What is a distribution agreement?

Without a written agreement, a distributor relationship runs on habit and goodwill. That works until the first dispute about territory, price or who owns the customer.

This is a general explanation, not legal advice. A lawyer should review any agreement, especially one that crosses borders.

Why it matters

Selling through distributors puts another company between you and your customer. The agreement defines the deal: where they can sell, what they must buy, what you will supply and how either side can leave.

It also protects your brand. Without it, you may find the distributor selling your products in a market you promised to someone else.

What a distribution agreement usually covers

• Parties and products: who is signing and which products are included.
• Territory: the region or customer group the distributor may sell to.
• Exclusivity: whether the distributor is the only one in that territory (exclusive), or others may sell there too (non-exclusive).
• Term and renewal: how long it runs and how it renews.
• Pricing: the distributor's price list, discounts or rebates, and how price changes are announced.
• Minimum purchases: volumes the distributor commits to, and what happens if they fall short.
• Orders and delivery: how orders are placed, lead times and who arranges transport, often by Incoterm.
• Payment terms: when and how the distributor pays.
• Trademarks and marketing: how the distributor may use your name and materials.
• Support: training, samples, technical data and warranty handling.
• Termination: reasons and notice periods for ending the agreement.

Exclusive vs non-exclusive

An exclusive agreement gives the distributor the territory to itself. It encourages them to invest in your product, but it ties your hands. A non-exclusive agreement lets you appoint others, but a distributor may give your line less effort.

A cautious way to start is non-exclusive, or exclusive for a short first term with a minimum purchase target, then renew if it works.

An example from product sales

Say a coatings manufacturer signs a one-year agreement with a distributor for a neighbouring country. The distributor gets exclusive rights in that country, a price list at a fixed discount and the right to use the brand in its catalogue. In return it commits to buy a minimum volume, report on sales each quarter and keep a sample range on hand. If it misses the minimum, the manufacturer can end the exclusivity.

Related terms

• Incoterms: who arranges and pays for delivery to the distributor.
• Customer price list: the prices the distributor buys at.
• Volume rebate: a discount linked to the quantity bought.
• Sales territory: the area the agreement covers.

To find and choose partners before you sign, read how to sell through distributors.

How PromptLab handles it

The agreement itself is drafted and signed with your lawyer. PromptLab keeps the working relationship together: the distributor as an account, with the signed agreement on its Files tab, custom fields for the terms you check often, such as the territory and the renewal date, a task before each renewal, its customer price list and sales orders, and email, WhatsApp and Telegram in one Inbox.

Frequently asked questions

What is the difference between a distributor and a reseller?

A distributor usually buys in bulk from a supplier, holds stock and sells on to resellers or end customers. A reseller often buys smaller amounts and sells to end customers. The terms overlap, so the agreement should define the role.

Does a distribution agreement have to be exclusive?

No. It can be exclusive, non-exclusive or exclusive for a set period. The choice depends on how much you want the distributor to invest and how much freedom you want to keep.

How long should a distribution agreement last?

There is no standard length. Agree a fixed first term with a clause for renewal. A shorter first term lets both sides test the relationship before committing for longer.

What happens if a distributor misses the minimum purchase?

That depends on the contract. Common outcomes include losing exclusivity, a price change or termination. Write the consequence down so there is no argument later.

Do I need a lawyer for a distribution agreement?

It is wise to have one, particularly for international deals, where local laws on exclusivity, termination and competition can differ.