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What is a Dropship Arrangement?

Drop shipping is an arrangement between (i) a business and (ii) the manufacturer or distributor of a product that the business wishes to sell, whereby the manufacturer or distributor (rather than the business) ships the product directly to the business’s customers.

Key Issues to Consider

When setting up a dropship arrangement, there are some key issues that you need to discuss with the manufacturer or distributor. Most manufacturers or distributors you contact will be more than happy to speak with you, after all you are potentially going to be selling their products for them. When you call, simply ask to speak with someone about becoming a vendor for their products.

You should ask as many questions as you can including:

What is the wholesale price they can offer you on their products?

You will need to make sure the wholesale price they offer is low enough for you to be able to generate a good profit based on what you will be able to sell their products for.

Do they charge a handling fee for drop shipping? If so, how much?

Most companies that drop ship will simply add the cost of Australia Post shipping onto your wholesale price, but some will also charge you a handling fee. This is to offset their cost of picking, packing, and processing the order for you.

How do they ship their products?

Almost every company that drop ships products will use a major nationwide/international delivery service. Ask them to include tracking numbers with the order confirmations they send. This will save you many potential problems when customers ask “Where is my order?”

How do they bill you?

Most drop shippers will bill to your credit card the wholesale price of the product plus shipping and handling as soon as they receive an order from you. With others, you may be able to set up a monthly billing cycle where you submit payment for all orders at the end of each month.

How do they deal with product returns?

Be sure to find out what their policy is regarding returns. Most reputable companies will offer some kind of guarantee or warranty on their products and will deal with returns for you. This way, if a customer contacts you with a return, you can simply tell them the manufacturer will be happy to speak with them directly. If your manufacturer doesn’t accept returns, watch out! You’ll be the one stuck replacing defective merchandise for your customers.

Conclusion

Drop shipping is becoming more and more popular but there are some key issues to consider before entering into a dropship arrangement with a particular manufacturer or distributor.

If you do decide to enter into a dropship arrangement with a manufacturer or distributor, you should make sure you have a Dropship Agreement in place. A well drafted Dropship Agreement will set out the relationship between the business and the manufacturer or distributor, explain how products will be delivered, detail how each party will be paid and determine who is responsible for refunds. This will help avoid future disputes.

If you require a Dropship Agreement or have been provided with one and it contains provisions which you are unsure about, please get in touch with one of our specialist lawyers and they will be able to assist.

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