributor compliance with performance standards stipulated
• Improved management of distribution agreement expiry
• Reduced cost of due diligence due preparation to the ready availability of the agreements

Cons of not addressing this topic

• Increased potential for distributors to be performing below standard without penalty
• Increased potential for rushed agreement expiry management
• Increased time taken by senior management during due diligence to locate these documents.