A wholesale agreement binds a supplier and a customer and establishes the business's rights and obligations between the two parties. One party (supplier) primarily supplies wholesale goods to the other (customer).
Having this agreement enables parties to be clear on what they have agreed on. Moreover, it acts as protection to minimize the possibility of a dispute in the future or protect your business on the chance that something goes wrong. Usually, if you have customers to whom you offer a wholesale deal, it is because their purpose is to purchase a larger volume of goods from you than other customers.
The principal clauses to include in your wholesale agreement should be; Minimum order quantity ('MOQ') and Minimum Order Value ('MOV') A crucial component of any wholesale agreement is the minimum order quantity and value.
The MOQ sets out the minimum amount of goods a customer can order, whereas the MOV details the minimum requirement for the minimum price an order can cost. Promising a more attractive price for your buyers needs to come with a commitment on their part; otherwise, only the customers can gain from this relationship. To enforce this, your wholesale agreement should clearly state the minimum orders.
On many occasions, a wholesale agreement can have a tiered structure in which you state the price based on the order quantity, allowing flexibility and an incentive for the buyer to order more. Orders and Deliveries The wholesale agreement should clearly state how customers will order the wholesale goods. Orders can range in formality from customers requesting orders through an email or making a phone call, or using a purchase order form you present to them. The order should outline;
The wholesale agreement should state how the price of goods is calculated or communicated to the customer. Both of you may agree to a price list in many wholesale arrangements. It aims to establish fees for the term. In other cases, you can change the prices throughout the period as you wish. If the prices are locked in, you should consider how long the contract will last.
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You should also consider if it is commercial to lock in prices for such a long period. Another concern is whether anything could result in costing more for you to produce the goods.
Exclusivity It's essential to include an exclusivity clause in your wholesale agreement. Whether you intend to give your buyer certain exclusivity rights, it is critical to outline what that entails. If you plan not to provide exclusivity rights, that needs to be drafted to avoid legal hiccups.
Similarly, do, however, agree on a particular exclusivity arrangement. You'll need to be crystal clear on how it will work, how to enforce it, and when it can be terminated. Payment Terms Lastly, the clause on payment terms, Arguably one of the essential components of a wholesale agreement. The payment terms are a must if your business is not getting paid on time.
Not getting paid on time can have cash flow problems and potentially complicate the company. Therefore, the payment terms ultimately ensure that the supplier gets paid for the goods they produce. As a supplier, you may decide to receive payments upfront. Or, you may agree to accept payments over instalments or after delivery.
Allowing the customer more extended payment periods can expose your business to financial risks. You'll need to establish when payments should happen and whether interest will be accrued on delayed payments. Term and Termination If you offer customers a good deal on their pricing, you will want to lock them in to be long-term customers.
You can achieve this by setting out the contract's length in the wholesale agreement and not allowing the customer to terminate early for their convenience. Coupled with minimum order quantities or minimum order values and exclusivity provisions, this should give you confidence that you will have lots of business going forward.
Additionally, it should allow you to estimate the relationship's value. If you need assistance drafting a wholesale agreement, kindly contact our lawyers at Gracenlaw Advocates at cousel@gracenlaw.com
