What to include in a wholesale agreement
If you are a business that sells goods in bulk at wholesale prices, you need to have a wholesale agreement with your customers in place. This post will explain why you need a wholesale agreement and what should be included in one.
Ultimately, approaching a lawyer to put a wholesale agreement in place is a great long-term investment that will set out the rights and responsibilities of the parties.
Generally speaking, regardless of what product you offer, if your customers receive wholesale deals, it means that they are getting a large volume of your product over an extended period of time in exchange for a discounted price.
For example, you may be a wine distributor or an electronic manufacturer, or sometimes or even an importer who sells to local retailers. Regardless of where you stand in the distribution chain, if you sell in bulk, a wholesale agreement is a must.
What is a Wholesale Agreement?
A wholesale agreement is a contract between the supplier and customer that sets out the rights and obligations of the business relationship. Typically, one party supplies wholesale goods to the other. Having a wholesale agreement ensures that both parties are clear on what has been agreed on, and it acts as a layer of protection to help minimise the chance of a dispute in the future.
What to include in a wholesale agreement
There are several things to include in a wholesale agreement. Below are the top 6 clauses you need to make sure you cover and address.
1. Minimum order quantity (‘MOQ’) and Minimum Order Value (‘MOV’)
A primary component of any wholesale agreement is the minimum order quantity and the minimum order value. The MOQ sets out the minimum requirement for the number of goods someone can order, whereas the MOV details the minimum requirement for the minimum price an order can cost. Promising a more lucrative price for your buyers needs to come with a commitment on their part. Otherwise, it’s only them who stand to gain from this relationship. To enforce this, your wholesale agreement should clearly state what the minimum orders should be.
On many occasions, a wholesale agreement can have a tiered structure in which you state the price based on the order quantity. This allows flexibility and an incentive for the buyer to order more.
2. Orders and Deliveries
Your wholesale agreement should also outline the following:
- The product range
- How the orders can be made
- The delivery process
- The delivery timeframes
This will not only set the right expectations it will also minimise chances for legal disputes.
It’s important to include an exclusivity clause in your wholesale agreement. Whether you intend to give your buyer certain exclusivity rights or not, it is critical to outline what that will look like. If you intend not to give any exclusivity rights, that needs to be outlined to avoid any legal hiccups. Similarly, if you do, however, agree on a certain exclusivity arrangement, you’ll need to be crystal clear on how it will work, enforced, and when it can be terminated.
When you enter into a wholesale agreement, it is usually a long-term business relationship. So if you are investing your resources in this relationship, it’s essential to have terms that can guarantee the other party is committed to it.
One way to do this could be by setting out the contract’s length in the wholesale agreement and preventing the customer from terminating the agreement prior to its end.
In terms of pricing, your wholesale agreement should clearly outline the prices of any product you intend to supply under this business relationship. The primary objective of outlining the prices is ultimately to lock in specific prices for the duration of the agreement. However, in some cases, you might need to adjust prices. And so, it’s important to state how prices can be changed, under what circumstances, and how what notice period you need to provide.
6. Payment Terms
Last but certainly not least are the payment terms. Arguably one of the most important components of a wholesale agreement, the payment terms are fundamental if your business is not getting paid on time. This can have cash flow problems and the potential to suffocate the business. Therefore, the payment terms ultimately ensure that the supplier is getting paid for the goods they produce.
As a supplier, you may decide to receive payments upfront. Or, you may agree to receive payments over instalments or post-delivery. If you are allowing the customer a longer period to pay, this can expose your business to financial risks. This means you’ll need to clearly state when payments should happen and whether there will be payable interests on delayed payments.
Wholesale agreements are extremely essential for businesses supplying goods and products in bulk. It helps keep the business relationship intact by outlining the responsibilities and obligations of each party. It also helps minimise your financial and legal risks.
If you need help with a wholesale agreement, our business lawyers can help you draft the right agreement in no time at affordable rates. Contact our business lawyers or call us at 02 8644 6000, and we’ll be happy to discuss all your legal requirements.