A retail vendor agreement identifies the relationship between a retailer and a wholesaler. A well-planned retailer agreement assists in inventory tracking and pricing.

Retailer Agreement Basics

Vendors and wholesalers should utilize a retailer agreement if they'd like to sell their product to a retailer or purchase the product and sell it directly to a retailer.

A retailer agreement may also be referred to as a retail agreement or a retailer contract.

Things to Watch out for in a Vendor Agreement

There are five things to look out for when forming your vendor agreement:

  • The type of sale.
  • Terms.
  • Discounts.
  • Shipping and delivery.
  • Remittance details.

Type of Sale

The sell-through rate is a calculation, commonly represented as a percentage, comparing the amount of inventory a retailer receives against what is actually sold. Unless a retailer agreement specifies that the sale is final, the risk of the product being returned from the retailer to the supplier is possible.

Consignment is a business arrangement in which the retailer agrees to pay the supplier for merchandise after the item sells. If the supplier sells their product on consignment, they're essentially guaranteeing the sale to the retailer.

When a product is sold as a true sale, the risk of it not selling is passed on from the supplier to the retailer upon delivery. A business will sell its accounts receivable to a factoring company to immediately increase their cash flow. Most of the time, factoring companies will only purchase accounts receivable transactions that are classified as a "true sale."

Terms

Most of the time, factoring companies will not purchase invoices that are over 90 days old, and most banks will not increase their margin on these transactions either. In order to meet your debt obligations, it's important to understand when your payment terms officially begin. The abbreviation "EOM" or end of month, means that the payer must issue payment within a certain number of days following the end of the month.

Discounts

Cash flow is a critical component of an organization. Early payment discounts may be provided to retailers in order to encourage a quick payment to their suppliers. Some vendors may offer an early payment discount such as 2/35, net 60. This means that the retailer may deduct 2 percent of the amount owed if the vendor is paid within 35 days instead of the normal 60 days. For instance, an invoice amount of $10,000 can be settled in full if the retailer will pay $9,800 within 35 days.

In a vendor agreement, many vendors also include a section for additional discounts and deductions. Some of the deductions are on-invoice, on the actual invoice, and others are off-invoice, received outside the invoicing process. The deductions can reach up to 10 percent and include such things as promotional allowances, cooperative and marketing fees, and defect fees. Companies looking to factor their invoices will need to deduct all available discounts in order to determine the amount of available funds.

Shipping and Delivery

Shipping terms identify the moment a vendor can invoice a retailer. They also determine the moment when liability for the product is transferred from the vendor to the retailer.

Freight on board (FOB) is a trade term that indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. FOB vendor's warehouse means the buyer is at risk once the seller ships the goods. FOB customer's dock means the seller retains the risk of loss until the goods reach the buyer.

It's important to carefully read the terms of delivery to understand your risk of loss. Vendors may be charged penalties from the retailer for doing the following:

  • Missing delivery times.
  • Taking too long to unload.
  • Not delivering the goods as specified in the terms.

Remittance Details

Remittance details should be submitted to the retailer upon receiving a vendor number. This will include documenting how the vendor will be paid. A business that is interested in factoring their invoices will most likely need to update their remittance details to reflect a bank account that is accessible to the factoring company. Remittance details should be submitted to the retailer early in the partnership process as it may take some time to accurately setup the vendor in the retailers accounting system.

If you need help creating a retail vendor agreement, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.