Manufacturers often need people to sell their goods.
Perhaps it’s a geographical issue: you might be expanding into new territory and can’t be physically present to service your client base. Or maybe it’s a skills issue: you’re good at manufacturing, but poor at sales, and you need to find a professional to move your products.
Before making the decision to engage somebody to do this valuable job, you need to consider the role this person will play – most importantly, whether they will be a sales agent or a distributor?
A distributor is usually given the right to sell goods within a designated area (a “territory”), under certain terms and conditions. The distributor usually buys the goods upfront at wholesale prices from the manufacturer, adds a margin, and then on-sells those goods within their defined territory.
A sales agent doesn’t buy goods upfront like a distributor. Instead, the manufacturer (or “principal”) gives the agent the power to act for them, and enter into sales contracts on their behalf with third party purchasers who are sourced by the agent. The principal is bound to the contract and is obligated to fulfil the purchase order, which has been facilitated by the agent.
The sales agent does not stock inventory and is usually compensated by the Principal in a fee for service arrangement.
It’s important to understand that sales contracts entered into by agents on behalf of a manufacturer, are legally binding on the manufacturer, not the agent personally. This is because the manufacturer has granted the agent the power to act in his or her name. If something goes wrong with the sales transaction, then in most cases it’s the manufacturer who is liable, and in the position of being sued or able to sue.
If you’re thinking about appointing an agent, you must put clear limits on the scope of the powers you are giving to your agent. Your agent needs to understand the extent of their authority and what they can, and can’t, do in your name.
If you’re considering using a Distributor, then you should also define your arrangement covering important issues such as terms of sale, minimum orders, advertising and promotion, reporting and after sales service obligations.
Regardless of which alternative you choose it is important to put your agreement in writing using either an Agency Agreement or Distribution Agreement so that both parties understand their obligations. This is the best way to reduce the risk of misunderstandings and conflict in the future.
