Despite the absence in Russian legislation of requirements for the presence, forms and contents of additional documents accompanying supply contracts, such exist. They are used to sell goods on domestic and foreign markets and describe in detail all the components of the relationship between partners, ensuring compliance with the terms of the contracts in which one of the participants is a manufacturer. The most common form of such an additional document is a distribution agreement.
Why is it
Legal practice shows that currently used forms of contractual relations between the parties do not allow in some cases to fully describe additional obligations of partners that protect equally the interests of the supplier and the buyer.
The standard forms of documents used (supply contract, agency, concession) describe only the operations that accompany the transfer of goods from one owner to another, that is, methods of shipment and payment.
In order to profit from the resale of the subject of the contract, it is necessary to consolidate such conditions of cooperation that would be beneficial to both parties - the exclusivity of the price offer and protection against competition for the buyer, compliance with the uniform load of production capacities through constant stimulation of consumer demand - for the supplier.
Most often, partners enter into a distribution agreement for a supply agreement with a separate document. This is due to the fact that the purchasing, storage and distribution of goods to the consumer are handled by the supply, logistics and warehouse units, and marketing and sales departments are responsible for the implementation.
The specialization of individual company structures requires the preparation of separate documents, the accounting of which is individual during administration. That is why the parties usually draw up a distribution agreement with a separate document fixing important general obligations that are not subsequently reflected in the tax base.
We are talking about the activities of partners, carried out by them in the periods between the actual supply of goods and the transfer of funds for it.
Definition of the basic concept
A distributor is a manufacturer’s partner in a long chain of movement of goods from the conveyor to the consumer. The main difference between a distributor and an ordinary buyer is that he does not purchase products for personal consumption. He is a participant in the process of selling goods to the end user.
Therefore, the distributor has the most favorable price preferences from the supplier, but at the same time additional obligations to the manufacturer are imposed on him. They are expressed as responsibility for the sale of certain volumes of products in the territory assigned to it.
The distributor’s task is to use the goods received in the property in the most profitable way for themselves, that is, in order to make a profit through the sale of it to their counterparties with a margin.
Standard agreement
A sample distribution agreement can be represented by several significant points:
- Securing the buyer the obligation to promote and sell the goods.
- Territorial privileges and restrictions of the parties.
- Description of the terms of cooperation.
- Trade turnover obligations between the parties, ensuring sales growth.
- Securing conditions restricting competition.
- Regulation of promotion methods and shares of the parties in the costs of marketing operations.
- Establishment of rules for the manufacture of promotional products and the use of manufacturer’s trademarks.
- Features pre-sale preparation of goods.
- Obligations of the distributor to respond to customer reviews about the product.
- Service maintenance.
- Technologies that a partner involved in the resale of purchased products is required to use (storage, inventory, logistics).
The form of a distribution agreement is usually provided by the supplier and is specialized for a specific type of product, especially its sale, storage, maintenance needs, and the need for parties to bear the costs of promotion.
Types of contracts
The long-term relationship between the manufacturer and its distribution partner is an important component of any cooperation. In order to profit from the process of product sales, the distributor needs to form stocks, study demand and plan their advertising activity. All this is possible only if certain conditions are assigned to it. The list of mandatory conditions of the distribution agreement to the supply contract, according to the Principles of European contract law, is determined by the type of contract.
Allocate such forms of distribution contracts:
- Exclusive right - secures monopoly privileges on the sale of goods for one partner in a certain territory. Such a contract is an example of an exclusive distribution agreement.
- Selective - provides for the manufacturer’s obligations to deliver their goods only to partners selected on the basis of certain criteria. In this case, a monopoly right of sale has a group of persons.
- Exclusive sale - obliges the distributor to buy goods from a third party designated by the supplier.
The classic version of the agreement between the manufacturer and the sales partner is one that provides for the obligation of the second party to buy and sell goods on their own and at their own expense.
According to the exclusive distribution agreement, only the prescribed conditions of the following nature can detail the main process:
- Obligations to increase sales in a fixed area.
- Restrictions of the distributor on cooperation with suppliers of similar products.
- Requirements for the level of technology used in the marketing process.
- Implementation rules recommended by the manufacturer.
International contract
The distributor is a participant in foreign trade, conducting the purchase and resale of certain types of products on the territory assigned to him.
The supplier under the international distribution agreement is also responsible for:
- For the supply of goods in a certain amount.
- For high-quality informing the partner about the features of their products, pricing, ways to attract consumers, types of advertising.
- For timely reporting of possible interruptions in supply.
- For providing promotional materials at an affordable price and in the required volumes.
- For the observance of the monopoly right of the partner in sales in the territory assigned to it.
International distribution agreements are concluded in the country of manufacture. Their exclusivity involves the transfer of obligations by the supplier to the partner for the sale of goods to receive feedback and complaints from consumers. They are fixed on the labels of each product unit.
