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What is Drop Shipping?

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.

What are the advantages of Drop Shipping?

For a business, the advantages of drop shipping are as follows:

  • You do not need to develop or produce products, which can be extremely costly.
  • You do not need to build your own inventory, which is costly and ties up your cash in inventory which you may or may not be able to sell.
  • No inventory means no leftovers. If the product you sell suddenly becomes outdated or obsolete, you are not the one left with a warehouse full of inventory that nobody wants. You do not have to offer heavy discounts, or take huge losses, on these products just to get them out of your warehouse to make room for new inventory.
  • You will be able to add new products to your website almost instantly, since you do not have to worry about stocking inventory.
  • You do not need to track your inventory.
  • You do not need to set up warehouse space.
  • You do not need to maintain a confusing shipping or receiving infrastructure.
  • It allows you to sell quality, brand-name products for a hefty profit, while someone else looks after product development and order fulfilment.

Conclusion

Drop shipping is becoming more and more popular. Indeed there are many advantages from a business perspective. If you are looking 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 specialised lawyers and they will be able to assist.

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