From skipped payments to unlawful dismissals to, worst of all, damaged customer relations – the potential results of picking the wrong principal can be devastating.
Key to finding the right principal is to set some basic rules before you start your search rather then after. Don’t rely on assumptions. Formalize your relationship to minimize confusion, arguments, disappointments and “biting the bullet” of lost commissions and the loss of a valuable line. Time and time again, agents claim unlawful treatment but their legal options are minimal because there was never a contract negotiated.
Contracts should include provisions covering the following points:
· Agent’s services and responsibilities e.g. credit/collections, after sales service and technical support, trade shows etc.
· Company and principal’s responsibilities
· Territory and exclusivity
· House accounts
· Expense arrangements (e.g. trade shows)
· Recoverable and non-recoverable draws
· How changes to the contract are handled
· Adding other lines
· Length of relationship
· Termination and notice provisions
· Arbitration and dispute mediation
· Non-solicitation and non-disclosure provisions
In negotiating contracts, there are several traps you call fall into if you’re not careful. For example you may want to consider the following before signing on the dotted line:
· Veto authority to the principal. Giving the manufacturer or principal the final power to approve new lines can cause problems. Sometimes on the surface it’s not always clear if a line is a complimentary one or if it will conflict with the lines the agent is currently representing. It may not be an issue for you but if the principal feels there’s an overlap, you could find yourself in the unenviable position of having to choose whose lines you’ll rep.
· Review the contract’s figures and timelines. Make sure the sales numbers are based on fair, realistic projections and timelines. Don’t shortchange yourself. Don’t underestimate the time it will take you to produce results, especially if this is a new product or customer base. A one-year contract that requires major up front work very often doesn’t do it.
· Dispute mediation. It’s very important to clarify the laws that govern your contract. If a dispute should arise, negotiate and have it written into the contract that all disputes will be resolved within your jurisdictional boundaries. If nothing has been written and if your principal hasn’t got tangible assets in your province, then you are off to the courts of another province or state to recover your commissions. Save yourself the TIME, EFFORT and EXPENSE.
Trust is key to any productive, long-term relationship. Setting relationship rules before searching for a principal and preparing a comprehensive contract will do wonders for promoting trust. Ruffell concludes that there's just too much that any agency-principal relationship can cover. He suggests that agents should apply the saying 'good fences make good neighbours’ to their agent-principal relations because ‘good contracts make for good agent-principal relations.’
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