A distribution agreement is a contract between a supplier and a distributor (or reseller), which stipulates the responsibilities of the two parties as well as the terms for the distribution of goods which can, in some cases, be selective or exclusive.

Key terms of a distributor agreement

1. Territory

A territory clause sets out a certain defined territory in which the distributor is given the right to resell a product, which must be set out clearly in the agreement in order to avoid future disputes. The territory can be defined by way of geographical area, jurisdiction or industry.

2. Products

The description of the products and the type of products that are covered in the scope of the agreement should be clearly specified.

3. Responsibilities of the distributor

The responsibilities of the distributor in terms of quality control measures, providing sales forecasts, minimum purchase requirements, providing after-sale service to customers in the territory, informing the supplier about any complaints etc should be specified in the agreement.

4. Exclusivity

Both parties to the agreement must determine whether the distribution agreement will be exclusive or nonexclusive.

In an exclusive agreement, the specified distributor will be the sole distributor with the right to sell the product within a particular geographic region or within multiple regions. If the arrangement is nonexclusive, on the other hand, the manufacturer or vendor may supply other distributors, sometimes competing in the same market.

5. The duration

This section deals with the length of time for the appointment of the distributor, which can be a definite period as the supplier sees fit. Both parties may also include any terms regarding the renewal of the appointment.

6. Marketing rights

This section concerns whether or not it is agreed by the parties that the distributor will have the right to advertise and sell the product.

7. Purchase Orders

The terms for acceptance or rejection of purchase orders should be clearly specified in the purchase orders. Further, the parties should also decide when the legal ownership and risk in the product will pass on to the other party.

8. Pricing

The supplier must specify the prices for the product as well as include provisions governing the resale price in the agreement

9.  Payment

The terms for payment and any penalties in the event of any late payment must be agreed upon and specified in the agreement

10. Termination

The rights and obligations of the seller and distributor upon termination must be clearly set out in the agreement. For instance, it should address the status of outstanding orders after termination, the right to sell off its remaining inventory, return etc.

Key Takeaways

• A distribution agreement is a contract between a supplier and a distributor that stipulates the rights and obligations of the parties involved.
• Some of the key terms are Scope of a distributorship, pricing and payment, obligations of the distributor and post-termination obligations.

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