Hello, everyone.
Well today I just wanted to run through
what should be in a Distribution Agreement.
And so I just wanted to run through a short checklist
that we've got that sets out,
things you should think about and check off
before you enter into a Distribution Agreement.
So let's get into it.
So the first thing is you wanna make sure
that you have a clear understanding
of the products involved.
So the agreement should clearly set out
what products you are able to distribute,
or so that in the future,
there's absolutely no doubt as to what rights you have
to what goods.
Now this is also particularly important where
you as a distributor are given exclusive rights,
say the exclusive rights are in Australia.
Then you wanna make sure that the agreement clearly sets out
what goods you have the exclusive right to distribute.
And that way they can be no dispute later when, well,
basically there can be no dispute
because the parties are clear as to what's been agreed.
All right, so that's point number one,
make sure you know which goods are involved.
Secondly, it sounds obvious,
but the distribution agreement should clearly specify
the territory in which the distributor
can distribute the distributed goods.
And this can be broken up almost any way you like,
as long as the parties are able
to clearly understand the region.
So when I say this can be broken up any way you like,
I mean, the geographical limits of the territory
can be set anywhere you want.
So you could have the rights for Australia.
They could be the rights to distribute goods
in say a state or territory.
New South Wales, Queensland, WA.
They could be a smaller region,
like, say, council areas or cities.
Be sure you get those once you start getting smaller
in terms of geographic region you need
the agreement should set out whether,
if you have the exclusive rights say
to distribute goods in New South Wales,
can you supply them into other states?
Like can you ship to Queensland or Western Australia?
So you've gotta think about those things.
And the answer to that should be documented
in the agreement.
Right, so we've got products,
we've got territory, what's the next thing?
You need to understand whether your rights are exclusive
or non exclusive.
Now exclusive means also to the exclusion of the supplier.
So that means if you have the exclusive rights
to distribute certain goods in Australia,
then you are the only person that is entitled to do so.
It's important to get this right
because given the distributor is going to spend time
and money marketing the products
in the relevant territory, they need to be clear that
they are given certain rights to do that,
in terms of their rights need to be,
exclusive or non exclusive.
Okay, so that's very important.
Next, the agreement should set out what happens
with new products.
So if the supplier comes up with new products
during the term of the agreement,
is the distributor given access to those new products?
In other words,
can the current distributor add the new products
to their product line,
and potentially be given the exclusive rights
to distribute those products in their territory?
That's something worth thinking about.
Next, like an employment agreement,
you can choose to have a probationary period
in a Distribution Agreement.
And this can be important where the first sorry,
when parties are first entering into an agreement together,
and they are both unknown visa V
or in relation to each other.
And so you can put potentially a probationary period
or you can call it something else,
like an initial term,
where the parties have say,
six to 12 months to see if they can work together.
Just bear in mind that if you do that,
it's unlikely that the distributor will put much effort
into marketing the products within that initial period.
Because given the nature, given that they have no certainty
as to whether they will have more long, ongoing rights,
they will be reluctant to spend money
that they potentially will never get back.
So just bear that in mind.
If you're gonna put in an initial period
or probationary period.
Okay, so what else should be in a distribution checklist?
Minimum orders, now this usually ties with exclusivity.
In other words,
one of the key issues a supplier has is that,
if they grant a person the exclusive rights in a territory,
say Australia, they are concerned
or they should be concerned that,
that person may not do much with those exclusive rights.
And that then stops the supplier themselves
selling products in that region
for the term of the agreement.
So let me break that down even more.
If the distributor in Australia has the exclusive rights,
that means to the exclusion of the supplier
so as long as the agreement is on foot,
the supplier is not able to supply goods into the territory
while that distributor has that exclusivity.
So to counter that most suppliers will say,
look you Mister Distributor can have exclusive rights,
but we need to ensure that we're gonna
make some money from this.
So you Mister Distributor must buy a certain number
of products from us each month, quarter, half year or year.
So most decent Distribution Agreements
where exclusivity is on offer
will have a minimum order requirement.
Product lead times this is really just about,
how long it will take from when an order is made,
to how long the product can be fulfilled.
And there should be a clear understanding
between the parties so that the Distributor
is not left with egg on his face
if he makes promises to clients or customers in the region.
And then finds out later that the supplier
actually needs a longer period of time
in which to manufacture and supply the goods.
And this is one thing that's often not thought of,
which is enquiries in terms of how, or who is responsible
for dealing with enquiries from members of the public
who have brought, sorry, who bought the product.
So in other words, this is basically like
a customer support hotline where,
say, a client or customer has bought a product,
and they have an issue with it,
they wanna be able to call someone
and have that issue resolved.
So then, who is the party that gets called?
If it's the Distributor, that's fine.
If it's the supplier, that's fine as well.
