A dealer agreement checklist for manufacturers: the points to settle before your lawyer drafts it

Your dealer in Bhilwara rings the day the new, lower price list goes out. Six hundred bags in the godown were bought at the old rate, and the dealer wants a credit note. Your appointment letter says nothing about it. A dealer agreement strains at four points: territory, stock, pricing and support. Settle each one with the dealer in plain words before anything is drafted. Then test the draft against the arguments you already know will come.

The order matters. A lawyer turns settled points into wording, and can warn you where a clause raises legal questions. A lawyer cannot decide your price-change policy for you. Some clauses, such as fixing the price a dealer resells at, or stopping a dealer selling outside the area, can raise questions under competition law. The rules change, so ask your lawyer before you write either in.

Territory: what the map leaves out

The boundary itself, by district or pin code, and how a disputed sale is judged, is covered in the note on preventing channel conflict. Two more points can surprise manufacturers later.

Sub-dealers and retailers. May your dealer appoint shops below, and are they bound by your price list and your territory? If they may and they are not, you have dealers you never met selling your product.

Other shops of the same dealer. A dealer with a branch in the next district is now selling into someone else's area from separate premises. Decide now whether the branch needs its own appointment.

Stock and price: the goods already in the godown

Money moves here, so this is where the arguments turn bitter. Settle each of these in writing.

The opening order. Quantity, range, and whether it is on credit or advance. A dealer pushed into a large opening order that cannot be sold becomes a dealer asking for returns.

Shelf life and rotation. Putty, tile adhesive and cement-based products have a use-by period. Who carries a bag that expires in the godown? One possible split: the dealer sells oldest first and lets your salesperson check, and you swap near-expiry stock once it is flagged in time.

Transit damage. How the dealer reports it, with photographs, and within how long of receipt.

A price cut. Whether stock bought shortly before the cut gets a credit for the difference, how far back that window goes, and how the stock is verified. A stock statement countersigned by your area salesperson is simple and checkable.

A price rise. Whether orders placed before the date go at the old rate, and how much notice the dealer gets.

Schemes. How a scheme is earned and how fast the credit note follows. Our note on dealer incentives that protect margin covers the scheme design.

Exit. Whether you buy back saleable stock, at invoice price or less a handling charge, and when the deposit comes back.

Support: what you promised when you appointed the dealer

The sales manager who appointed the dealer promised things at the meeting. Write them down, or they become the dealer's grievance a year later.

Painter and contractor meets: how many in a season, and who pays for the hall and the tea. Display boards and shelf material. Your share of local advertising, if any. Enquiries from the dealer's area that reach your website or a directory, and whether they go to the dealer. And the one that can cause the worst rows in building materials: a site complaint. When a builder blames cracks on your putty, who inspects, how quickly, and who pays if the product is at fault versus the application?

Put the dealer's side down too. A minimum range in stock, a counter display, attendance at meets, a stock statement when asked.

Test the draft against six arguments

Before anyone signs, read the draft against arguments you know will come. If the draft does not answer one, it needs another line.

1. The next district's dealer delivers to a site in the home dealer's town, cheaper. Whose sale is a site delivery, and what does the home dealer earn?
2. You cut the price of one grade while a dealer holds stock. Credit or not, how far back, and on whose count?
3. Forty bags expire in a godown. Who carries them?
4. A builder in the dealer's area complains of cracks. Who inspects, and who pays on each finding?
5. A dealer stops ordering but keeps your board up. Is the exclusivity kept?
6. A dealer wants to quit. The dealer holds your stock and you hold the deposit. The draft needs the notice period, your buy-back price and the date the deposit is settled.

For example: a wall putty maker in Jaipur

Imagine a maker of wall putty and tile adhesive in Jaipur, selling through dealers across Rajasthan on one-page appointment letters. The details are illustrative.

After the monsoon, a competitor cut prices, and the Jaipur firm cut the price of one putty grade to match. The Bhilwara dealer had just taken a large lot at the old rate and asked for a credit note. Nothing in the letter covered it, the owner said no, and the dealer spent the season pushing the rival brand to painters.

At the next renewal, every dealer's agreement gained a price protection line. Stock invoiced within a set window before a cut earns a credit for the difference, against a stock statement countersigned by the area salesman. A near-expiry swap rule went in beside it. The next price change went out with the stock statement form attached, and the credit notes followed. They cost the firm about ₹60,000 in the first quarter (an invented figure), and the Bhilwara dealer did not come back to full volume that year.

Before the next appointment letter

Take your current appointment letter and run it through the six arguments above. Every one it cannot answer is a point to settle with your dealers, then hand to your lawyer. If a line has not yet been given a route, settle dealer or direct first; the manufacturing hub has the rest. If you want the points drafted for your network before the lawyer sees them, with the dealer and distributor programme behind it, tell us what you need.