Simple Guides

What are the advantages are disadvantages of each?

Advantages of a Distributorship

  • A supplier is able to pass on risk associated with the products.
  • The distributor is motivated to sell the stock purchased from the supplier.
  • A supplier will not incur any liability as a result of the distributor’s activities (although the supplier may remain liable for defective products).
  • The appointment of a distributor will avoid the need for a supplier requiring an established place of business in the territory, reducing administrative costs.
  • A supplier will only need to monitor accounts with a distributor.
  • No compensation is automatically payable to a distributor upon termination of the distributorship agreement.

Disadvantages of a Distributorship

  • The supplier has limited control over activities of a distributor.
  • Under an exclusive distributorship arrangement, the supplier’s entire credit risk in respect of sales in that territory is concentrated on the distributor.
  • A distributorship arrangement is likely to be governed by domestic and European competition legislation.
  • Given the large degree of autonomy granted to a distributor, it is critical that the selected distributor is financially and commercially sound.

Advantages of a Sales Agency

  • Supplier has more control over the activities of a sales agent
  • The financial and commercial background of the sales agent will not be as critically important to the principal; although the principal will want to ensure the integrity of the sales agent since the principal will in the normal course be bound by the actions of the sales agent.

Disadvantages of Sales Agency

  • The principal is not able to pass on risk associated with the products to the sales agent.
  • The principal will incur liability as a result of the agent’s activities.
  • In most instances the principal may be obliged to take on the expense of training the sales agent.
  • Under EU Commercial Agents Regulations (enacted in both Ireland and Northern Ireland) minimum notice provisions apply (from one month to three months) in the event of termination of the agency and the agent may also be entitled to compensation over and above this notice requirement.