If you sell goods in bulk at wholesale prices to your customers, then you should have a wholesale agreement in place. A wholesale or supply agreement should set out the terms on which you will supply goods to your customers. Typically, wholesale deals are extended to customers who intend to purchase a larger volume of goods from you than other customers. This is because they might want to resell them to retail customers or because they plan to use them on a large-scale project. For example, you may sell large volumes of tiles or bricks to builders for them to use in their construction projects. For this reason, the wholesale agreement should reflect the deal you are offering and your expectations in return. This article will explain the key terms you should include in your wholesale agreement.
What is a Wholesale Agreement?
A wholesale agreement is a document that sets out the rights and responsibilities of the parties to a wholesale transaction. It involves instances where one party is supplying wholesale goods to the other. If you are selling goods on a wholesale basis, you should have a legal professional prepare a wholesale agreement to protect your interests. Having an agreement in place ensures mutual clarity on the agreed terms. Further, it should:
- reduce the likelihood of disputes; and
- protect your business in the event of unexpected circumstances.
Essential Terms to Include in Your Wholesale Agreement
There are several terms you should include in your wholesale agreement to ensure your business is protected.
1. Orders and Deliveries
Your wholesale agreement should clearly outline how customers can order goods. The process for placing orders can vary in formality from customers putting in orders:
- over the phone;
- through an email; or
- through a purchase order form that you have provided.
The order should specify:
- the particular goods being purchased;
- the volume of goods;
- the purchase price; and
- delivery details, including timeframes.
Documenting orders in writing and ensuring both parties agree is helpful for clarity. For example, the last thing you want is to deliver a customer 1000 tins of paint and for the customer to claim they only wanted 500, which would result in financial loss for your business.
2. Minimum Order Quantity or Minimum Order Value
To incentivise customers to order in bulk, suppliers often promise cheaper, discounted pricing. This strategy encourages customers to enter into a long-term contract or an exclusive relationship with you.
When offering discounted prices for your customers, you should ensure that customers are committed to ordering substantial quantities of your goods. This is why you should consider asking your customers to agree to a minimum order quantity, such as:
- ordering a specified number of units per month or year; or
- a minimum order spend, whereby the customer needs to purchase a certain amount of money with you over a specified period.
Both parties can benefit from this arrangement, as it ensures a lower price point for the customer and means you will get a worthwhile return.
3. Exclusivity
Another strategy to ensure that your customers are guaranteed to purchase a sufficient amount of goods from you is to become their exclusive supplier. This means that they cannot purchase the same type of goods from any other supplier.
You can achieve this by including an exclusivity clause in your wholesale agreement. An exclusivity clause usually sets out geographical limits and a timeframe for which the exclusivity applies.
4. Contract Duration and Termination
If you are offering customers favourable pricing, then you will want to ensure they are long-term customers. You can achieve this by setting out the contract’s length in the wholesale agreement and not allowing the parties to terminate early for their own convenience.
5. Pricing
The wholesale agreement should set out how you calculate the price of goods. In many wholesale arrangements, you may agree to a pricing list to maintain consistent prices during the length of the agreement. In other cases, you can adjust the prices throughout the term as necessary.
When setting fixed prices, you should consider the length of the contract. You should also consider if it is commercially favourable for you to lock in prices for such an extended period, particularly if there are likely going to be cost increases for materials over the same timeframe.
If this is the case, you could include an annual price review in the wholesale agreement. Alternatively, you could reserve the right to increase prices in response to factors beyond your reasonable control. Importantly, you should allow the other party to exit the agreement if they do not agree to the price increase. Otherwise, it could be considered an unfair term.
6. Payment Terms
The wholesale agreement should also include clear payment terms so that you can ensure the customer pays you on time. If you are receiving payment upfront, then you simply will not ship the goods until you have received payment. Other arrangements may require a deposit upfront and the remainder paid upon receipt of the goods. Therefore, make it clear when payment is due. Further, you can charge interest for delayed payment or require that the customer return the goods if they do not pay for them.
7. Intellectual Property
The wholesale agreement should ensure that you are not transferring the ownership of your intellectual property (IP) to the other party, and instead, you are providing them with a licence to use your IP. For example, you can provide your customers with a restricted IP licence to use your:
- branding;
- logos;
- trade marks; or
- marketing materials to promote your goods.
Key Takeaways
Wholesale agreements are essential for any business supplying goods on a wholesale basis. They ensure that both parties to the agreement are on the same page, which can help minimise the chance of a dispute arising. As you are often providing customers with discounted pricing or benefits for ordering on a wholesale level, you must consider various ways to secure mutual benefit from the arrangement. This can include strategies such as:
- including minimum order quantities or volumes;
- establishing exclusive arrangements;
- price variation mechanisms to address market changes;
- defining the length of the contract;
- outlining each party’s termination rights; and
- specifying IP terms.
If you would like assistance preparing terms and conditions for your wholesale business, our experienced business lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A wholesale agreement is a document setting out the rights and responsibilities of the parties to a contract involving a party supplying wholesale goods to the other. A wholesale agreement is a good idea if you are selling goods as a wholesaler so that both parties know what has been agreed.
The six key terms should cover orders and delivery, minimum order quantity or value, exclusivity, term and termination, pricing and payment terms. These will ensure parties are on the same page and will help minimise disputes.
A minimum order value is when the customer must spend a certain amount of money with you over a certain period of time. This ensures that customers who get cheaper pricing will order substantial quantities.
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