Why Renew Representative Agreements Every Year?

October 7, 2021
International Business

Why Renew Representative Agreements Every Year

Suppliers and manufacturer’s representatives can often end their relationship when there is a dispute that cannot easily be solved between them. This assistance can be in the form of a court, teams, or arbitrators. These three options are costly in time and money. The worst course of action is to rely on legal alternatives. Is it possible to draft a representative agreement that minimizes the need for the involvement of lawyers, courts, or arbitrators? Yes! This article explains how the parties can terminate their contract without having to involve the courts by making sure that the deal has an annual renewal provision.

What is Annual Renewal?

A clause for an annual renewal allows for automatic termination and renewal at the end of each fiscal year or calendar. This clause may have two to four paragraphs and is rarely complex. An example clause would say, “This agreement will automatically terminate, effective December 31, of the year it was signed.” If either party (supplier, manufacturer’s representative, or supplier) decides not to enter into a new arrangement, they must notify the other party in writing at least 30 days and no more than 60 days before December 31.

It is possible to terminate the agreement in the middle of the contract year. This can prove challenging. One party can attempt to end the deal “for cause” if it becomes unhappy with the other during the middle year. Sometimes, the opposing party can accept the problem and take responsibility for the cause (e.g., understaffing, poor performance, or failure to arrange customer meetings or seminars or any other number of “causes.” In these cases, the parties terminate the representative agreement mid-contract year. Life moves on, and both parties continue to follow their respective paths.

Suppliers and manufacturers’ agents may disagree on the nature or cause of a problem. If a supplier decides to terminate a manufacturer’s agent “for cause,” and the agent differs about the supplier’s assessment of the situation and takes ownership, it can be difficult, if not impossible, to prove cause outside (i.e., legal) assistance. If there is an annual renewal clause within the representative agreement, it is possible to solve this problem by waiting until 60 days before the end of the contract. Send a Notice to Terminate your partner. This case allows both the manufacturer’s agent and the supplier to spend their final days together focusing on customer issues. They also avoid wasting energy bickering over problems.

What are the benefits of an annual renewal?

Annual renewal may offer four or more benefits. Annual renewal forces both parties and their representatives to consider the possibility of terminating the agreement at the end. The illusion that termination is impossible cannot be believed by either party. Does it happen that suppliers and manufacturers’ representatives operate under illusions? Yes, unfortunately. The thinking of suppliers and representatives before termination is revealed by watching legal proceedings. Sometimes, one party believes that the relationship is more vital than they really are or that the annual provision in the agreement allows them to think that termination cannot be a possibility. A semiautomatic annual renewal provision is discouraged for being too optimistic.

A renewal clause is an additional benefit. Second, it’s less likely that you will need to take legal action. Each party must agree in advance to the possibility that the agreement will end at the end. It is less likely that a partner will take its partner for granted if it knows it may be terminated at the end of the year.

Third, legal proceedings are rarely a good way to increase the long-term profitability or value of a manufacturer’s representative or supplier. An annual renewal clause in the agreement will ensure that neither party feels compelled to spend management time or money on lawyers, courts, and arbitration. These non-productive activities will not be pursued by either party.

Fourth, customers can be used as a vehicle for manufacturers and suppliers to invest. If annual renewal provisions are added, and termination is inevitable, both sides spend the last days of the agreement focusing on their respective businesses and customers and not on legal disputes. This is good for both the supplier as well as the rep. An absence of an annual provision could lead to legal problems and a reduction in goodwill with customers. Friendship is not diminished, but it’s preserved with the yearly renewal provision.

Conclusion

A representative agreement should include an annual renewal clause. This will reduce the chance of costly legal disputes. A dispute can be avoided, and the representative of manufacturers and suppliers can use their resources more effectively to achieve their business goals.