Wednesday, October 5, 2011

Rep Agreements And Contracts Part Two

In the last post we saw what a typical “Rep-Vendor Agreement Letter” looks like. It was an informal looking document outlaying what the vendor expected out of a rep, and allowed the rep to add anything he or she saw fit that would establish what was expected out of the vendor if it weren’t already stated. But, an Agreement Letter can be perfectly legal.

There are also instances where a vendor writes a more formal looking legal contract. What this post will contain is an example of one of those documents. As in the last post, I’ve added notes in bold italics for explanatory purposes.
(Notes will be made in Bold Italics)
This agreement, made this ___ day of __________, 20___, by and between ______________________ of ____________________, hereinafter called the Company, and ___________________ of ________________________, hereinafter called the Salesperson. WITNESSETH:
1. The Company engages the Salesperson, and the Salesperson agrees to act as Salesperson for the Company, starting from the date hereof, and this agreement shall be automatically renewed from year to year with the same terms and provisions, unless this agreement shall be terminated sooner in the manner hereinafter provided.
2. (a) The Company agrees to pay the Salesperson as compensation for his services a commission of ___ per cent (___%) on the gross/net (scratch one) amount of sales made, shipped and/or distributed into the Salesperson's territory, consisting of the following states, in which Salesperson shall have exclusive territorial rights (accounts that are exceptions listed below): ______________________________________________________________________ ______________________________________________________________________________________________________________
(b) The Salesperson shall not be charged with or be liable for any advertising allowance granted by the Company, nor shall there be any decrease or reduction of commission on nationally advertised merchandise, close-outs, promotional goods or for any other cause, unless same shall first be consented to in writing by the Salesperson.
(c) The Salesperson will not make any representations, warranties or commitments binding the Company without the prior written consent of the Company.
(d) The Company agrees to refer to the Salesperson for attention all inquiries concerning its products received by the Company from any source or by any means whatsoever from the above described territory.(This is not always a condition with many Company/Rep relationships.)
(e) The Company agrees to give Salesperson credit for all goods shipped to or in Salesperson's territory, or sales made to customers therein, whether the orders for such sales are sent by Salesperson, received by the Company through the mails, or via facsimile, or via electronic mail, or taken at the Company's place of business, or placed by national buying offices, or otherwise. (Not always a condition either.)
3. (a) The Company shall have the option of accepting or rejecting any order or orders taken by the Salesperson, and no commissions shall be payable hereunder except on goods actually shipped by the Company and received and accepted by the Purchaser, provided, however, that the Company guarantees to pay the Salesperson commissions on a minimum of eighty-five per cent (85%) of accepted orders, whether shipped or not. An order will be considered accepted unless the Company notifies the Salesperson in writing of any order or orders rejected within ___ days of the mailing of such order or orders by the Salesperson. The Company guarantees to ship a minimum of 85% of accepted order or orders prior to the end of the delivery date specified on said order or orders.(Not always a condition, but any company that can claim such service is one any rep would want to work with.)
(b) In the event written notice of rejection is not given the Salesperson within the time above provided, the Salesperson shall become entitled to commissions on said eighty-five per cent (85%) of all non-rejected orders, which commissions shall be paid on the 15th day of the month following the day of the season for which said order or orders were received by the Company. (See note following (a)--same condition applies.)
(c) The Company reserves the exclusive right to grant credit and establish credit terms. If for any reason an account shall fail to fulfill those terms, whether by reason of late payment, non-payment, bankruptcy, insolvency, or otherwise, the Company shall remain fully liable to pay the commissions due the Salesperson in accordance with Paragraph 2(a) above.(Very rare in this writer’s experience. Reps usually paid based on what their accounts pay their vendors.)
4. (a) The Salesperson agrees to diligently work the territory assigned to him in an endeavor to secure business for the Company.
(b) The Company shall furnish the Salesperson with all sample bags, hangers, cases and other paraphernalia necessary for the Salesperson to perform his duties, all of which the Salesperson agrees to return to the Company and to be liable for any failure to return any portion thereof at the request of the Company, provided that the Salesperson shall not be liable to the Company for any loss of the foregoing equipment in the event the same shall be stolen, destroyed or damaged under circumstances which do not result from the negligence of the Salesperson or his failure to exercise ordinary care to safeguard such property.
(c) In the event the Salesperson shall for any reason, except as set forth in (b) above, not return samples, the Salesperson shall be billed for such samples at a sum equivalent to fifty per cent (50%) of the wholesale cost for same.(Cost of samples vary…many vendors provide for free.)
5. (a) Either party shall have the right to terminate this agreement prior to the expiration of the term, provided written notice of intention to terminate is given to the other party at least 60 days before termination effective date.
(b) In the absence of a 60-day written notice prior to the expiration of the term, this agreement shall be automatically renewed from year to year subject to the same terms and provisions as contained herein.(Notice term can vary…many companies ask for 30 day notice…some can terminate at will.)
6. (a) The company agrees to furnish Salesperson with a copy of all invoices and orders covering any goods shipped into the above described territory or sold to customers therein, and to furnish Salesperson with a statement on or before the fifteenth (15th) of each month covering the amount of sales for the previous month, and the amount of commissions due Salesperson. The amount due the Salesperson shall be payable at the time the statement is rendered.(Important for the rep to have company adhere to this point.)
(b) In the event of termination of services, the Salesperson shall receive commissions on all orders and sales as provided in Section 2 and on all reorders on such sales or orders up until termination date.
(c) At the conclusion of any twelve (12) month period, as well as upon termination of this agreement, the Salesperson or the Salesperson's designee, upon ten (10) days written notice to the Company, shall have the right, during normal business hours, to inspect and copy, at the Company's principal place of business, all pertinent books of entry, accounts and records which pertain to the Salesperson's orders, commissions and deductions there from. (Rare to see this kind of provision in a contract or rep agreement, but it is a good one. May be hard for rep to travel across the country in order to accomplish, though.)
7. The Salesperson shall not carry additional competing lines without the full knowledge and consent of the Company.
8. The Salesperson will serve as an independent contractor and be responsible to pay all applicable Social Security, withholding, and other taxes. The Salesperson will bear all expenses incurred in his sales endeavors except for those for which the Company agrees in writing to pay.
9. The parties hereto agree that failure by either party to strictly enforce any provision of this agreement shall not constitute a waiver, nor preclude either party from subsequent strict enforcement of any or all provisions hereof.
10. In any action, litigated or arbitrated, declaratory or otherwise arising out of this agreement, the successful party shall be awarded reasonable attorney’s fees to be paid by the losing party.
11. The Company agrees to indemnify and save Salesperson harmless from any and all liability, loss, or damage, including reasonable attorney's fees, which Salesperson may suffer as a result of claims, demands, costs, or judgments against Salesperson arising out of or resulting from Company's acts or omissions, violation of any law or governmental regulation, infringement of any patent, trade mark or trade name, product liability, law suits, or failure to ship acceptable goods timely.
12. The parties hereto agree that this agreement constitutes and expresses the whole agreement of the parties with reference to the representation, and compensation for or in respect to the Salesperson’s efforts on behalf of the Company, and all promises, undertakings, representations, agreements, and understandings and arrangements entered into between the parties herein. No alterations or variations of the terms of this agreement shall be valid unless made in writing, dated, and signed by both parties. It cancels and supersedes all prior agreements and understandings.
13. If any provision of this agreement shall be found invalid or unenforceable to any extent, the remainder of this agreement, or the application thereof to other situations, shall not be affected thereby. This agreement shall be binding and inure to the benefit of the parties and their personal representatives, successors and assigns.



