Patricia Barclay offers her top tips for international distribution agreements
Tip 1. Make sure you have the correct legal name and address for the company with which you are entering into the agreement and that it has assets sufficient to back its obligations to you. Check out itsexperience and don’t be shy in following up references. You may wish to trade only with the parent company or to require a parent company guarantee.
Tip 2. Be very clear as to whether this is a distribution agreement – the partner buys goods from you at their own risk and sells them on to third parties taking the margin as its reward – or an agency whereby the partner markets goods on your behalf but the actual contract of sale is between you and the third party with the partner being rewarded by a commission. Many countries have very different rules depending on what sort of relationship is in place.
Tip 3. Ensure that forecasting and ordering patterns fit in with your manufacturing cycle and that orders are in line with batch and packaging size especially if some element of customisation is required. Where customisation is required consider how the costs of, for instance, special dies or moulds are to be met and who is to own them.
Tip 4. Think about cash flow and security of payment. In an ideal world you will want to be paid before or on delivery, but that is not always possible. You may be able to get bank or other forms of export financing and your buyer may even be able to get support in buying your goods from your country’s export authority. You may also consider retaining title (ownership) in the goods until you have received payment or to arrange drawdown from a secure warehouse as payment is made.
Tip 5. Try to take payment in a currency in which you incur costs so that you are not unreasonably exposed to foreign exchange risk. If you have raw materials for which payment is made in a second currency you could consider providing for a special price increase in the event of a variation over a certain amount with that currency.
Tip 6. Secure ownership of the trademarks applied to your goods in your own name before starting to export to a particular country and issue clear instructions on how the marks may be used by your distributor. You will want to ensure they are not obscured on the packaging and that the form of any logos is consistent. You should also have any patent numbers marked on the product (or at least the packaging) and require your distributor to advise should it become aware of any potential infringers of any of your intellectual property. Many companies like to have prior approval of any marketing material that includes their trademarks to review not just the manner in which the trademarks are displayed but also to check that any claims made for the product are in line with an agreed list.
Tip 7. Put responsibility for drawing up appropriate labelling and for compliance with local laws including import regulations on the distributor. You may want to secure this by selling ex factory – that is they buy “at your factory door” and are responsible for everything after that.
Tip 8. Consider in what circumstances you might want to terminate the agreement and what is to happen following the expiry or termination of the agreement. In particular you might want to think about including an obligation to provide customer lists to permit ongoing servicing and any necessary recalls.
Tip 9. Choose a form of dispute resolution that is enforceable in the distributor’s home country so that you have some recourse should things go wrong. This will often mean using arbitration or local courts as it can be difficult to enforce foreign court judgements. Some countries only enforce agreements made under their own laws or in their own language.
Tip 10. Keep in regular touch with your distributor and up to date with changing circumstances in its market so that you can anticipate threats and opportunities and initiate any remedial action at an early stage – this is particularly important if you have granted exclusive rights in a territory.
For more information, visit www.scientistlive.com/eurolab
Patricia Barclay is founder Bonaccord.