You’ve got a great product and an even better promotional strategy to introduce it to the world. What next?
You need a distribution system – one that will help move your product to your end-users.
If you’re just starting or scaling up your business, you may wish to consider engaging an agent or distributor to promote your goods and services.
How do you go about choosing an agent or distributor? Moreover, what’s the best option?
In this article, we outline the differences between an agent and a distributor, as well as the pros and cons of doing business with each trading partner.
This article at a glance
Appointing an agent or distributor can be an effective way to grow your revenue internationally. Agents sell on your behalf and give you more control over your product. Distributors are resellers with extensive knowledge of local markets. Choosing the right option depends on your way of doing business, your knowledge of your chosen overseas market and your budget.
What is the difference between an agent and a distributor?
These terms may sound similar, but they’re not quite the same.
An agent is a sales facilitator appointed by you, to make direct sales on your behalf or introduce customers to you. The agent has the authority to negotiate and sometimes enter into contracts on your behalf.
Depending on how you set the relationship up, some agents may even provide post-sale customer service. You will then have to pay the agent a fee or a commission for the services. However, since the sale contract is between your company and the customer, all legal ramifications will be borne by you.
A distributor is essentially a reseller who purchases goods or services from you, reselling them for profit to end-users. This means that the sales contract is between the distributor and your company, and subsequently between the distributor and their customer. A distributor earns profit from the sales they make. They also tend to hold stock and have more legal liability in their transactions with customers.
How should I choose between an agent and a distributor?
Choosing between an agent and a distributor can be confusing. Let’s weigh out the pros and cons for each trading partner:
Appointing an agent could be beneficial if you want to:
- Bring down your costs – an agent’s fee or commission may be lower than a distributor’s
- Maintain greater control of the distribution channel from the market to end users, since your company will be the one in a legal contract with the customer. This also allows you to have a direct relationship with your customer for after-sales services
- Incentivise your agent – an agent earning a fee or commission on sales may be more driven compared to a distributor
Choosing this form of trade partner is not without its drawbacks:
- You are legally bound to an agent to a degree. When it comes to an agreement termination, agents can be eligible for compensation even if they breached the agreement
- Challenging to keep the agent’s daily activities in check and ensure they constantly work hard on your behalf
A distributor could work better for you if you want to:
- Reduce the risk and cost of expanding into new markets or products
- Make use of the distributor’s reputation, local knowledge and experience to sell
- Avoid administration of several customer relationships for different markets/ products, and only maintain one relationship with the distributor
- Avoid incurring the costs of expensive retail premises to access overseas markets
Appointing a distributor also has its disadvantages:
- You will have less control over a distributor’s activities compared to an agent’s
- Unlikely for you to form a direct relationship with your end-users
How do I go about selecting an agent or a distributor?
Step 1: Establish potential agents or distributors
It’s crucial to identify potential agents or distributors before you form an agreement with them. A bad match can result in a significant amount of time wasted to resolve any disputes.
To find potential agents or distributors, the Department of International Trade (DIT) has a network of bilateral Chambers of Commerce. Additionally, the British Chambers of Commerce can also help you source an agent or distributor.
Other service providers including banks, lawyers and accountants can also provide you with assistance.
Step 2: Assess your needs and shortlist po›tential trading partners
Your chosen agent or distributor will be in charge of representing your product, so you must make sure they have the right skills set, knowledge, and skills to represent you.
Think about what you need from your trading partner. What are some qualities that you value? Is it that they take the initiative, and are someone you see forming a long-term relationship with? Are they well-connected, professional, and well-acquainted with your sector?
To find out more about your trading partner, you can do your research online, and enquire with trade associations or other suppliers in your sector. Check on the following:
- Your potential trading partner’s reputation and experience
- The geographical coverage they can offer
- References from existing suppliers
- Knowledge of your sector
The chances of success are higher if you take charge of identifying trading partners in the market. The unsolicited requests that you get through social media, email, or trade exhibitions may not necessarily be a good fit – knowing what you want will steer you in the right direction.
Step 3: Draft an agency or distribution agreement
Safeguard your rights by getting a legal firm to draft an agreement. Remember to check against the local laws of where your trading partner is based.
There are different types of agreements, such as:
- Exclusive – only the agent or distributor represents the supplier. In this instance, the supplier is not allowed to enter into contracts with other agents or distributors
- Sole rights – the supplier is not allowed to appoint other agents or distributors. However, the supplier can contact customers directly
- Non-exclusive – the supplier can engage other agents or distributors. The supplier can also contact customers directly.
Other basic terms that should be discussed with your lawyer and specified in your agreement include:
- The jurisdiction
- Duration of agreement
- Sales targets
- Commissions rates
- Payment terms
- Products or services covered
- Intellectual property
- Name and logo usage
- Dispute resolution
Step 4: Work closely with your trading partner to establish rapport
After the initial collaboration period, some issues may surface. These could be due to a lack of support from the exporter, or a lack of information about the target market and end-users. When it comes to margins, commissions, and prices, disagreements and misunderstandings may arise too. This is why it’s so important to establish rapport – it benefits both parties. Some actions you can take include:
- Roping in your trading partner in the planning process for marketing development
- Asking for their input on sale targets based on industry and geographical region – allows you to keep tabs on their progress and review performance
- Having frequent communication. Check with your agent or distributor on their preferred mode of contact, and have regular check-ins
Maintain a successful long-term friendship with your trading partner
When it comes to selecting an agent or a distributor, think of it as a long-term partnership. Engage in frequent communication and feedback, so you can both work towards your business goals. Most importantly, don't forget to clarify the payment arrangements.
Get paid fast with Silverbird – you can invoice your European or US customers to your EUR/GBP/USD account with a local International Bank Account Number (IBAN). Need to carry out an urgent transfer to your supplier? No problem – Silverbird lets you execute fast and easy international transfers from your account to your suppliers' accounts in other countries around the world.
Doing business across borders doesn’t have to be a headache. Get your Silverbird account by signing up today.
Author: Melissa Yeo
Illustration: Kate Faldina