Do I Need A Contract To Sell Through A Distributor?

Appointing a distributor can be a big step for your product business. It can open up new regions, retail relationships and sales volume without you having to build every channel yourself.

But it also means someone else is representing your brand, selling your products and dealing with customers or retailers on your behalf. If the arrangement isn't clear, you can quickly lose control over pricing, stock levels, brand use, customer relationships and where your products end up.

So, do you need a distributor agreement in Australia? In most cases, yes. A well drafted agreement helps you grow through the distributor while keeping the rules of the relationship clear from day one.

Do I Need A Distributor Agreement In Australia?

Yes, you should usually have a written distributor agreement if another business will buy your products and resell them in Australia or overseas.

A distributor agreement, often supported by a supplier agreement or product supply terms, sets out the legal and commercial rules between you as the supplier and the distributor. It usually covers things like territory, exclusivity, order volumes, payment terms, marketing obligations, use of your brand, product warranties and how either side can end the arrangement.

Without a written agreement, you may still have a contract based on emails, purchase orders and conduct. The problem is that those records often don't answer the questions that matter when something goes wrong.

For example, you might not have a clear answer to:

• whether the distributor has exclusive rights to a region or customer group
• what minimum sales they need to achieve to keep those rights
• whether they can sell through online marketplaces or discount channels
• who is responsible for customer complaints, recalls or faulty products
• whether they can use your trade marks, photos and marketing assets
• how much notice you need to give before ending the relationship

A template can be a useful starting point, but distribution arrangements are rarely one size fits all. A lawyer should tailor the agreement to your products, margins, sales channels and growth plans before you use it.

What Should A Distribution Agreement Include?

A distribution agreement should include the commercial deal, the sales rules and the protections you need to keep control of your channel.

Here is a practical outline you can use when thinking through your agreement. This isn't a finished legal document, but it helps you map the key clauses before getting it tailored.

1. Parties: Write the correct legal names, ABNs or ACNs, and contact details for you and the distributor.
2. Products: List the products covered, including SKUs, product lines and whether future products are automatically included.
3. Territory: State where the distributor can sell, such as Australia-wide, New South Wales only, or selected export markets.
4. Exclusivity: Say whether the distributor has exclusive, non-exclusive or sole rights, and what conditions apply.
5. Sales Channels: Set rules for wholesale, retail, online, marketplace, trade show or direct-to-consumer sales.
6. Minimum Orders And Targets: Include minimum order quantities, annual sales targets and what happens if they aren't met.
7. Pricing And Payment: Cover wholesale prices, payment dates, GST, late payments and when title to goods passes.
8. Brand And Marketing: Explain how the distributor can use your trade marks, product images, packaging and approved claims.
9. Compliance: Allocate responsibility for Australian Consumer Law obligations, product standards, labelling and any industry rules.
10. Term And Termination: Set the initial term, renewal process, notice periods and immediate termination rights for serious breaches.
11. After Termination: Deal with remaining stock, confidential information, brand materials, customer data and unpaid invoices.

The right clauses will depend on your product. A food and beverage supplier will care about expiry dates and recalls. A skincare brand may need tight rules around product claims and influencer marketing. A hardware supplier may need stronger rules around installation instructions and safety information.

Should I Give A Distributor Exclusive Rights?

It depends, but you should only give exclusivity if the distributor is giving you something valuable in return.

Exclusive distribution means you agree not to appoint other distributors in a defined territory, channel or customer segment. This can be useful if the distributor is investing heavily in your brand, hiring a sales team, attending trade shows or opening doors you couldn't access yourself.

The risk is that exclusivity can lock up a market. If the distributor underperforms, you may be unable to appoint someone else or sell directly without breaching the agreement.

Common Exclusivity Options

• Exclusive: Only the distributor can sell in the territory or channel, and you may also be restricted from selling there directly.
• Sole: The distributor is the only distributor, but you keep the right to sell directly yourself.
• Non-exclusive: You can appoint other distributors and sell directly.
• Conditional exclusive: The distributor gets exclusivity only while they meet targets, minimum orders or marketing commitments.

A conditional exclusive model is often a good middle ground. For example, you might give a distributor exclusive rights in Victoria for 12 months, but only if they buy at least 5,000 units per quarter and maintain agreed retail listings. If they miss the target for two quarters, their rights automatically become non-exclusive.

You also need to be careful with competition law. Under the Competition and Consumer Act 2010, some exclusive dealing arrangements can raise issues if they substantially lessen competition. Resale price maintenance is also prohibited, which means you generally can't force a distributor to resell at a minimum price. You can usually recommend resale prices, but the wording and behaviour around this need care.

How Do I Set Territory, Sales Targets And Minimum Orders?

You should set territory, targets and minimum orders in a way that matches the distributor's real capacity and your supply chain.

Territory isn't always just a map. It can be based on geography, channel, customer type or account list. For example, you might allow a distributor to sell to independent retailers in Queensland, while you keep national pharmacy chains and your own website.

Minimum orders are about operational certainty. They help you plan manufacturing, freight and cash flow. Sales targets are about market performance. They help you check whether the distributor is actively growing your brand, not just sitting on rights.

Worked Example

Say Mia runs a Melbourne-based pet product brand. She appoints a distributor for Western Australia. The distributor wants exclusive rights because they plan to pitch to 80 independent pet stores.

