Do I really need a contract with my distributor? I’m just a small business.

The answer is YES – regardless of your size.  Keep in mind that franchise protection laws were written as a result of distributor lobbying efforts.  They were not written for supplier interests.

A contract is your only form of protection against laws that are designed to protect distributors – not you.  In a contract you can establish what you expect of a distributor with regard to payment terms, market coverage, levels of expected performance for total sales, as well as, e.g., by account coverage, cold box placements, and sales by product/brand.  You can also request any reports you expect on a timely basis (e.g. depletion reports) and any other issues of importance to you and your business.

In the absence of a contract covering the above points, and many others, your ability to replace a non-performing distributor in a franchise protection law state, without penalty, is slim at best – unless you are willing to pay for the privilege of leaving a distributor that failed to perform for you.

With a contract that spells out expected performance on both sides, a non-performing distributor may be subject to termination for cause – your best exit strategy– depending upon the strength of your contract.

Do you need a contract?  YES – ABSOLUTELY.

 

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Vincent Obrien