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What to include in a distribution agreement?

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A distribution agreement is a legally binding contract between a manufacturer or supplier of goods or services and a distributor. It outlines the terms and conditions under which the distributor is granted the right to distribute and sell the supplier’s products or services in a specific geographical area or market.

Here are ten key things to consider:

  1. Territory: Clearly define the geographical area or territory in which the distributor has the exclusive or non-exclusive right to distribute your products or services. This helps avoid conflicts and ensures proper market coverage.

  2. Product/Service Specifications: Clearly specify the products or services covered by the agreement, including any variations, models, or versions. Outline quality standards, packaging requirements, and any specific guidelines for the distribution of the products/services.

  3. Terms and Duration: Determine the duration of the agreement, including the start and end dates, renewal options, and conditions for termination or extension. Ensure that the length of the agreement aligns with your business objectives.

  4. Performance Obligations: Define the distributor’s responsibilities and performance expectations, including sales targets, marketing efforts, reporting requirements, and customer support. Establish clear metrics to assess and monitor performance.

  5. Pricing and Payment Terms: Determine the pricing structure, including the wholesale price, discounts, and any applicable fees or royalties. Establish payment terms, such as the frequency of payments, acceptable payment methods, and any applicable penalties or late fees.

  6. Territory Protection and Non-Competition: Specify whether the distributor has exclusive rights to the territory and whether they are prohibited from selling competing products or services. Include provisions to prevent the distributor from encroaching on neighboring territories or engaging in unauthorized sales activities.

  7. Intellectual Property Rights: Clarify ownership and use of intellectual property related to the products or services, including trademarks, copyrights, patents, and trade secrets. Outline any licensing arrangements or restrictions on the use of intellectual property by the distributor.

  8. Marketing and Promotion: Define the marketing and promotional activities the distributor is expected to undertake, including advertising campaigns, trade shows, or online marketing efforts. Specify the responsibility for marketing expenses and approval processes for marketing materials.

  9. Inventory and Returns: Establish guidelines for managing inventory levels, product returns, and warranty claims. Define procedures for handling defective or damaged products, as well as the responsibility for storing and disposing of inventory.

  10. Dispute Resolution and Termination: Include provisions for resolving disputes, such as mediation or arbitration, to address disagreements between parties. Define the conditions and procedures for terminating the agreement, including breach of contract, performance issues, or changes in business circumstances.