Why a Sales Representation Agreement?
Signing an agreement with a sales representative formalizes the link between the representative and your company. It is strongly recommended when working with sales representatives in other countries to sign a sales representation agreement. This contract must define in details all the terms and conditions of the sales representation.
In this page we are going to define the clauses that your contract should contain. Not all clauses are mandatory; the agreement depends essentially on your industry, the products and services you sell, and the countries you are dealing with.
Attention: The clauses contained thereafter are only given as examples. Some clauses will not be applicable; they might sometimes be contradicting local laws. It is strongly advised to have your sales representation agreement reviewed by a lawyer who specializes in the country where you want to sell your products.
Definition of Parties and Date of the Agreement
Your company and the sales representatives must be clearly defined. It is usual to mention the name, address, and industry of the parties.
Here is a typical introduction:
This AGREEMENT is made as of the _[day]_ day of _[month]_, _[year]_, by and between __[name of sales representative]_ , whose address is _[address of sales representative]_, hereinafter referred to as “Sales Representative” and _[name of company]_ , whose address is _[address of company]_, hereinafter referred to as ” Company”.
WHEREAS, _[name of company]_ is engaged in the business of marketing and selling _[name of products]_, and
WHEREAS, _[name of company]_ wishes to engage Sales Representative to provide sales solicitation, installation, training and other services.
NOW THEREFORE, it is agreed as follows:
Territory and Products Definition
The sales agreeement must precisely define which products and services your sales representatives can sell. The agreement must also define the territory that the sales representative will cover.
You must determine if the sales rep is exclusive or not exclusive on the territory. You can also define the conditions upon which the sales representative is authorized to sell outside of his territory.
Company hereby appoints Sales Representative as an authorized __[exclusive / non-exclusive]__independent representative to sell and promote all services provided by Company in the following geographical area: __[geographical territory]__, hereinafter referred to as “Territory”.
In the case of an exclusive agreement, the following sentence will be added:
Sales Representative shall be protected in the Territory so long as Sales Representative adheres to the terms and conditions described herein.
If you wish to define sales outside of the territory defined in the agreement:
Sales made to corporations residing outside of the Territory are subject to the following commissions: __[define commission structure]__. Notwithstanding the foregoing, Sales Representative may not sell the Products outside the Territory without the express written consent of the Company’s _[person authorized to give consent]_.
You can also exclude certain types of products and services from the agreement:
This Agreement excludes the sale of the following products and services: __[define products and services excluded]__.
Independance of Sales Representative
Your agreement must clearly define whether the sales representative is an independant party or if he has any ties to your company. Below is an example for an independant sales representative.
In making this appointment, Sales Representative is and shall remain an independent contractor. This agreement shall not constitute a partnership, joint venture, co-ownership or otherwise. Sales Representative shall not create or assume any obligation on behalf of Company for any purpose whatsoever. Sales Representative is not an employee of Company and is not entitled to any employee benefits. Sales Representative shall be responsible for paying all income taxes and other taxes charged to Sales Representative on amounts earned hereunder. All financial and other obligations associated with Sales Representative’s business are the sole responsibility of Sales Representative.
If you want to empower your sales representative for some contractual aspects with the customer, you can use the section below:
Sales Representative shall not represent that Sales Representative has the power or authority to enter into any agreements or contractual obligations on behalf of Company unless Company provides a separate letter of authorization authorizing Sales Representative to execute agreements on behalf of Company.
An independant sales representative will be paid based on a commission structure. Be aware that if you offer your sales representative a fixed portion of payment regardless of sales, the sales representative can be considered an employee of your company. His statute will then be entirely different (he can for example sign contracts on behalf of your company, engage the responsability of your company, etc.)
Make sure also to mark the difference between a sales representative and a distributor. A sales representative is an intermediary that gets a commission on the sale of your products. A distributor buys your products and resells them. A distributor should not get a commission.
Nevertheless, it is common to find sales representatives that get a “double pay”: they get a commission on the sale, and they buy the product to resell it for a profit. These sales representatives get paid twice. Avoid them at all cost. The final price of the product is often outrageously expensive compared to the direct sales price. The end customers lose because they buy the product at a premium (and more often than not they figure it out). And your company’s credibility is on the line. The only winner is the sales representative, but he will probably not sell many products this way.
For a commission with a fixed percentage:
The commission shall be [xxx] % of the net selling price.
or for a variable commission depending on the price of the products:
Commissions shall be based on the following compensation schedule:
For net selling prices to Representative of up to [define threshold amount] , the commission shall be [xxx] % of the net selling price. For net selling prices above [same threshold amount as previous] , the commission shall be [constant sum corresponding to the commission earned for the threshold amount] plus [yyy] % of the amount above [threshold amount] .
