9 Ways You Should Be Conducting Due Diligence on Your Distributor

Click edit button to change this text. Lorem ipsum dolor sit amet, adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

If you’ve been selling your products through a distributor and think there’s no need to do your due diligence, think again. Although you are unlikely to be liable in any transactions or disputes between your distributor and their customers, there are still some very good reasons why you should be concerned about how your distributors are conducting their
business.

Errant distributors can increase your risk of getting entangled in lawsuits and also send a swift blow to your reputation, which in turn can affect your ability to secure loan or banking facilities and have a negative effect on your business.

As such, it is crucial to ensure you do your due diligence on each and every potential distributor before signing on the dotted line. Here are some ways you can do so.

1. Ask for disclosure in the distributor agreement

The importance of having a well-drafted distributor agreement cannot be overlooked. This is not a document you want to try to cobble together without first receiving some sound professional advice.

A good distributor agreement will require the distributor to make certain disclosures to you, and to warrant the accuracy of all information provided. This should include a declaration that they will be complying with all the relevant laws and regulations.

While the distributor agreement should cover as many areas of due diligence as possible, most suppliers conduct their own due diligence procedures in addition just to be safe.

 2. Conduct an initial screening

It’s a good idea to conduct a thorough screening of any potential distributors. You will want to check their compliance records, as well as find out whether they have been or are currently involved in litigation. You can also request that the distributor provide information about their compliance procedures and how they monitor their accounts. Finally, finding out what other products the distributor is selling will enable you to assess their experience and suitability.

3. Administer a questionnaire

Having a potential distributor fill out a questionnaire can be an easy way to obtain details regarding their business. Some information you’ll want to get hold of might include the size of their business, the resources available to them and details regarding their business history and compliance policies.

 4. Contact compliance professionals

You might want to consider getting in touch with compliance professionals stationed on the distributors’ premises, either by organising a conference call or making an actual onsite visit. Speaking with compliance professionals rather than the distributors themselves can make it easier to pinpoint specific concerns you might have.

5. Examine your history together

Just because the distributor is putting in a steady stream of orders doesn’t mean there’s no need to look back on the history of your relationship from time to time. Schedule regular reviews of your history with the distributor to determine whether all the terms of the distributor agreement have been complied with.

Also take note of who has been purchasing the products from the distributor and what their feedback has been. For instance, if many of the products have been sold to retailers who later sent feedback that the products were unsuitable or raised safety concerns, you’ll want to be in the know.

6. Grade your distributors

It’s often not a good idea to treat all your distributors equally, as their capabilities and suitability might differ. Instead of allowing all your distributors to sell your entire range of products, you might want to consider allowing only certain distributors to sell certain types of products.

You might decide to limit the sale of certain products only to trusted distributors with excellent compliance track records, or distributors with sufficient resources to train their staff to handle complex products. 

Categorising or tiering your distributors allows you to minimise risk by allowing only the most well-equipped and reliable distributors to deal with protected or more complex products.

7. Follow up

Just because a distributor has done well in the past doesn’t make it infallible. As such, it is wise to monitor each distributor and follow up promptly on any issues that might arise in the course of business.

8. Training and education

Unfortunately, not all distributors are equipped to sell your products. When conducting due diligence on potential distributors, it’s likely you’ll come across some that just don’t have the experience or resources to effectively sell and market your products. You’ll thus need to consider the extent to which you are prepared to train and educate your distributors to enable them to sell the products. 

9. Monitor on-selling 

You need to be particularly wary if your distributor is passing on your products to other distributors, as this mean’s there’s a whole other layer the products must pass through before reaching the customer, one that’s difficult to monitor or control. You’ll want to find out how the distributor screens or assesses its own distributors. It is a good idea to have your lawyer draft or modify the distributor agreement to impose on the distributors certain responsibilities or limitations when on-selling the products.

Selling your products through distributors can be an effective way to penetrate a new market. But, as with all things, entering into a distributor agreement should only be done after thoroughly doing your due diligence and obtaining sound professional advice.

“Class aptent taciti sociosqu ad litora per conubia nostra, per inceptos himenaeos .Aenean non turpis vitae ligula tristique sagitt isras varius erat pulvinar eros pretium”

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Vivamus quis arcu est. Quisque posuere est arcu, id hendrerit orci pulvinar id. Cras egestas metus sit amet felis accumsan, vitae placerat libero sodales. Morbi efficitur maximus massa et aliquam. Quisque vel viverra augue.

Nullam scelerisque erat nisl, eu aliquet quam porttitor et. Aliquam molestie sem augue, non egestas nunc sagittis in. Suspendisse vehicula turpis eget leo sollicitudin, dapibus commodo massa facilisis.

Ut ac tortor eget nibh condimentum congue. In facilisis porttitor iaculis. Etiam vestibulum, nisl nec molestie egestas, velit lorem venenatis tellus, pellentesque blandit nulla sapien accumsan velit. Vivamus purus nunc, dictum nec elit viverra, semper iaculis risus.