5 Questions to Ask a Distributor
If your business has a physical product, you’ll want to work with a distributor to deliver your products and expand your sales. However, since you’re using the distributor’s network and resources, the distributor has a lot of leverage to demand favorable terms. Go over these five questions with your business attorney and carefully review the conditions of your partnership before agreeing to it:
1. Are you exclusive?
Is this distributor your one-and-only? Determine if the agreement is exclusive or non-exclusive. What does that mean? You, as the supplier, can choose specific distributors to deliver your products according to specific criteria. For example, you can define exclusivity by geographic area, jurisdiction, industry, or customer channel (e.g. online, retail, wholesale).
2. How long is the partnership?
When writing out the contract, you need to figure out how long you want your partnership with your distributor to last. If this is a new partnership, you might want to hedge your bets and keep the duration short with the chance for renewal. That way, you can test the waters and extend the partnership for a longer time if you feel that the agreement is working out. On the flipside, you’ll also want to include under which circumstances you can terminate the agreement early.
3. What are the products?
Whether you have one product or a wide array, you’ll want to create a way to identify your goods with your distributor. Can you establish an easy way to change materials, designs, or specifications of your product? Can you add or remove items from your list of products? How will these changes affect pricing and delivery schedule? These questions will help you maintain quality control of the product while ensuring that there is plenty of stock to go around.
4. How do you ship the products?
Shipping one item already puts a dent in your wallet and having your business compete with the likes of Amazon Prime certainly doesn’t help. Your distributor possesses plenty of experience in the shipping department, so work with them to designate the shipping method, turnaround time, and delivery locations.
On the off chance that shipping goes wrong, you’ll want to figure out: 1) when the title and risk of loss passes onto the distributor, 2) how long the distributor has to inspect the goods and notify you of problems, and 3) if you need to replace, repair, or refund the distributor for any goods that are rejected.
5. What is the price?
Since this is your business, of course you want to decide what the prices are! And of course, pricing comes in multiple forms -- fixed, variable, or adjusted periodically. Ensure there’s a way for you to increase or decrease prices depending on the market and whether per-unit prices account for shipping costs, insurance costs, and sale taxes.
Obviously, you’ll want to put your agreement in writing, and distributors usually have a contract already for you to sign. It’s a good idea to look this over with your attorney so you know exactly what you’re getting yourself into. Distributor agreements are notoriously complicated and contain a lot of provisions that you probably haven’t seen before, so it’s just good to have an expert check it out before signing it.