Agency and Distribution
When setting up a relationship with an intermediary, a supplier will need to decide whether he wishes to appoint an agent or a distributor. So what is the difference?
An agent will represent the supplier when seeking, negotiating and concluding contracts with the ultimate purchaser of the goods. Even though the ultimate purchaser may deal principally (or even exclusively) with the agent, the contract created will be between the supplier and the ultimate purchaser. In this circumstance, the agent will usually take a fee (in the form of a commission payment) for each contract concluded and the risks, financial and commercial, will be borne by the supplier.
Conversely, a distributor will buy the goods from the supplier and then re-sell them to the distributor's own customers, with the return the distributor seeks from the arrangement represented by whatever profit he can make on the re-sale.
Agency and distribution compared:
It is important for a supplier or manufacturer, when considering how best to market, sell or distribute his products, to be aware of the difference, both in legal and practical terms, between appointing an agent and appointing a distributor.
An agent will represent the supplier when seeking, negotiating and concluding contracts with the ultimate purchaser of the goods. Even though the ultimate purchaser may deal principally (or even exclusively) with the agent, the contract created will be between the supplier and the ultimate purchaser. In this circumstance, the agent will usually take a fee (in the form of a commission payment) for each contract concluded and the risks, financial and commercial, will be borne by the supplier.
Conversely, a distributor will buy the goods from the supplier and then re-sell them to the distributor's own customers, with the return the distributor seeks from the arrangement represented by whatever profit he can make on the re-sale.
Agency and distribution compared:
| Agency | Distribution | |
| Control over price and other terms of sale | Yes | No |
| Ability to dictate choice of customer | Yes | No |
| Direct contact with customer | Yes | No |
| Close control over marketing | Yes | No |
| Ability to offload financial risk of consignment stock | No | Yes |
| Lower commission payable | Yes | No |
| Compensation for termination payable | Yes | No |
| Simpler tax position | No | Yes |
It is important for a supplier or manufacturer, when considering how best to market, sell or distribute his products, to be aware of the difference, both in legal and practical terms, between appointing an agent and appointing a distributor.
Agency
Because an agent is only an intermediary, he or she is generally not a party to the contract between the principal and the principal's customer and will not have rights or obligations under it...
Distribution
Distributorship arrangements are typically used as a low risk means of expanding business into new markets or territories...