What is Distribution Agreement Negotiation?
A distribution agreement is a contract between a supplier and distributor. It serves to specify all rights the distributor has to market the supplier’s products in a certain location or market. It includes important key terms for both parties, such as their responsibilities and duties.
If you’re ready to sign a distribution agreement, you should consider if there’s anything in it that you’d like to negotiate.
Read the rest of this article to explore how to negotiate a distribution agreement, things to consider, and when you should consult with a lawyer for assistance to get the best outcome.
What Can You Negotiate in a Distribution Agreement?
You can negotiate most terms in a distribution agreement, but some of the most common include the following. Here’s what to consider so you can negotiate them effectively.
- Pricing. You want to check the pricing terms so that they’re clear and aligned with your cash-flow requirements.
- Termination. Check what the minimum period is before you’re allowed to end the contract.
- Intellectual Property (IP). The contract needs to clarify IP rights, such as for trademarks, and how the distributor can use the supplier’s IP. This prevents accidental misuse and disputes.
- Minimum quantities. This section in the contract requires the distributor to sell a specific quantity per year.
- Exclusive rights. There should be clarity over whether or not the distributor owns exclusive rights to sell products in certain areas.
- Reporting duties. There could be a clause stating that the distributor will need to report information to the supplier, such as how many units are sold. Reporting duties could occur on a regular basis.
What are Tips for Negotiating a Distribution Agreement?
When negotiating a distribution agreement, there are some things you should do to increase your chance of getting what you want.
Review the Agreement
When preparing for the negotiation, you should review your distribution agreement so that you can flag any terms that aren’t in your favor and should be changed. It’s not always easy to understand complex contracts or those filled with legal jargon, so you should consider getting a review from a lawyer.
It’s easy to request this on an online platform such as ContractsCounsel, one of the largest online legal marketplaces that connects people with qualified, professional lawyers who have been vetted on the platform.
All you have to do to request a review of your distribution agreement is to post your project on the ContractsCounsel marketplace. Specify details of what you require and wait for lawyers to send you bids. You’ll receive multiple bids and you can select the best lawyer to choose for your requirements based on data on the platform, such as their credentials, previous projects, location, and expertise.
Be Careful with Exclusivity
As a supplier, you should avoid granting exclusivity to your distributor right off the bat. It’s better to link it to benefits you would like to achieve through negotiations, such as offering it for a minimum quantity of units sold or other performance targets.
Negotiate Payment Terms Beyond Payment
Although pricing and payment is usually a commonly negotiated term in the agreement, you can also negotiate other aspects of payment. This includes late payment penalties and deadlines for payment.
For example, suppliers might strive to have shorter payment periods so that they enhance their cash flow. By comparison, distributors might want a longer period so that they have enough time in which to sell the products and receive payments before paying the supplier.
Consider Termination Provisions
When contracts end, there can still be disputes which arise over neglected duties. Clarify and discuss provisions during your negotiations, such as periods in which to sell extra inventory or return sensitive information.
Be Mindful of Term Duration
While a longer contract might seem favorable at first, it can be problematic for suppliers. It can help to suggest an alternative, such as that the contract can be renewed if it works well for a year. This prevents a lock-in situation. However, it’s always important to check that there are termination rights available during the contract period.
Consider the Other Party’s Needs
It’s essential during negotiations to consider what the other person is hoping to achieve, as this will enable you to come up with creative trade-offs so the discussions are a win-win situation.
For example, if the supplier wants performance metrics in place because a lack of reviews makes them feel insecure in the working relationship, you could agree to a certain number of assessments in exchange for something you want, such as territory expansion over time.
How Can a Lawyer Help You With Distribution Agreement Negotiations?
Although you don’t necessarily need a lawyer to assist you with negotiating your distribution agreement, there are important ways in which they can help you. For starters, for a flat-fee, a lawyer can review your distribution agreement so you can gain clarity on the terms included. This can also help you to formulate the best negotiation strategy.
You can also hire a lawyer for more in-depth services during negotiations, such as the following:
- They’ll check that the most important issues for you, such as exclusivity, are protected and properly defined.
- They’ll consider your goals and assess how to best negotiate for the best outcomes.
- They’ll remind you of protections that you should negotiate with the other party. For example, they might guide you on how to prevent unfair competition or include a performance metrics clause in the agreement.
- They’ll keep you legally compliant with all relevant laws so that the contract is enforceable. If your agreement is made with someone in another country, they will consider international trade regulations.
- They’ll be able to guide you on how to negotiate and minimize your risks, as they have the experience of working on similar contracts.
- They’ll challenge any unilateral clauses that can cause distrust in the working relationship and unfair one-sided benefits.
Where to Get Help with a Distribution Agreement Negotiation
If you want legal assistance from a professional lawyer during a distribution agreement negotiation, you can hire a lawyer from a platform like ContractsCounsel. All the lawyers on the platform are vetted, with experience in helping other clients with successful negotiations. Having legal guidance will give you peace of mind to ensure the distribution agreement is solid, legal, and transparent to protect your future interests and business endeavors.
