Creating a Successful Sales Representative Agreement Template

The Ins and Outs of Sales Representative Agreements

A sales representative agreement is simply the contract between you and your sales representative (a/k/a "sales rep," "agent," or "independent contractor") whereby the sales rep will receive some kind of compensation (usually a commission) for any sales of your product made by the sales representative. You typically don’t have to worry about your rep using her own funds to purchase your product. She works on consignment. If she sells product, she’s entitled to payment.
A sales rep agreement is a contract. As such, there need to be terms. These terms, among other things, define the nature of the relationship (i.e., independent contractors), what happens if the rep breaches or violates the terms of the agreement, payment terms , whether you provide a sale rep with advanced notice of the termination of the agreement, who owns what IP, what happens if either party claims breach, what happens if either party (or the rep’s client) gets sued, and other details.
Regardless of whether you decide to sell your product through a traditional company that hires traditional employees to sell its goods, or through a sales representative (which, again, is someone who often works for herself and not you, but actually sells your product), any lawyer worth her salt will tell you that you absolutely and unequivocally need what is known as a sales representative agreement, also sometimes referred to as an "author agent agreement" (if the product being sold is an artistic work) and a "consignor agreement" (if the product is being sold directly).

Key Elements of a Sales Representative Agreement

The fundamental elements are quite simple. The sales representative agreement needs to:
Sales Representative
The agreement needs to clearly identify the sales representative. This may seem obvious, but the agreement must state who the sales representative is and whether any person, firm or corporation is being appointed as the sales representative. In addition, the agreement should identify any additional parties (such as affiliate entities) that are entitled to the sale representative’s commissions.
Appointment of the Sales Representative
The agreement should specifically identify that the sales representative is appointed as an independent sales representative, the products and services covered by the sales representative agreement, the manner in which the sales representative will be compensated for his/her/its services and for what term such services will be performed. The appointment should not give the sales representative exclusive appointment, unless that is intended. The sales representative should be permitted to sell any and all products manufactured or provided by any entity. The manufacturer or provider of the products should be free to appoint any number of sales representatives.
Compensation
The agreement should specifically state the manner in which the sales representative will be compensated. The agreement must identify the parties that are paying commissions and the terms of payment. The terms of payment are usually based upon the price actually received for the aggregate sales of a specific product during a specific period of time. The compensation is usually a percentage of the net sales of the product sold by the sales representative during the term of the agreement.
Additionally, the agreement should specifically identify what will occur if the agreement expires or is terminated. If the agreement expires or is terminated, will the sales representative be entitled to commissions on sales that it assisted or participated in creating? Will the sales representative be entitled to any commission on products ordered but not paid for prior to expiration or termination of the agreement? In some states, the sales representative will be entitled to payment of commissions earned on sales for a specific period of time, for example for six months after expiration or termination of the agreement.
Obligations of the Manufacturer
The manufacturer or provider typically uses the sales representative’s office for the receipt of orders, transmissions of orders, shipment of products, collections of accounts, preparation of bills of lading, invoices and credit memoranda. The agreement generally identifies the products, rates schedules and claims procedures for returns and adjustments. The agreement generally provides for training of the sales representative in connection with the business and operations of the manufacturer (or provider of products). In addition, the agreement generally provides for the manufacturer providing the sales representative with catalogs and price lists.
Records and Inspections
Because the sales representative will often times have a great deal of contact with customers, the sales representative will usually be obligated to maintain basic records relating to its sales activities and customer contacts and visits. The agreement should provide that the records may be reviewed from time to time by the manufacturer or provider of the products. The usual terms of inspection will be that the manufacturer or provider has the right to inspect books and records at any time after the sales representative (or its affiliate) has been appointed as the independent sales representative. The provision should state that the manufacturer can also audit the books and records of the sales representative at any reasonable time.
Confidentiality
In order to protect the interest of the manufacturer, the agreement should require the sales representative to keep confidential, secret and not disclose certain confidential information identified in the agreement. The information that is considered confidential includes company trade secrets, plans and policies, prices, customer and supplier lists and information and other proprietary information of the manufacturer or provider of the products.
Termination
The obligations of the manufacturer and the sales representative should enjoy a reasonable period of time after the expiration or termination of the agreement to continue post-agreement obligations, such as warranty obligations, decisions on outstanding orders, collection and payment of accounts, payments of commissions and referrals to the sales representative regarding customers of the products. The obligations of the parties in the event of termination should be mutually reciprocal.
While the above items are some of the primary issues that need to be addressed in an independent sales representative agreement, there are many other terms and conditions that may need to be included in a sales representative agreement depending upon the relationship between the parties and the nature of the products. In addition, the laws of the specific state where the sales representative is located may place restrictions on the rights of a manufacturer or provider of products.

