What is an agency? What is a distributor? What are the differences between agents and distributors? What are the rights and responsibilities of an agent? What are the rights and responsibilities of a distributor?

rectangular brown wooden table
rectangular brown wooden table

Agents and distributors

When you are a producer or a manufacturer, you will be influenced by a variety of different commercial considerations. Let’s assume that you are thinking about investing in a market that you are new to. There are couple of things you can do. What would you do first? What would be the best way to start your investment? Let’s assume that you have a software you created. What would you try first?

You would directly try to market it yourself so you can sell it yourself. Agents and distributors work best either for temporary solutions or getting to know the market.

A producer which sells distributes it’s goods or services directly on the market itself (vertical integration) it decreases the risk of competition.

A distributor doesn’t act on behalf of and in the name of the principal(of the producer in this case) . So they aren’t considered a single entity. Therefore, by nature they may compete with each other. Example: Turkish Competition Authority says that, a competition restriction cannot be more than 2 years. Agents aren’t subject to competition law in this perspective.

Agents represent the principal. So when you look at a contract that’s executed by agent, you would see that parties to that contract would be actually principal (you as producer) and agent’s would not be on it. It would be only executing it on your behalf and in your own name.

Agent has no liability to the customer for the goods or their actions. That is not to say that agent cannot held liable. Who could hold an agent liable? Who could sue an agent? The principal.

Distributor unlike an agent, acts on it’s own behalf. It takes on the product risk because customer can always go back to the distributor.

An agency agreement is a service agreement. An Agent is a self-employed person (independent), who undertakes for a limited or an unlimited period to negotiate the sale or purchase of goods or conclude transactions in the name and on behalf of the principal, in exchange of commission. What would you include in the agency agreement for sure? Let’s assume you are the agent, what would be the most important for you in the agency agreement? Commission payments. Another thing is the territory.

From the perspective of producer, advantages of agency agreement would be: You are still in control over everything. You have total control over your branding, because you are responsible for all marketing and promotion. You pay for them and you design them. Agent isn’t contributing to financially to any marketing or distribution or promotion of the product.

What are the disadvantages of appointing an agent? Since principal is in control over everything, product liability will be directed to you. Since principal is in total control for all marketing and promotion, principal will pay for everything. You cannot share marketing cost etc.

Whatever disadvantages you have in an agency agreement, those will be the advantages for a distributor.

Once the supplier sells the distributor, then the distributor resells that product in it’s own name and in it’s own behalf. There is no risk of collection of payment for supplier in distribution agreement. In a distribution relationship producer has only one customer. And that customer is the distributor. There is no risk of non-payment. Supplier has no customer portfolio. If the customer doesn’t pay then it is distributors problem.

What is the downside of distributors? It’s the fact that principal ends up with only having one customer.

When you have an agency relationship at the end of the agency relationship, you still have all the customers. Because all those agreements were made between you and the customer. In a distribution relationship, when it ends you are left with only one contact.

The principal doesn’t have full control over selling process. It doesn’t have full control on marketing promotion. The cost of selling your product through a distributor can be expensive.