Drafting an International Sales Agreement

By John J. Capela

When you’re figuring out your role in the export business, you have two main options. You can structure your business as one of the following:

  • Distributor: A distributor is an independent company that purchases products from a supplier, takes title to them, and resells them. A distributor purchases products at a negotiated price and is compensated by selling them at a higher price.

  • Sales agent: A sales agent does not purchase goods from the supplier. Instead, the agent finds customers and solicits offers to purchase the product from the supplier. An agent, who does not take title to the goods, earns a commission.

If you’re set up as a distributor, the provisions of your international sales agreement should include the following:

  • Territory and exclusivity (if possible): The agreement should specify the countries in which you’ll be allowed to sell the goods. The supplier can set limits on where you may be able to sell.

  • Pricing: Include the price the supplier will charge, the terms and conditions of sale, and what the method of payment will be.

  • Minimum purchase quantities: In most distributor agreements, the supplier expects a commitment for a significant quantity to be purchased. Before a distributor provides an exclusive arrangement in a territory, a provision for minimum purchase quantities is included in the distributor agreement.

  • Restrictions on handling competing products: Normally, a supplier in a distributor agreement wants to include a provision that the appointed distributor won’t handle competing products. This is especially true if the supplier grants an exclusive right of distribution.

  • Effective date: The agreement should specify the date it will become effective, as well as the expected duration of the agreement and the procedures for modifying, extending, or terminating the agreement.

  • Use of trade names, trademarks, and copyrights: The agreement needs to clarify when and how trade names, trademarks, and copyrights may be used and who will have the responsibility of registering them in the foreign country.

  • Warranties and product liability: The agreement should specify how defective or unsold products will be handled. It should also clarify the responsibilities concerning product liability insurance.

If you’re set up as a sales agent, provisions of the sale agreement should include the following:

  • Commissions: A sales agent is paid a commission for her efforts in soliciting orders that are accepted by the supplier. Generally, commissions are paid only when the supplier receives payment from the ultimate customer.

  • Prices: Because there’s no sale directly between the supplier and the agent, the supplier usually requires that the agent quote only agreed-upon prices.