Are you trying to broaden the reach of your products and increase sales revenue? If so, you may want to engage a reseller to purchase your products and sell them on to third parties or customers. However, you will need a reseller agreement to outline the legal relationship between your business and the reseller. This agreement will ensure that you benefit from the arrangement and protect your business. Therefore, this article will look at five critical terms required in a reseller agreement to protect your business.

1. Payment Terms

You want to ensure you clearly outline your payment terms. Although there are various ways to structure your payment terms, the main objective is to ensure that you are protected. You may want to consider whether to:

  • require a deposit to be made upfront, followed by the remainder of the payment upon delivery of the goods;
  • charge interest on unpaid goods; or
  • include a fee for late payment of invoices.

These strategies will ensure that your business does not bear any unnecessary payment risk.

2. Minimum Order Requirements

You may want to require that resellers order a certain volume or value of stock each month. This requirement will ensure that the reseller arrangement is worthwhile and that your products are receiving public exposure. You can enforce order requirements by imposing a penalty if the reseller does not order the specified volume. 

If you are in an industry where demand for your goods fluctuates between seasons, you may want to reflect this in your minimum order requirements. 

For example, a business that sells swimwear might have lower minimum order requirements in winter months.

3. Reseller Delays

You must protect your business from delays. Issues may arise if your manufacturer does not deliver your products when they are due, because of delays in their production schedule. 

You need to ensure that your business is not responsible if these delays affect the delivery of products to your resellers. You can achieve this by stating that your delivery time frame is an estimate only, so that you will not be accountable for any delays that occur.

4. Consumer Guarantees

You should clearly outline who is responsible for resolving customer complaints of faulty products. In Australia, if one of your products fails to meet a consumer guarantee, then the consumer has the right to ask for a: 

  • repair;
  • replacement; or 
  • refund.

However, a party that purchases a product solely for the purpose of reselling is not covered under the consumer guarantees. Here, it is crucial to understand your potential obligations to any customers that the reseller has sold your product to. If your product is faulty due to your company’s actions, you may need to replace it for the customer.

5. Delivery, Risk and Title Agreement

The title in ownership over goods will only pass once payment has been made in full. This means that the reseller will become a legal owner of your products once they have fully paid for it. This concept of title is separate to risk, which relates to responsibility for the goods

For example, you could require a 30% upfront payment for the delivery of 100 shirts. A clause could provide that you retain title of the goods until the remaining 70% has been paid. You may also include clauses that transfer risk over the t-shirts to the reseller upon delivery.

You should consider these issues while deciding on your payment terms.

Key Takeaways

It is vital that you carefully draft your reseller agreement terms to protect your business against unnecessary risk. You should set payment terms and minimum order requirements that reduce the risk of your business bears in reselling arrangements. The agreement should also account for delays, consumer guarantees and the delivery, risk and title of goods so that you are not held responsible for faults and damages caused by external parties or the reseller. If you are looking for assistance preparing a reseller agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

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