Growing your business through third party sales agents

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In this tough financial climate, exploring new routes to market can help you survive and thrive and partnering with a sales agent can help market and grow your business without significant investment.

A sales agent is a third party you appoint to promote, market, negotiate and agree sales contracts with buyers of your products and services on your behalf. In exchange for the sales agent’s services a payment made to the agent, usually in the form of a commission payment.

This article looks at the benefits of using a sales agent and how to ensure your contract with the sales agent effectively shapes the success of your relationship.

The benefits of a sales agent:

  • Expand your business with minimal investment
  • Specialist knowledge of foreign markets or existing network of contacts in the industry
  • Specialist skills allowing the agent to access the market quickly, language and cultural expertise

The costs:

  • The contract negotiated and concluded by the sales agent ultimately a contract between you and the buyer, not the agent and buyer. In giving the agent authority to enter into contracts on your behalf, you risk loss of control over the sale and worst case, the agent making commitments on your behalf
  • payment for the sales agent will reduce your revenue
    Upfront due diligence, a robust written contract and your continuing governance of the sales agent activities throughout the relationship will address the risks and creates the foundation for a solid relationship from which sales can flourish.

What do we need to consider before appointing a sales agent?

  • Appointment – can be implied or verbally agreed which leaves both parties at risk of uncertainty on the terms, you will want to ensure you have a written agreement to provide certainty
  • Authority – sales agents, typically have the authority to negotiate and conclude contracts on your behalf, if you want to retain control you might decide to grant them limited authority to introduce or market your products and service but not negotiate or enter into contracts on your behalf
  • Duration of the sales agent arrangement – how long do you want the arrangement to last?
  • Exclusivity – do you want to be your exclusive agent in a specific geographical area? Do you want to limit them from appointing other agents/sub-contractors? Do you want to retain your right to continue to sell directly to certain customers, for example existing or previous customers?
  • Compete and conflict of interest – during and after the term do you want to restrict the sales agent from selling competing products and services and for disclosing to you ant conflicts of interest
  • Commission or payment arrangements – what will you pay and when will you pay it?
  • Will you pay the sales agent any expenses or costs incurred in marketing and negotiating the sales?
  • What, if any, payments will continue to be made to the sales agent after expiration or termination? Note that if the agent is selling your goods in the EEA, the Commercial Agents (Council Directive) Regulations 1993 will apply. These Regulations protect sales agents in the EEA by giving the agent certain rights, including the right to compensation or an indemnity from you on termination or expiration of the arrangement. You will need to assess the cost of these payments and consider limiting your liability for these in the sale agent agreement.
  • Under the Bribery Act 2010 it is unlawful to offer or accept any secret payments of bribes. You may be liable for any acts of the agent in violation of the Bribery Act, unless you can show you had in place “adequate procedures” to prevent bribery by the agent. As a minimum you will want to have an anti-bribery policy which you require the agent to comply with and a mechanism for monitoring compliance with the Bribery Act and your anti-bribery policy.
  • Will you or the agent process personal data on the others behalf? If so, you will need to ensure the provisions of GDPR are met.
  • Depending on the nature of the products and services you are providing and the country in which you are selling into you need to consider these Local law, tax and regulatory requirements, licenses and consents to export to operate in the foreign country.

Managed well, a sales agent can be a quick and effective way to reach new clients helping you grow your business without significant up-front investment and can continue on a long-term basis or until you reach a size in that market that establishing your own sales presence makes financial sense.

Here at Devant, we’d love to hear your thoughts on where a sales agent is helping you grow and what makes it successful?

Get in touch if you’d like to discuss.

At Devant our experienced commercial contract specialist are on-hand to help you with your sales agent arrangements and all your commercial contract needs, get in touch to find out how we can help you achieve your commercial goals.

Kelly Lincoln
Consultant, Devant Limited.