IN WITNESS WHEREOF, the parties hereto have executed this contract and agreement in duplicate at ___________, State of ___ , the day and year first above written.


Signature Title


Main difference between this contract and the agreement letter is the tone—the “legalese” language if you will…and it is a bit more complete. It covers things that may never become an issue, as you can see from some of my notes.

In either case, familiarize yourself with both. If you feel you have to hire an attorney to decipher or help you with any of this, by all means do so. These two documents are pretty easy to understand. If you’re presented with such a document that runs more than 3-4 pages, I’d say the relationship you’re about to enter may be more complicated than a simple independent sales rep arrangement.

Again, in my own personal history, I’ve rarely had to use contracts. Consider: one time I was able to get money owed me by a company that went bankrupt and it did not involve a contract. A politician or district attorney in another state investigated the bankrupt firm’s claim. He found some discrepancies, and obtained the list of creditors, which included independent sales reps.

He mailed a letter to all creditors asking them to list the outstanding invoices (or in our case, orders unpaid) and approximate the dollar amount owed. I spent about 30minutes doing this…and I was fortunate I had saved many invoice copies for the outstanding commissionable orders (don't discard anything when a company goes belly up, you never know when you may get paid--six years is a good time to retain any applicable documents).

Within a few months I received a check in the mail paying me 70c on the dollar for what I was owed. I asked other reps around the country about this…not one of them bothered to send a claim letter to this district attorney!!!! Their payout: $0.

