Agency or Distribution?
4th December, 2019
When looking to market, sell or distribute its products a supplier may choose to appoint an agent or a distributor.
Reasons for this include taking advantage of their local knowledge/trade connections and the cost saving of not having to establish its own sales operation.
However, it is important to be aware of the difference between appointing an agent and appointing a distributor (both in legal and practical terms) before deciding which route to take.
What is the difference?
- is appointed to act on behalf of the supplier and generally has no contractual liability to the end customer;
- may be authorised to negotiate and/or enter into contracts with customers in the supplier’s name;
- is usually paid a commission on the sales they introduce to the supplier or negotiate and/or enter into on the supplier’s behalf.
- purchases goods from the supplier and enters into separate contracts with its customers;
- is not authorised to negotiate/enter into contracts in the supplier’s name;
- usually receives a discount on the supplier’s products and then adds a margin on sales to its customers.
- The supplier retains control over the product, particularly in relation to the marketing or pricing of the products.
- The supplier has closer contact with its customers
- An agency relationship is less likely to be at risk of any competition law issues.
- The supplier may be able to pass on to the distributor a large degree of risk associated with the products.
- The supplier only needs to monitor accounts with the distributor as opposed to a number of individual customers.
- The supplier will usually not be required to pay compensation to the distributor on termination of the agreement.
- The agency relationship may be subject to the Commercial Agents Regulations, which will imply certain terms into the agreement, including a potential compensation payment to be made to the agent upon termination of the agreement.
- The supplier may be regarded as trading in a territory if it has an agent there, giving rise to tax implications.
- The supplier has less control over pricing of its products. The imposition of resale price maintenance on a distributor is unlawful in most countries.
- Competition law issues may arise.
- The supplier has no direct link to the end customers, which may cause issues following termination of the distributorship.
What can we do for you?
If looking to appoint a distributor or agent we can;
- help you decide which is the most appropriate structure;
- advise you in relation to any associated risks and ways to reduce your exposure to such risks;
- assist you in the preparation of an agreement governing the relationship.
If you are an agent or distributor (or considering becoming one), we can advise you on;
- the agreement governing your relationship with the supplier;
- any associated risks (and ways to reduce your exposure to such risks);
- your rights against the supplier, whether arising under the agreement or law.
Corporate & Commercial