Many businesses reach the point where they have to consider in which way to best expand its market share and reach. In many industries, a customer and supplier arrangement are sufficient, but in others different arrangements such as agency or distribution are preferred.
So, the question is – what is best and when?
Well, to a large extent I suppose it depends on industry, the vision of the business and how quickly you wish to scale.
1. Supplier / Customer
This is a typical arrangement of a willing buyer willing seller. In most instances this is the typical way in which business is run or at the very least to a large degree this is the starting point. Clients or customers are typically engaged by agreement usually a form of terms and conditions or perhaps even an agreement detailing credit.
An agency agreement could either relate to an individual or an organisation. This means an individual or a business could represent the supplier of the goods or services and earn a commission or remuneration for their efforts to sell the goods or services.
In this context an individual is often referred to as a “rep”, which is a typical arrangement for wholesalers marketing products to retailers. In many instances these agreements do not constitute employment contracts and further, the agent does not buy and on-sell the products.
The agent usually refers orders to the supplier and therefore is cost effective for both parties and further limits risk. This also means that the supplier benefits from a relatively low input cost and commitment but increased sale. An important portion of an agreement such as this is that the agent has certain powers in representing the supplier. It is therefore of crucial importance that the agent’s powers are constructed in such a way as to serve the needs and best interests of both parties.
A crucial difference between agency agreements and distribution is twofold – one: that the distributor does not have any power of representation as an agent would typically have. Secondly, that the distributor usually purchases the goods / products from the supplier and then stores, transports and sells, as the case may be. In most cases these agreements are confined to goods.
It is therefore important for the business to assess what would sell the most products or services in the shortest space of time. Then to seek professional advice to construct the most suitable agreement.