Anyone who has attended a distributor meet or conference will agree that mostly these conferences are one-sided boring affairs. Sales managers make series of presentation during the day and distributors are counting hours to the evening when they can relax and have entertainment at company expense.
It was during one such meet wherein a sales manager invited a distributor to express his opinion on the current distributor agreement. Some inputs really provided points to ponder, so we thought of sharing a summary here…for a full transcript, you can register at Selloverseas.com and read more.
The below points are from viewpoint of a common distributor, not a legal expert. An online search gives points from legal angles developed by the lawyers, good for negotiation in courts but hardly helps binding parties to develop sales.
Manufacturer and distributor relationships are organic i.e. they evolve, develop, grow, mature, and finally decay. They are part of the dynamic environment that gets influenced by external factors hence should allow changes and amendments on a need basis rather than a fixed time period.
Most of the distributor agreements or franchisee contracts are either drafted by in-house legal teams or solicitors, lawyers whose primary interest is to protect their clients. No one is contesting that it is not required but mostly it is always tilted in favor of manufacturer or supplier as lawyers want it to make watertight for their clients which are mainly companies. The legal jargon used is somewhat difficult for a common distributor and generally gives no room for changes or amendments before the next renewal.
While appointing a distributor most manufacturer vets distributors for credit risk and takes out insurance for an agreed credit limit. Generally, distributors works on the 80/20 rule i.e. 80% revenue coming from 20% customers. It would be extremely helpful if manufacturer’s can work out tri- party agreement with insurance companies for top 20% of distributors accounts to help their distributors derive benefits of credit insurance with the help of principle company. For payment security most distributors are willing to share insurance premium. A wholesome distributor agreement indicating conditional credit limits can create a win -win situation for all stakeholders.
Distributors prefer price changes only once a year, however this may not bode well for partnership as manufacturers must have opportunity to pass on inflationary increases and rising cost to secure operating margin.
The distributor agreement should include a clause to safeguard distributors from frequent price revisions for e.g. annual rate contracts / or fixed price purchase orders. Flexibility subject to submission of relevant documentary proof will ensure brand loyalty and enhanced market share for manufacturers also.
Although distributor agreements have clear incoterms for standard supply but spares, warranty replacements and optional accessories normally fall under aftermarket department. The service teams prefer to have separate service agreements which are customized for service partners and rarely meet distributor requirements. Most customer survey indicates that the companies having comprehensive sales and spares agreement with distributors are able to make more margins and improve customer service.
This is a relatively recent bone of contention between distributors and manufacturers typically fueled by rise of Amazons, Alibaba and online marketplace.
Most of the traditional distributors understand that it’s a generational shift wherein customer relationships are changing from personal relationships to digital first , next virtual support as needed and finally followed by onsite visit to confirm and close commercially especially for distribution industrial components or sales of medical devices.
As online element is still evolving, nevertheless it is important for manufacturers and suppliers to build clauses which promote online sales and support through traditional distributors.
It is important to understand that company reputation is not only built by quality product or service but a satisfied distributor, franchisee and sales agent also play important part in creating brand perception and company image. A comprehensive and balanced distributor agreement goes a long way in building mutual trust and stable partnerships.
All registered manufacturers at selloverseas.com can download templates for distributor search, franchisee appointment from Tools/ Template window. Upon request distributor agreement sample template can also be shared for registered business category and zone of interest.
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