Friday, 15 January 2016

Agents versus distributors? What's the best option?

Business owners who appoint selling agents or distributors to act on their behalf must put clear rules in place to protect their assets.

Graham Davies from Martin-Kaye Solicitors, in Telford, said many businesses turned to intermediaries to boost their sales but the move could prove to be a complicated process.

“It’s vital that businesses are clear about which route they’re taking and whether the intermediaries they appoint are agents or distributors, as they two positions differ greatly,” said Graham.

An agent negotiates and signs up customers on behalf of a business, and is paid commission on the sales they make – usually on a percentage basis. A distributor on the other hand is essentially an independent contractor – the business sells its products to the third party who then sells the products on to customers of their own, adding a margin to cover their own costs and profit.

“By appointing someone else to handle your sales, you can benefit from an agent or distributor’s local knowledge and established trade connections. You can also save on the costs of having to set up your own sales operation. But you need to decide which set-up will meet the specific needs of your business most appropriately.”

Graham said there were a number of situations where an agency arrangement may be the best way forward.

“It will allow you to keep greater control of the terms of sale of your products, particularly the price, as you can retain the right to fix whatever prices you like. You will also be able to manage the agent’s decisions on which customers they choose to deal with, and there will be fewer competition law issues to contend with too.”

Graham said through an agency agreement, businesses can also maintain direct contact with their customer base.

“This is extremely important if your business offers bespoke work or highly specialised after-sales support that only you can provide as it keeps you in touch with the contacts you’ve worked so hard to build up. Typically the commission paid to an agent is also lower than the margin which a distributor will earn, so an agency deal will probably cost your business less in the longer-term too.”