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Formulating an Independent Manufacturers’ Sales Representative Agreement

Updated on September 18, 2009

Many sales reps work without any formal sales agreements, using just a hand shake as their “agreement”.  Others use the sales rep agreement supplied by the companies they are representing.  Each method works when formalizing your relationship with a potential vendor.  In my case, I believe in the old saying:  “Good fences make good neighbors”, so to avoid confusion or assumptions, I found it helpful to spell everything out in the beginning.  If you don’t, you may end up wasting valuable sales time negotiating and clearing up problems and issues that could have been solved with a written sales agreement.

Items to Address in an Agreement

The first system to implement in your new business is a standardized or template sales agreement form.  Here are some of the points you need to cover in your template form:

1.  Territory.  List the cities, states or regions where you plan to sell.  A manufacturer needs to know as much specific information as possible about your territory before he is willing to contract your services.

2.  Type (s) of accounts you intend to service.  As a gift sales rep, list in your agreement that you intend to service gift accounts as this differentiate you from a sales rep (broker) for grocery or any other industry.  In this section, also list when and how these orders are taken (i.e. via the rep, the internet, direct contact with the customer and vendor etc.)

3.  Exclusive representation.  List clearly if you request an exclusive agreement in your designated territory.  Exclusive representation bare any other sales rep hired by this vendor to sell in your territory.  Also, list what to expect if someone else sells in your territory or if you happen to sell to a customer in a territory not listed in the agreement.  This scenario happens if you or other sales reps sell via gift shows or via websites or if the vendor has not been specific in their territory limitations with you or any of their other sales reps.  Also, vendors may have a “house account” list that they wish to retain and service in your territory.  Make sure to include this list in the agreement.

4.  Commission amount and payments.  Agreed upon commission percentages are listed as another line item with instructions as to when and how they are to be paid.  Will you be paid on orders or will the vendor pay after he receives payment?   Don’t assume that vendors will automatically pay you in a timely and organize manner if it is not listed specification on the agreement.  Also, you, as a sales rep, need to keep track of all your commissions due from each company your represent.  You would be surprised how many commissions and payments come up “missing” and reappear after you inquire!

Having a section addressing how or if commissions will be paid if an account is turned over to collections, is helpful.  Each vendor handles this differently choosing to not pay a commission, pay part of a commission or paying the whole commission upon collection of an overdue account.

5.  Terms of sale.  You need a section clearly stating the terms that you sell to the buyer.  Leaving this part of the agreement as an open form is helpful as every vendor has different terms of sale.  Vendors should also be responsible for lost or damaged items and for shipping, invoicing and collections on the orders you take for them.  Since your commission is often based on payment made by the buyer, consideration needs to be made for procedures on lost of damaged items.  I found it helpful to use an entire sheet just to list the specific terms per vendor (listed later in the chapter).

6.  Samples.  Most vendors supply sample to you at no charge, but this item needs to be addressed in the agreement.  Buyers may request samples (especially if it is a food item) and a vendor may limit or impose certain stipulations on how and when samples can be given to potential buyers. 

7.  Product literature.  You need to be informed if the vendor has catalogs or product literature you can leave with potential buyers.  These, too, should be supplied at no charge to you and your buyers, but it is good to address this in the agreement. 

8.  Incurred expenses.  Independent sales reps usually pay their own expenses for gas, lodging, meals, etc.  But other expenses may be shared or paid by the vendor such as trade show expenses or special advertising, etc.  Add a line item to your sales agreement to address these potential extra expenses and how they will be handled.

9.  Default or dissolution.  Be sure to include a section listing what happens when you no longer rep for a vendor.  How long will commission be paid to you, what happens to any samples, etc.  An extra section addressing what happens if a vendor does not pay your commission is important as these issues come up later.

10.  Changes to the agreement. Make sure to note that the agreement may be altered ONLY by written notification by either party.  This stipulation will avoid any confusion over verbal comments or agreements.

11.  Signatures and date.  Designate a spot at the bottom of the agreement for both you and your vendor to sign and date the agreement.

The Rep Agreement is a negotiated process between you and your future vendors.  Treat this agreement as a business partnership contract.  Sometimes a mutual agreed upon arrangement is more important than specific line items on the agreement or contract.  You will spend much time working together as a team.  The relationship you establish in the beginning is often a forecast of your success in working together over the months and years. 

Facilitate your negotiations, if you can, by visiting personally with your potential vendors while finalizing your sales agreements.  A lot can be learned interfacing with your vendor face-to-face. Sometime a smile and a handshake go along way when working towards a business partnership.  Agreements can be worked out via the phone, mail or email when it is not possible to personally visit the vendor.  Many of my first agreements were negotiated affectively in this manner.

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