Quick Guide to Agency and Distribution Agreements

Posted by: Marcin Durlak
Posted in: Commercial solutions
Date published: 01/02/2022

If you are in the business of supplying or producing goods or services, you may have considered growing your sales network. It can be challenging to market in all areas and sectors at once, particularly without the assistance of a sales team. However, an agent or a distributor can help you to sell and market your products under certain conditions. In this post, we look at agency and distribution agreements to give you an idea of which one might be right for you.

What is an agency agreement?

An agency agreement is a contract which allows you to give another party agency to market your goods or services. The contract is between the ‘principal’ – who is the party that produces the goods or services and the agent.

What is included in an agency agreement?

An agency agreement will set out what the agent will do, how they should do it, and how they will be paid for doing so. The agreement will also set out the rights and obligations of both parties to the agreement. For example, the agent must market the principal’s goods or services to the best of their ability.

How does an agent work?

Under an agency agreement, it is the agent’s responsibility to find appropriate customers for the principal. In order to do this, the agent may also be granted the authority to enter into contracts with customers on behalf of the principal. However, the binding contract will be between the principal and the customer, and this is one of the important aspects of an agency agreement.

When might I use an agency agreement?

There are many circumstances where an agency agreement might be useful to your business including:

Where you have the appropriate resources to facilitate the agency relationship and grow your business
You have some understanding of the market the agent will operate in and how you would like to expand
You produce goods or offer services that are very specific, and you would like to retain some control over how these goods are marketed and sold
Your goods or services require a level of sales assistance or after sales and you would like to be in control of this

What is a distribution agreement?

Under a distribution agreement, a distributor buys goods from a manufacturer and sells them on to another distributor, retailer or customer.

What is included in a distribution agreement?

A distribution agreement will typically set out the terms of sale of the goods, and any conditions the manufacturer wishes for the distributor to abide by when selling on the distributors goods. The manufacturer can maintain significant control over how their goods are sold through a distribution agreement.

When might I use a distribution agreement?

You may wish to use a distribution agreement if:

The distributor is able to store, market and insure the goods you produce
You do not have the resources to supervise your entire sales process
You want to test certain markets and you are happy for the distributor to accept the risk that your goods do not sell in a certain market
Your products do not need to be tailored for specific customers

Who owns and stores the goods under a distribution agreement?

One of the key differences between an agency agreement and a distribution agreement is that under a distribution agreement, ownership will pass from manufacturer to distributor. The distributor will store the goods and should insure the goods. The contract is then between the customer and the distributor when the goods are sold.

Which is right for me, an agency agreement or a distribution agreement?

In the majority of cases, an agency arrangement is most suitable for businesses who sell high-value, bespoke goods or those which provide services that need to be personally delivered. Distribution agreements are best suited to businesses who sell low-value, commoditized products in which no service element is required. You can discuss which arrangement is right for you with your solicitor.

Contact IMD Solicitors Agency and Distribution Agreements Lawyers

As an international firm, which operated across several offices spread throughout the UK and Europe, we know what it is like to put your trust in people from whom you are physically separated and who you have tasked with flying the flag for your brand. For more information on our agency and distribution arrangements service, please contact Olexandr Kyrychenko or Marcin Durlak on 0330 107 0107 or email us at business@imd.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.