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If you sell goods in bulk at wholesale prices to your customers, then you should have a wholesale agreement in place. Sometimes referred to as a supply agreement, your wholesale agreement should set out the terms on which you will supply goods to your customers. Generally, if you have customers that you have offered a wholesale deal to, this is because they intend to purchase a larger volume of goods from you than other customers. 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 good deal you are offering and the expectations you have in return. This article will unpack 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 contract. It involves instances where one party is supplying wholesale goods to the other. If you are selling goods on a wholesale basis, it is a good idea to prepare a wholesale agreement. This is so that both parties are very clear on what has been agreed. Further, it should:

  • minimise the chance of a dispute arising; and
  • protect your business on the chance that something does go wrong.

6 Essential Terms to Include in Your Wholesale Agreement

1. Orders and Deliveries

Your wholesale agreement should very clearly outline how customers should order goods. Orders can range 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 set out:

  • what goods they are purchasing;
  • the volume of goods they are purchasing;
  • the purchase price; and
  • delivery details, including timing. 

Having the order in writing and ensuring both parties have agreed to it is helpful for clarity. The last thing you want is to deliver a customer 1000 tins of paint and for the customer to claim they only wanted 500, putting you out of pocket.

2. Minimum Order Quantity or Minimum Order Value

To entice customers to order in bulk, suppliers often promise cheaper pricing. Additionally, this encourages customers to enter into a long contract or an exclusive relationship with you. If you are going to promise cheaper pricing for your customers, it is important to ensure that the customer will actually order substantial quantities of goods from you. This is why you should consider asking your customers to agree to a minimum order quantity, such as:

  • ordering a certain number of units per month or year; or 
  • a minimum order value, whereby the customer needs to spend a certain amount of money with you over a certain period of time.

This is beneficial for both parties, as it ensures the lower price point for the customer, and means you will get a return for offering such a good price. 

3. Exclusivity

Another way to ensure that your customers 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 that they agree with you from any other supplier. Therefore, it is forcing them to only purchase from you.

You can achieve this by including an exclusivity clause in your wholesale agreement.

4. Term and Termination

If you are offering customers a good deal on their pricing, then you will want to lock them in to be long term customers.

You can achieve this by setting out the contract’s length in the wholesale agreement and not allowing the customer to terminate early for their own convenience. 

Coupled with minimum order quantities or minimum order values and exclusivity provisions, this should give you confidence that you will have lots of business going forward. Additionally, it should allow you to estimate the relationship’s value.

5. Pricing 

The wholesale agreement should set out how the price of goods is to be calculated or communicated to the customer. In many wholesale arrangements, you may agree to a pricing list. This aims to lock in prices for the duration of the term. In other cases, you may be able to adjust the prices throughout the term as you wish. 

If the prices will be locked in, you should consider the length of the contract. You should also consider if it is commercial for you to lock in prices for such a long period. Another concern is whether anything could happen to result in it costing more for you to produce the goods.

For example, a change in the law or a new tax being introduced that increases the cost of you producing the good.

If this is the case, you could include an annual price review in the wholesale agreement. Alternatively, you could give yourself a right to increase prices if the increase is due to a factor beyond your reasonable control.

6. Payment Terms

The wholesale agreement should also include payment terms so that you can ensure you will be paid. If you are receiving payment up front, then you simply will not ship the goods until you have received payment. However, if you are providing the goods on credit and allowing the customer a longer period to pay (such as 60 or 90 days) the transaction is riskier. Therefore, you will want to make it clear when payment should happen. Further, you can charge interest or require that the customer returns the goods if they do not pay for them.

If you are providing goods on credit, you should also seek advice on whether you require a credit application form and privacy advice.

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 better pricing or benefits for ordering on a wholesale level, it is important to consider various ways to ensure that you will benefit from the arrangement. This can include strategies such as:

  • including minimum order quantities or volumes; 
  • exclusive arrangements; 
  • price variation mechanisms; 
  • the length of the contract; and 
  • each party’s termination rights. 

If you would like assistance preparing terms and conditions for your wholesale business, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a wholesale agreement?

A wholesale agreement is a document setting out the rights and responsibilities of the parties to a contract involving a party is 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.

What terms should be included in a wholesale agreement?

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. 

What is a minimum order value?

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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