What is a Wholesale Agreement?
A wholesale agreement refers to a legally binding document between at least two parties where one of the parties sells goods to the other at a significantly reduced rate. The seller may sell to a physical location or to a smaller distributor that sells to a customer base. In most cases, the agreement covers larger volumes of goods and is used both by wholesalers and main suppliers or manufacturers.
The purpose of a wholesale agreement is to grant authority the right to buy goods at a lower price than the retail value in exchange for reselling items. The buyer (or distributor) typically buys a quantity of goods to sell them to online vendors, brick and mortar stores or other outlets . This is beneficial for the seller because it helps grow business and it gets rid of older products that would otherwise take up inventory space. In some cases, sellers offer this type of agreement to other businesses, like restaurants, donut shops and flea markets.
In commercial transactions, a wholesale agreement is meant to be an easy guide of what the agreement includes and why the buyer is buying a certain number of products. For instance, many distributors usually buy a few hundred pairs of shoes with the intent of selling them online. Sometimes the agreement is simple listing of all the types and quantities of shoes. Other times it lists how many pairs of each type of shoe and the correct price. It also often includes the types of buyers and how much a retailer must pay to get the wholesale price.
Essential Terms for a Wholesale Agreement
Understanding a Sample Wholesale Agreement: Key Elements and Best Practices
While the specific content of a wholesale agreement will vary based on the circumstances, in general, the following are the key components:
Parties to Agreement: The agreement should specify all parties lawfully engaged in the business of buying and selling the wholesale products offered by the supplier.
Products: The agreement should specifically identify with sufficient description the products or the inventory for purchase, sale or review. This should include details such as brands, names or numbers of items (e.g. SKU), and any other details that can be used to differentiate the items contemplated by the wholesale agreement.
Pricing: Pricing specifies the costs for the products offered by the wholesaler (or supplier). In addition, it must account for the wholesale price and any discounts for volume purchases. If applicable, pricing details the retail price expected for the wholesaler to sell the products. As well, any anticipated costs for shipping and delivery should be included, as this is crucial information for wholesalers.
Payment Terms: In addition to prices for the products, payment terms determine how the wholesaler will compensate the supplier for the products. Typically, a wholesaler will pay within a specified period of time or at the time of shipment. As well, payment terms may include the form of payment (e.g., cash, credit, etc.).
Delivery Schedule: The delivery schedule details when and how transportation will occur. If the supplier is handling shipping, payment terms should address responsibility for these costs. If a wholesaler is responsible for shipping, the terms should include terms and responsibilities for adequate insurance.
Legal Obligations: Legal terms specify the rights and obligations, including termination, scope of confidentiality, and if applicable, waiver. In addition, a wholesale agreement should be signed by all parties to denote their approval of the terms and conditions.
Advantages of a Wholesale Agreement
One of the most significant advantages of using a wholesale agreement is that it provides clarity on the terms of the business arrangement. By having a clear, written agreement, both parties can be on the same page when it comes to pricing, payment terms, delivery dates, and any other important details of the transaction. This reduces the likelihood of misunderstandings or confusion. It also provides each party with a greater sense of security, as they have written documentation to refer to if any questions or disputes arise at a later date. Another important benefit is that a wholesale agreement reduces risk. When entering into a wholesale transaction, there are usually a number of risks involved. These could include the risk that the buyer does not pay for the goods, the risk that the seller does not deliver the goods, or something else. However, a well-drafted wholesale agreement can provide a clear outline of how both parties are expected to fulfil their end of the bargain. Further, the agreement can include specific provisions that divvy up the risk in a fair manner in the event that something goes wrong. Finally, creating a wholesale agreement can help to establish a positive business relationship between the buyer and the seller. This is especially important for new buyers or sellers. If the buyer is new, a formal agreement can ensure that they are a reputable business. If the seller is new, a formal agreement can ensure that the buyer’s expectations of quality are met. Moreover, an agreement will help to ensure that both parties treat each other with respect and do not abuse their respective positions within the business arrangement.
