In business, reciprocity matters. Distributors sometimes trust manufacturers so much that they don't even read the contract carefully, but sometimes traps are hidden in the contract. After selecting products, many distributors will receive a large number of distribution contracts, so understanding the possible contract traps can help identify them and protect their own interests from loss. The following "three traps and five cautions" are shared with every distributor friend. -01- Three Traps 1. Beware of verbal promises In the process of manufacturer-dealer cooperation, the most fundamental thing is the guarantee of mutual credibility, so it can be said that making promises casually is a major taboo in the sales process. Many distributors often encounter situations where manufacturers fail to honor verbal promises, such as promotional fees, publicity fees, advertising fees, store entry fees, year-end rebates, etc. They were agreed upon at the time, but later they "shrink," either not paid or underpaid. 2. Beware of vague sales policies A contract is an agreement reached by both parties. Currently, most distribution contracts are standard form contracts developed by manufacturers with legal and business experts. Such standard contracts often proceed from their own interests, ignoring provisions for the interests of distributors, so disputes are easy to arise. These problems mainly manifest as: (1) Unclear subject matter of distribution. For example, specifications, models, standards, etc., are vague. The manufacturer deliberately delivers inferior goods as superior, cheap as expensive, or old as new. (2) Unclear key terms. The most critical terms in a distribution contract are sales policies, such as the basis and time of delivery, conditions for returns or exchanges, allocation of advertising and promotional expenses, and the rate of sales rebates. However, these provisions are often not clear enough, such as "returnable if sales are poor" or "distributor's shelf coverage rate above 30%," which are very prone to ambiguity. (3) Excluding certain rights of the manufacturer. For example, the issue of direct interest returns. Since distribution interest returns are closely related to market changes at the time, it is generally difficult for distributors to determine them in advance when signing contracts, so it is impossible to list all corresponding terms in the distribution contract. Those temporary promotional policies are verbally communicated by the manufacturer, but whether and how they can be enjoyed is ultimately determined by the manufacturer, so the distributor's ultimate interests are hard to guarantee. 3. Beware of contract fraud In addition to the above risks, manufacturers may also use contracts to commit fraud. Small and medium-sized distributors generally lack professional legal knowledge, and many inferior manufacturers use unclear terms in distribution contracts to set traps, luring distributors into being deceived. This mainly manifests as: (1) Maliciously defrauding payments. Manufacturers use distribution contracts to collect a certain advance payment or market deposit from distributors, then only ship a small amount of goods, deliberately defrauding the full payment, or use the payment as shares to register a new company, immediately changing the company name, address, affiliation, trademark, etc. (2) Luring with hot goods. Manufacturers make false publicity to create an attractive scene of scarce and best-selling products. Distributors who are new to distribution hope to distribute best-selling products, sign purchase and sale contracts with the manufacturer, and pay advance payments or deposits. Sometimes, to obtain high rebates, they place large orders at the first time, but the actual situation is that the products are outdated or there is no market demand, coupled with the distributor's own sales capability issues, often resulting in large inventory backlogs and affecting capital turnover. (3) Bait and switch. During initial contact with distributors, manufacturers first perform several small contracts according to the distribution agreement, creating a false impression of strong performance capability and good credibility. After gaining the distributor's permanent trust, they sign a large contract, defraud a large amount of payment, and then disappear. (4) Impersonating identity. Some fictitious companies without a physical entity use the method of attaching to collective enterprises or state-owned enterprises, or impersonate the names of well-known and reputable companies, to gain trust and sign contracts with distributors, defrauding payments or goods. Once the distributor requests to inspect the goods, these lawbreakers try to show them other people's goods, and after defrauding the payment or deposit, they vanish without a trace. (5) Using communication technology to commit fraud. With the development of computer and communication technology, many manufacturers use the situation of the two parties being in different places to negotiate via fax, phone, or the internet. Many distributors sign distribution contracts after seeing the fax or email, pay deposits or guarantees, but the manufacturer does not ship or perform as agreed after receiving the payment. -02- Five Cautions 1. New product sluggish sales This corresponds to the "return and exchange clause." For brands you are in initial contact with, adhere to the principle of careful selection, and be sure to stock goods based on the principle that "even if the supplier doesn't handle it, you can still sell it yourself," after all, it's too time-consuming to argue with suppliers. As long as you repeatedly ask the supplier and friends in various places, figure out which products of the brand are best-sellers, sell best-sellers first, and once you have a foundation with best-sellers, then sell new products you are confident about, sluggish inventory will not occur on a large scale. For product sluggish sales, be very careful with clauses that say "no returns for non-quality issues." If you really want to take on this supplier's goods for sale, be sure to find a supplier person with decision-making power and solve the problem by reaching an exchange agreement. Otherwise, orders must be small—even if there are big promotional activities; also, don't stop because others have a no-return clause; mature products actually have few sluggish sales problems. Even in old markets, sales of new products can easily lead to large amounts of sluggish inventory. This should be very clear, otherwise, if you are brought into a desperate situation by the supplier's regional manager's fanatical distribution plan—large-scale distribution, large-scale returns, old dates, and dusty products piled up in the warehouse, and no returns or exchanges—then you are done for. 2. Out-of-stock compensation Out-of-stock means that the sales task during the contract period may not be completed, thus affecting rebates at various stages. Therefore, any form of out-of-stock and how the supplier should compensate should be clarified in advance. 3. Price protection The terms for handling cross-regional sales (channel stuffing) should be clear. Otherwise, in your market, you lose relative pricing power. Then the product promotion efforts you put in earlier are all in vain. If there are multiple distributors in a market, then price protection clauses must be included. Generally, when cross-regional sales are caught, the manufacturer should come forward to resolve it, and the region that caused the cross-regional sales should buy back the goods at twice the price from the affected region. 4. Price adjustment notification Price adjustments in the industry are usually increases, basically every two years. There are two types of price adjustments that are particularly fatal, and some distributors have suffered considerable losses. One is a downward price adjustment. This usually happens when a manufacturer sets a high price for a new product, but later sales are poor, so they reposition and simply lower the price. As a result, your inventory and your downstream customers' inventory all depreciate. You haven't made money, but the loss is real. Plus, since such products are usually not selling well, your loss is certain. The other is raising the price and then lowering it back. This usually happens when the manufacturer wants to raise the product price for various reasons, but for various reasons, the price increase fails, downstream customers don't accept it, and they are forced to restore the original price. This leads to the loss situation of the first type. Therefore, from the beginning, you should clarify with the supplier that price increases should be notified at least one month in advance. If the price increase occurs within one month, compensation should be given. 5. Contract term If the brand's influence is not strong locally, the contract term should be as long as possible, at least 2 years. Otherwise, you do the planting, but others reap the harvest. For brands with weak influence and heavy sales tasks, if it feels a bit strenuous and the contract term is only 1 year, such cooperation will not be pleasant. Source: Food Board (some viewpoints provided by senior marketing expert Chen Xiaolong) Tips will be paid 400-2000 yuan once adopted.