Just bear in mind that there are costs associated in having,
staff on hand that can deal with enquiries.
And that cost should be factored
into the Distribution Agreement.
Stock, now the Distribution Agreement should set out
how the stock is handled.
And the main thing there
is really does the distributor have to have stock on hand,
or can they order stock from the supplier
as and when sales are made?
Now usually this comes down to cost meaning,
if it's very expensive for the distributor
to have lots of stock on hand,
they will be reluctant to do so,
and will want to have the supplier discontinue
to hold stock.
So where the distributor sells products
to clients or customers,
they will then back to back that order with the supplier
and the supplier will then supply the goods at that time.
Where the goods the subject of the distribution agreement
aren't as expensive then the distributor will most likely
hold stock so that they can quickly fulfill orders.
But anyway, the whole position in the agreement
as between the parties in relation to stock
should be clearly set out
so there are no misunderstandings.
Next, what is the next thing you should think about
when preparing a distribution agreement?
Well, you should think about repairs and defective goods.
Pretty basic, but once again can be expensive.
So the agreement needs to set out,
who is accountable when a client
or customer returns an item.
Who does it go to?
What does that party then have to do?
So, does the item gets sent back
to the local Australian distributor?
And does the Australian distributor then have to provide
the customer with a repair or replacement good,
or does the repair or replacement good
come directly from the supplier?
Those are the sorts of things that need
to be traversed and covered off in a Distribution Agreement.
Next thing you should think about is training
and technical support.
Now in most situations like the slide says
the supplier provides training to the distributor,
and or to the employees.
But that may not always be the case.
But whatever the agreement is,
it should be set out in writing
in the Distribution Agreement.
And the party should be clear as to
how much training is being provided and to whom.
For instance, we've seen some Distribution Agreements
where the supplier will provide 10 days of training
to one person from the distributors staff.
But that distributor is like a train the trainer,
that distributors person will then train
the distributors other employees.
And that way the supplier is only on the hook
to provide 10 hours of service or training,
I should say to one party,
being that one employee and that one employee then goes
and trains other employees.
But that should, as I say,
be set out in the agreement.
All right, let's move on.
This is a key one.
Usually this rests with the distributor
if they're given an exclusive region,
but the agreement should clearly set out
who's responsible for advertising and promotion of the goods
and who bears the cost of that.
As I say, if a party has been given the exclusive rights
then given they are the only party
that is able to sell products in that territory,
then usually they bear the costs of
marketing and advertising.
But that's not always the case.
And that's not set in stone.
That's just what we've seen
and there's plenty of different ways to do things.
Right up, what is the next thing to think about?
Brand and IP.
So who has the exclusive rights to the trademark?
So if the goods of the supplier trademarked,
will the Australian distributor have an exclusive right
to use the trademark?
That can be important because that can stop gray imports.
So if the distributor has an exclusive right
to use the suppliers trademark,
then they can stop the importation
of what's called gray imports.
In any event, putting that aside,
is the supplier obligated to get their trademark
for the goods registered in the relevant territory?
So as an example,
if a distributor is given the exclusive rights
to market or sell a certain good in Australia,
does the supplier have to under the contract,
register trade trademark for those goods in Australia
or can the distributor do that?
There's plenty different ways
and different things you can do in that regard.
But short story is the agreement just needs
to set out how it will be handled.
Last but not least,
is market information.
So often with certain goods,
there'll be market documentation and brochures
that are provided.
But that's not always the case.
And long story short here,
is the agreement should set out whether
the supplier has to in fact provide any market information.
So that is a high level snapshot of some of the key things
to think about when entering into a distribution agreement.
I'll run through them again quickly,
you've got the Products,
that need to be clearly defined.
You need to make sure that the Territory
is also clearly defined.
You need to make sure the agreement sets out
whether the rights are Exclusive or Non Exclusive,
or even so.
You should specify what's gonna happen with new products
if and when the supplier brings new products online.
You can have a probationary period or an initial term,
you should potentially specify minimum volumes of orders
that need to occur in a set period.
You need to talk about how long it takes
for the supplier to supply the goods.
Who is going to handle inquiries
from potential and current customers?
What happens with stock?
Who's gonna hold the stock?
Repairs and defective goods.
Who is obligated, according to the agreement
to repair and replace defective goods?
Is the supplier gonna provide any training
and technical support?
Who's responsible for advertising?
How much, at whose cost?
How often et cetera.
And brand and IP.
What happens there?
Is the distributor,
do they have the right to register a trademark,
or does the supplier have to register a trademark
for the relevant goods in the relevant territory,
if they haven't already done so?
And is there any marketing information
that needs to be provided with the goods?
So anyway, that was just a really quick overview
as to things to consider
when you're entering a distribution agreement.
I hope that helps.
If you have any questions or queries,
please feel free to get in touch.