Common Provisions in a Wholesale Agreement
Typically, wholesale distribution contract disputes arise due to one of the following issues:
Dispute Resolution
Unless negotiable, many of these agreements have compulsory arbitration clauses. In addition, many wholesale contracts require the parties to mediate a dispute before bringing it to arbitration or any court. The parties should negotiate a clear remedy for potential breaches. However, if the parties cannot reach agreement, the contract should state:
Termination
Regardless of the type of agreement or contract, a potential breach or claim will usually create a dispute. After coming to a resolution regarding a potential breach, the agreement should list the conditions that would allow either party to terminate the agreement, such as:
The agreement should also state what the parties plan to do with any existing inventory at time of termination or expiration. It is also important to list what conditions could lead to, or even require, termination.
Confidentiality
Many wholesale contract agreements contain confidentiality agreements. In some cases, the agreement may refer to a mutual confidentiality agreement. However, a good wholesale agreement should also contain Confidentiality Terms. These terms should:
Liability Limitations
Parties should include an Indemnification clause, as this will protect them from responsibility for any liability incurred by the other party. A typical Indemnification clause will require that the parties indemnify the other party for claims arising from bodily injury, personal injury, death, property damage, or economic loss. The indemnifying party is the one who is responsible for any cost, expense, or other damages. The indemnified party has the right to be wholly defended from any claims and be held harmless from any resulting costs or liability. The parties should also outline in the agreement what expenses may not be reimbursable.
Writing a Sample Wholesale Agreement
When creating a sample wholesale agreement, or any other contract, there are certain things that you will want to keep in mind to ensure that your agreement is effective. First of all, we don’t want our sample agreements to be entirely unrealistic. It’s great to have a perfect situation in your mind and to think about drafting with that situation in mind, however, real life will probably not be perfect. For example, there will be many cases where you need to change the language or where the parties won’t entirely agree to each and every provision. That’s ok. The goal is to create something that you can use as a launching point and you can change the language moving forward. You can also have both parties initial underneath the revisions so that you can prove that they were approved . After the fact, you won’t be able to change the terms of the agreement, but we want to make sure that we are able to do it during the drafting process.
We also want to use neutral language as much as possible. We don’t want to say "the seller will give the buyer 5000 bottles of XYZ brand of vodka." Instead, we want to refer to them as the "seller" and the "buyer." You will want to be sure not to put things in future tense either. It can make it sound like something may not happen. If an agreement is signed during a specified period, the language will dictate not only when a party is supposed to do something, but what’s important is that a party has to do something. These contracts are enforceable just because a party is supposed to do something. You don’t want to use future tenses because they aren’t promises.
Legal Considerations and Regulations
It is essential that both the supplier and the buyer understand their respective legal obligations when entering into a wholesale agreement. Compliance with local, national, and international laws is of the utmost importance. International trade, for example, is governed by various treaties and accords which, if not adhered to, can result in penalties or restrictions on business activities.
Both parties should also consider any specific industry regulations that may apply. For instance, industries such as pharmaceuticals and food processing have their own set of regulations which must be followed in order to ensure safety and quality control.
To take advantage of all relevant protections provided under local and international law, it is crucial that parties to a wholesale agreement consult with a corporate attorney. An experienced attorney can provide guidance on the best practices to ensure compliance and offer advice on risk management strategies. They can also help negotiate and draft agreements, making certain clauses and provisions are enforceable. This can help to protect both parties from potential legal disputes in the future.
In short, a wholesale agreement is a vital document that protects both parties in a transaction. It is therefore important to understand the legal implications and ensure you are in full compliance with all applicable laws and regulations. Consulting with legal professionals can mitigate risks and create a clearer understanding of the rights and responsibilities of each party.
Customizing a Wholesale Agreement Sample
Businesses must ensure that the sample elements they utilize are appropriate for their specific circumstances. Modification of terms and conditions in a wholesale agreement is an important step to tailoring wholesaling to your specific operational requirements. For example, if the GIANT DISCOUNTER wishes to be responsible for transportation costs relating to the distribution of the Wholesale Products , this requirement should be modified so that GIANT DISCOUNTER pays for all transportation costs. For instance, if the Product is shipped from the Manufacturer to several of the Stores, the Sample Supplies Agreement makes the Manufacturer responsible for transportation costs. If this is the intent, any ambiguity with respect to payment responsibilities should be avoided. Awareness of the laws and rules which must be complied with when modifying a sample Wholesale Agreement is also critical.