Define precisely how commissions are calculated. For example:
Commissions shall be computed on the net amount of the invoice after deducting discounts, allowances, shipping charges, travel and living expenses for a field service representative, taxes, cost of collection if any, rebates, and returns. Commissions shall be payable on or before the 15th day of the month following the month in which payment is made by the customer.
Conflict of Interest
It is recommended that you include a non-competition clause in your agreement, so that your sales representative cannot sell products from your competitors. This clause is often non applicable to distributors, which can resell the products of competitors.
Sales Representative warrants to Company that it does not currently represent or promote any lines or products that compete with the Products. During the term of this Agreement, and for a period of _[define time period]_after its termination, Sales Representative shall not represent, promote or otherwise try to sell within the Territory any lines or products that compete with the Products covered by this Agreement.
Technical and Commercial Support
In the course of your agreement with your sales representatives, you will have to give them loads of technical and commercia data. In some cases you will even have to give or loan them a demo unit of your product. Your sales representative can ask you to include a clause mentioning that you are giving them these technical and commercial data and tools free of charge.
Company agrees to provide Sales Representative, at no cost, written materials relating to the Products necessary to support product promotion and sales efforts.
You will also have to provide technical and commercial offers to your sales representatives, so they can present them to their customers.
Company agrees to respond, at no cost and within reasonable time, to requests for price and delivery of the Products covered by this Agreement.
In order to help your sales representatives sell your products, you have to give them information about your markets and your clients. You also have to give them technical data on your products. Make sure you protect your interests by including a confidentiality agreement, so that the sales representative cannot communicate this information to your competitors. The confidentiality agreement must be valid at least for the duration of the contract, and it can also extend beyond the termination of the agreement.
During the term of this Agreement or within _[define time period]_ after its termination, Sales Representative shall not compete with Company, directly or indirectly, in the sale or promotion of products or services the same as or similar to Company’s products and services within the Territory. Under no circumstances and at no time shall Sales Representative disclose to any person any of the secrets, methods or systems used by Company in its business. All customer lists, brochures, reports, and other such information of any nature made available to Sales Representative by virtue of Sales Representative’s association with Company shall be held in strict confidence during the term of this Agreement and after its termination.
Trademarks and Patents
Make sure you protect your trademarks and patents in the countries where you commercialize your products. Trademarks in many countries are the property of the first person who registers them. Explicitly forbid your sales reps to register your trademarks or trademarks that could be confused with yours.
At no time during or after the term of this Agreement shall Sales Representative challenge or assist others to challenge Company’s Trademarks or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to those of Company.
Contract Duration and Termination
Your sales representation agreement must include a duration. It must describe how you plan on renewing it and how you can terminate it. Be aware that some countries have strict laws regarding the minimum termination notice.
Below is an example of a contract that renews automatically from year to year, with a 30 days termination notice:
This Agreement shall extend from the date hereof for a period of [duration] and, unless sooner terminated by either party, will continue from year-to-year thereafter. This Agreement may be unilaterally terminated at any time by either party with or without cause, by giving thirty (30) days written notice.
It can be useful to mention that the agreement cannot be transfered to a third party.
This Agreement is not assignable by either party without the written consent of the other.
It is suggested to include the following section, to clarify that the written contract is the only agreement in force.
This Agreement is the entire agreement between Company and Sales Representative. This Agreement supersedes all prior agreements and understandings, whether written or oral, of the subject matter contained herein. This Agreement may be amended only in writing by an authorized officer of Company and Sales Representative.
In the case where part of the agreement is ruled illegal by local laws, it is prudent to include a sentence mentioning that the rest of the contract remains in place. This is extremely important in foreign countries where local laws can differ significantly from the legal system you are used to.
In the event that any portion of this Agreement is found to be void, illegal or unenforceable, the validity and enforceability of any other portion shall not be affected.
It is recommended to include the following clause in your agreement, so that the sales representative does not pass on liabilities and claims from the customer to your company.
Sales Representative agrees to indemnify and hold harmless Company from any and all claims, demands, costs, expenses or liabilities, including reasonable attorneys’ fees, brought or imposed upon Company, relating to or arising out of any acts, omissions, fraud, misrepresentation or wrongdoing by Representative in connection with the performance of this Agreement.
The dispute resolution method must be defined. In particular the choice of mediation if it is preferred must be mentioned. The competent jurisdiction is an important question. It can be extremely costly to face trial in a foreign country. It is also hazardous to submit your contract to the laws of a foreign country.
Any and all disputes, controversies, claims, or other disagreements arising out of or relating to this Agreement or the actual or alleged breach thereof shall be finally settled through arbitration in accordance with rules of [the American Arbitration Association]. The arbitration shall be held in [State or Country] and shall be conducted under and in accordance with [the American Arbitration Association Rules] applicable to [State or Country]. Such arbitration shall be conducted in English and will be conducted on confidential basis in accordance with the terms of the Agreement.
This Agreement shall be governed by and construed according to the laws of [State or Country].