Would it have been any different if the bankrupt company had previously put together contracts with us independent reps when times were good? I kind of doubt it.

There are several ways to protect yourself, contracts and agreements are among them. But don’t forget the value of doing your paperwork, making sure you are paid for what you’ve delivered. I’ve said it before and it bears repeating: it’s amazing to me I find many reps not doing this. They are leaving a lot of money on the table.

Rep Agreements And Contracts Part One

It’s come to my attention that my book lacked mention of contracts or written agreements between the independent sales rep and vendor he or she is to sell for. It’s a good point, as some states now require such a legal document.

My own experience is that I’ve rarely had to use them. When I did, the relationship didn’t turn out very well anyway, and it may not be cost-effective to try a lawsuit over state lines. Many industries are kind of close-knit, so if some party cheats the other, the word is out and reputations are an important thing to maintain. Remember too the deal between Arnold Palmer and Mark McCormack of IMG. This was a handshake deal between the athlete Palmer (vendor) and personal manager McCormack (the salesman), and it lead to the world of sports management we see today. No contract was ever signed.

But we live in a country with one lawyer per 50 people, easily the most over-litigated nation in the world. So it’s best to be prepared for such documents.
I’ve seen two different types—the agreement letter and the more formal contract. What follows in this post is a typical agreement letter and notes in bold italics:
XYZ Corporation Inc., (800) CAL LXYZ

John Q. Representative
JQR Sales Group LLC
123 Main
Anywhere USA

Re: Sales Representation Agreement Form (Typical agreement form used; can be considered a binding legal contract)

We’re pleased to hire your services as an independent sales rep with our company. We expect you to act as our sales agent for the territory we will define below for as long as it is mutually beneficial to you and XYZ Corp., as well as the individual accounts involved. Either you or XYC can terminate the agreement upon 30 days notice or as agreed. This letter will be the sum of our agreement. If there are particular issues in this agreement please feel free to call and discuss, or send in a separate letter with return of a copy of this letter signed.

Your territory will be the states of ___________, ____________, _________ (filled in as needed by vendor—rep can amend as he/she sees fit). If there are any other accounts outside this area, please feel free to phone us for approval.

You’ll be an independent contractor, so we will not be withholding taxes from your commissions. We will send you 1099s or any other appropriate IRS tax documents. We’ll need following info from you in order to process these and your commission checks:
· Full personal or business name as it will appear on check and in our files.
· Complete mailing address.
· Telephone and fax numbers, plus email address and website URL.
· Social Security & Taxpayer ID numbers.
· Names of any subreps or associates you have working under you.
· Other special instructions you require.

Enclosed with this agreement (or, if it were emailed, substitute “Being forwarded to you”) is a complete set of sales materials that includes:
· Catalog binder
· Representative product samples and display units (Vendor may bill rep for these, with the expectation that the samples be returned or paid for when requested back by vendor, when partnership ends, or when product becomes discontinued. Rep may be responsible for payment of samples not returned).

A list of accounts in your area is attached. Your salesman number will be #62. (Vendor may request the rep handle these existing accounts or may request they keep hands off…or a combination of the two. Vendor will usually give details here as to how accounts are handled by the rep so that the rep gets credited with the commission).

Your commission level is ___% based on the pricing shown in your catalog binder and our wholesale website. If you need to discount from that price for larger accounts, your commission will be adjusted down accordingly. Please feel free to call and discuss before you discount any price. (Some vendors may provide a discounting schedule as well).

We accept credit cards Mastercard, Visa, and AMEX. We will accept COD Company Check with a bank reference. We can also do prepay via check mailed to us or wire transfer. In your catalog binder there is a standard Credit Application form if an account wants Net terms. We can also email this form to you. (Most companies will have policies such as this, or a few variations).
Please read this agreement thoroughly and feel free to call me with any questions or amendment concerns you might have. When you agree to what’s stated herein and any amendments we discuss, please sign and return original, keep a copy for your records. Welcome aboard!


Sam Salesmanager

I have read and understand the above letter and by signing below, agree to the terms.

Date: ____________ Rep signature_________________________
Date:_______________ XYZ Sales Mgr ________________________

Don’t hesitate to ask a sales manager (or whoever has composed such a letter) to change anything to your favor. Something as simple as just asking for one additional state or part of a territory can reap benefits. They may have overlooked this area (they may be poor at geography and didn’t realize it was next door to your state!); if you are dealing with accounts in that area already and know the vendor is not being handled there, go for it.

In the next post, we’ll deal with a more formal looking legal contract. Both of these documents can be legally binding. The only difference is the kind of language used and the formality and tone expressed.