Mia agrees to a 12 month exclusive territory, but the agreement says the distributor must:

• place an opening order of 2,000 units within 14 days of signing
• order at least 1,500 units each quarter after that
• secure at least 20 active retail accounts within the first 6 months
• provide a monthly sales report showing units sold, stock on hand and key customer feedback

After 6 months, the distributor has only 8 active retail accounts and has ordered 2,400 units in total. Under the agreement, Mia can convert the arrangement from exclusive to non-exclusive on 30 days' notice. She doesn't need to end the relationship completely, but she can appoint another WA distributor or sell directly into stores that the first distributor hasn't developed.

This kind of structure gives your distributor a fair opportunity, while protecting you if the market stalls.

Can I Control Pricing, Branding And How My Products Are Sold?

Yes, you can control many parts of how your products are represented, but you need to be careful with resale pricing and competition law.

Your agreement can usually set rules around brand use, marketing approvals, product information, packaging, storage and sales channels. These rules matter because the distributor, wholesale partner or channel partner is often the face of your brand in that market.

You might require the distributor to:

• use only approved logos, product images and marketing copy
• follow your brand guidelines and packaging requirements
• get written approval before running paid ads using your brand name
• avoid selling through clearance websites, unauthorised marketplaces or channels that could damage your brand
• store products properly, especially if they're temperature-sensitive, fragile or have expiry dates
• give customers the warranty and care information you provide

If you have registered trade marks with IP Australia, your agreement should give the distributor a limited licence to use them only for selling and promoting the authorised products. It should also say that the distributor doesn't own your brand, goodwill or marketing assets.

Pricing needs a softer touch. You can set the wholesale price that the distributor pays you. You can also provide recommended retail prices. However, you generally can't require the distributor to resell above a minimum price or punish them for discounting below a recommended price. That can amount to resale price maintenance under the Competition and Consumer Act 2010.

If brand positioning is a concern, focus on lawful controls like authorised channels, marketing quality, product presentation and service standards, rather than fixed resale prices.

What Legal Terms Protect Me As The Supplier?

Your supplier distributor legal terms should protect your cash flow, your brand, your stock and your ability to respond if things go off track.

Start with payment and ownership. If you're supplying stock on credit, your agreement should say when invoices are due, when title passes and whether you retain ownership until payment is made. For stronger protection over unpaid goods, you may also need Personal Property Securities Register wording and a PPSR registration.

You should also deal with risk. A product supply agreement can say when risk in the goods transfers to the distributor, who arranges freight and insurance, and what happens if products are damaged in transit.

For customer issues, the Australian Consumer Law is relevant. Consumer guarantees can apply to your products, and customers may be entitled to remedies if goods are faulty, unsafe or don't match their description. Your agreement should make clear who handles complaints, who pays for returns, and how recalls or product safety issues are managed.

Other useful protections include:

• Confidentiality: Protect wholesale pricing, product roadmaps, customer lists and sales data.
• Reporting: Require regular sales reports, stock reports and forecasts.
• Audit Rights: Let you check sales records or channel compliance where needed.
• Sub-Distributors: Stop the distributor appointing others without your approval.
• Data Handling: Set rules for customer data, especially if personal information is shared under the Privacy Act 1988.
• Unfair Contract Terms: Check your standard form terms, as unfair terms in small business contracts can attract penalties under the Australian Consumer Law.

If you're dealing with overseas distributors, you'll also need to think about import and export terms, governing law, currency, tax treatment and local product compliance. For Australian businesses, it's common to prefer Australian law and Australian dollars where you can negotiate it.

How Can I End A Distributor Agreement Without Losing Control?

You can end a distributor agreement cleanly if the agreement gives you clear termination rights and an orderly exit process.

Termination is where many distribution disputes start. If the agreement is silent, you may be left arguing about what notice is reasonable, whether targets were actually binding, and what happens to stock already in the market.

Your agreement should cover ordinary termination, termination for breach and immediate termination for serious issues. Serious issues might include non-payment, misuse of your brand, selling outside the territory, insolvency, safety breaches, unauthorised sub-distribution or conduct that damages your reputation.

For notice periods, there isn't one universal Australian rule for every distribution arrangement. The right period depends on the term, any exclusivity agreement, investment made by the distributor, product type and bargaining position. Many businesses use fixed notice periods in the agreement so no one has to guess later.

What Should Happen After Termination?

A strong exit clause should say what happens after the relationship ends. Consider whether the distributor must:

• stop using your trade marks, domain names, social media assets and marketing materials
• return or destroy confidential information
• pay all outstanding invoices immediately
• sell remaining stock for a limited run-off period, or return it to you
• transfer customer leads, sales records or warranty information back to you
• stop holding themselves out as your authorised distributor

You can also include a step-down right instead of jumping straight to termination. For example, if the distributor misses minimum targets, you may convert exclusivity to non-exclusivity first. That can preserve the relationship while giving your business room to grow through other channels.

Key Takeaways

• A written distributor agreement helps you grow through a distributor without losing control of your brand, territory, sales channels or stock.
• Exclusivity should usually be tied to clear targets, minimum orders and reporting obligations.
• You can set strong brand and channel rules, but you need to be careful not to engage in resale price maintenance.
• Your agreement should deal with Australian Consumer Law responsibilities, payment terms, product returns, recalls and customer complaints.
• Termination clauses should cover notice, serious breaches, remaining stock, unpaid invoices and use of your intellectual property after the relationship ends.
• Templates often miss the commercial details that matter most, so your agreement should be tailored to your products and distribution strategy.

If you'd like help with your distributor agreement, exclusivity and territory terms, brand licensing rules or termination protections, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.