Legal Considerations in Sales Representative Agreements

Businesses must consider various legal aspects when it comes into force, a sales representative agreement. First, the company must choose a governing law and jurisdiction. It is possible that throughout the business relationship, including during the negotiations for an agreement, the representative may sell the company’s business in a country where its headquarters are legally registered to do business. Thus, a company may become subject to that law. Therefore, choose a country where you would like to be governed. Additionally, the company must think of the tax situation within this country. Some countries have regular taxes while others have special taxes like coastal regions. The terms of the jurisdiction (governance) also need to be accounted for. You must negotiate the circumstances that will allow you to convene these jurisdictions. Once the company picks a jurisdiction, they have to ensure that their sales representative agreement does not conflict with existing law and regulations in country. A conflict with a foreign law can impact the background of contract; for example, in law of agency, your sales representative may be obligated to affect a minimum number of sales. Failing to regulate mandatory provisions of a contract can lead to a reduction of the damages which can be awarded to the innocent party. The contract is voidable; thus, it can be annulled by either of the parties to the agreement. The most severely affected party tends to be the innocent party who may be pursuing damages. Therefore, it is prudent to check the country’s laws before hand. The laws may vary as you seek to enter new markets.
There are other obligations not covered by the contract, but applicable in certain countries. For example, do not force an independent contractor to join an exclusive territory especially if they are exempted from that obligation. This may be in violation of regulations in some countries. Do not put any territorial restrictions on the compensation practices and the remuneration of an agent. The remuneration varies from one state to another as dictated by laws of agency. Personal liability has to be limited by a company in certain countries. The guidelines on export sales and agreements provided by WTO and the GATT (General Agreement on Tariffs and Trade) are binding, thus a company has to observe the Agreements of the WTO and the GATT and other trading rules.

Personalizing Your Sales Representative Agreement Template

While the standard sales representative agreement template provides a solid foundation, it’s critical for businesses to modify and enhance the document to address their unique circumstances. Depending on the nature of your industry or business model, you may need to adapt certain clauses or add new provisions to ensure comprehensive coverage. For example, if your business requires sales representatives to handle payment processing and refunds for returned items, this should be clearly outlined in the agreement.
If your company offers commission-based incentives tied to specific sales targets or revenue milestones, these should also be discussed in your sales representative agreement. Any commission structure can be complicated, and the terms of your compensation should be specifically spelled out to avoid future disputes. It’s also important to identify both the duration of the agreement and the process for renewal and termination of the sales representative relationship.
As applicable , the sales representative agreement should also include contingencies for conflicts of interest and termination in the event of such a dispute as well as the consequences for violations of confidentiality or non-compete agreements. You should have a policy in place with regard to what happens when either parties sustains damages or losses during the contract term. The ability to take corrective action against the other party is determined by the terms of the sales representative agreement.
You may also want to consider including any additional intellectual property specifics in your sales representative agreement. For instance, your contract may specifically state the physical or electronic channels through which sales representatives market your products and where intellectual rights to any content are held.

Pitfalls to Avoid

The most common mistakes made by companies when developing a sales representative agreement are:

1. Failing to establish clear guidelines and terms of the relationship with the representative. This could include expectations for directing customers to your website, customer service expectations, scope of representation to Internet customers, use of business name in the Internet domain name, etc. This is especially important because the company cannot reasonably require the representative to get approval from the company prior to sending email or web advertisements due to the costs involved. The representative will need guidelines and procedures to follow in order to advertise.
2. Drafting an incomplete Agreement. The most common situation is that the sales representative independent contractor Agreement is a "cut and paste" from another state. Because sales representatives are typically paid by commission and/or have the right to resell the product, the contract needs to be state specific. In many states, such as California, Illinois and New York, the law provides a statutory cause of action against companies for wrongful termination if the terms of the employment are not followed. Many of the contracts I see also do not give sufficient notice for the representative to terminate the employment and leave the product in the field. This allows the company to continue having your customers serviced. Remember the critical role that the independent contractor plays in an Internet business. The company simply cannot afford to have a disgruntled independent contractor making disparaging remarks about the product and/or the company that would scare customers away. The company needs a written agreement that makes it clear why the independent contractor is no longer with the company, and to whom the customers should now look to in order to obtain the product.

Advantages of Sales Representative Agreement Templates

While some purchases require detailed agreements to cover the multitude of variables that can cause disputes, transactions for common goods and services are different. It is neither necessary nor efficient to develop a new sales representative agreement from start to finish for each new transaction. A good sales agreement template proposes the terms most likely to be relevant to all transactions, and then allows you to modify them to suit the needs of the specific transaction.
You can save time when you use a template. The quicker you can close a deal, the faster you can move on to your next sales prospect. Having a sales representative agreement template that incorporates the range of issues relevant to your business (i.e., timing of payments, number of orders, specific prices, etc . ) saves you the time of tracking down all of this information, then drafting it into a proposed sales representative agreement.
Consistency helps your reputation. When you follow the same process for each deal, you instill confidence in your business practices. Your customers will likely return not only because of your prices but also because of their confidence in your business practices.
Easier compliance. Whether you regulate your industry or operate across multiple states or countries, your business practices must be compliant with the law. If the template includes a choice-of-law clause, it will be easier to ensure compliance with that choice of jurisdiction’s laws. In addition, if you face a dispute, the choice-of-law clause you had in the contract may prevent the dispute from occurring in the first place.