A sample distribution agreement with a foreign company is a framework document where the rights and obligations of the parties are described in separate paragraphs and can be changed in accordance with the applicable sales specifics.
Legal regulation
In Russia, distribution agreements have not received mandatory legislative consolidation.Therefore, in the matter of using ready-made forms of such agreements, it is better to turn to foreign legal practice.
The International Chamber of Commerce has developed a number of documents and standard forms that can be taken as a basis when concluding a distribution agreement (publication No. 518, ICC).
There are also explanatory documents for the preparation of such contracts (publication No. 441, ICC) - a detailed guide to the practical formation of the above documents.
Please note that both the supplier and the distributor are independent entrepreneurs in their own countries. And in trade relations, each of them is guided by its own jurisdiction (the legislation of the country where its business is registered).
The right of the supplier is the supply of goods and control over the actions of the partner in the territory allocated to him for sale. At the same time, the distributor in the agreement is considered as a professional intermediary who is a participant in the complex modern chain of the process of bringing the goods to the consumer, but observing their own commercial interests.
Item Details
A sample distribution agreement contains the following significant points:
- Names of the supplier (manufacturer) and its distribution partner.
- Definitions that will be used in the document (who is the distributor, partner, customer, what is included in the concepts of “production” and “territory”).
- Subject of the agreement - indicates the purpose of the contract for each of the parties: the supplier is obliged to transfer, and the distributor must pay for resale products to third parties (partners, customers) in a certain territory.
- Description of the order and delivery time.
- Obligations of the parties.
- Requirements for the quality of the goods.
- Settlement Rules.
- Responsibility of the parties, sanctions.
- Rules for concluding a contract (document exchange, transparency requirement, the need to audit distributor marketing technologies before the first delivery).
- Final clauses are usually a form of dispute resolution.
- Signatures of the parties.
- Annexes to the agreement: price list, pricing conditions for the sale of goods by the distributor, territory and distribution channels.
If the contract contains all of the above items, then it can be a document of wide significance and can be used, inter alia, as a supply contract.
In the form of an additional document
If necessary, the rights and obligations of the parties that are not regulated in the standard supply contract are indicated, the partners conclude another document. A sample distribution agreement for a supply contract is a document with fewer points.
As a rule, the following conditions are interesting, requiring separate explanations and understandings:
- Name of supplier and distributor. Description of their jurisdiction (based on the laws of which countries the activity is carried out).
- Significant definitions to be used in the contract.
- Securing the exclusive rights of the distributor in a certain territory.
- Obligations of the parties regarding the promotion of products, the use of trademarks, the volume of trade.
- Mutual sanctions for non-compliance with the contract.
- Dispute Resolution Rules.
The agreement may also provide for network activities when the distributor has the right to attract partners who are granted the right to work in any part of the territory and sales agents.
Domestic market
Distribution agreements in the domestic markets are often conditional in nature, occasionally fixing certain regions and distribution channels located on them to the supplier’s partner in sales.
These contracts are rarely exclusive, leaving the manufacturer with the exclusive right to manage marketing activity, deliveries to large consumer distribution channels and respond to complaints.
In domestic markets, selective distribution agreements are most often applied. They describe for a distribution partner:
- annual volumes of purchases;
- the size of the minimum consignment of goods in cash or in kind;
- the presence of fixed inventories in warehouses;
- types of work affecting the increase in turnover.
The distributor is also obliged to observe the interests of the manufacturer when using his trademarks, in every possible way contributing to the formation of a positive image of his supplier and the goods produced by him.
Under such contracts, a group of distributors has a competition for the supply of goods in small retail. The decisive factors affecting the choice of supplier by end customers are the proposed prices, financial conditions and the convenience of logistics.
Therefore, the purpose of such a distribution agreement between business entities is to limit price competition between homogeneous partners in the same territory.
Then the choice of one or another distributor by the end customers takes place in the plane of the accompanying important factors:
- quality of service;
- delivery speed;
- deferred payment terms;
Features of the return of products with expiring or illiquid.
Summary
Any distribution agreement is an example of regulating the activities of the parties after shipment of goods by the manufacturer and payment for it by the sales partner.
Such arrangements, set forth in writing, are beneficial to all participants.
It is more convenient for the manufacturer to work with one large client instead of many small ones - this protects against the risk of non-payment for goods, simplifies the process of transporting products to consumers, and improves marketing activity.
And the official distributor is easier to profit from their work, being protected from competition.
Therefore, the most significant points of the agreement are:
- territory of distribution of products;
- price policy;
- turnover volumes;
- sanctions of the parties to each other.
With the development of market relations around the world, international distribution contracts are gaining importance. They allow manufacturers to distribute their products over large territories through a small number of large companies with warehouse space and transportation. The additional vesting of such partners with trade obligations improves their commercial interest in cooperation, which is a significant factor for better product promotion on the market.