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4.3 Distribution, agency and other contracts

When you want a stable presence in a market, you sign a contract with a local partner. The distributor buys and resells; the agent mediates and earns a commission. Each arrangement splits inventory, collection and control differently.

Module 4: Contracts and Incoterms® · Reviewed on 20/10/2026 · Español

Goal: Tell a distribution contract from an agency contract, choose the one that suits a company and calculate which option leaves more money.

Selling abroad is almost never a single sale. When you want a stable presence in a market, you need a contract that defines the relationship with your local partner. The most common are the distribution contract and the agency contract. They look alike, but they split risks differently. How to choose the way to enter a market is covered in topic 3-1.

A distributor buys your goods, resells them in its own name and on its own account, and earns the difference between the purchase price and the selling price. It holds inventory, serves customers and bears the risk of not selling or not collecting. Each of its purchases is an international sale, so the ideas in topic 4-1 apply. The usual practice is to sign a framework agreement and then issue purchase orders. In general, the CISG reaches each specific sale; the framework agreement is governed by the law you choose.

An agent, or commercial representative, looks for customers and handles orders for you, and earns a commission on each sale achieved. It does not buy the goods. The sales contract is signed between you and the end customer. That is why you bear the inventory and the collection risk, but you keep control of the price and of the relationship with the customer. Define in writing whether the agent can sign in your name. In several countries the law protects the agent, for example with compensation when the contract ends, and those rules may apply even if your contract says otherwise.

The same clauses matter in both contracts: the territory where it can sell, exclusivity (whether only it can sell there), minimum targets for purchases or sales, the term and renewal, the notice to terminate and what happens at the end with the inventory, the customers and the brand. Grant exclusivity only in exchange for minimum targets. Otherwise, you can block your own market with a partner that does not sell. The competition authorities of the country where the contract applies (in Peru, INDECOPI) may review exclusivity and the rules on resale price.

There are other useful contracts. Consignment: you send the goods to a third party who sells them and pays you when it sells; you keep ownership and risk (covered in the Exports course). Franchise: you grant your brand, your method and your support in exchange for periodic payments. Brand or technology license: you authorize its use in exchange for royalties. Contract manufacturing (maquila): another company makes goods to your specifications. The confidentiality agreement: signed before sharing sensitive information. Before granting a brand, register it in the partner's country. Some countries also require registering the license contract.

Key ideas

AspectDistributorAgent
Who buys the goodsThe distributor, in its name and on its own accountNo one in the relationship: the end customer buys from the exporter
How it earnsMargin between the purchase price and the resale priceCommission on each sale achieved
Who signs the sale to the end customerThe distributorThe exporter (the agent only if it has power of attorney)
Inventory riskThe distributor's, once it buysThe exporter's
Risk of collecting from the end customerThe distributor'sThe exporter's, unless agreed otherwise
Control of the final priceLower: the distributor sets its price, within the limits of competition lawHigher: the exporter sets the price
When it worksMarket that requires stock, after-sales service and local logisticsNew market or made-to-order product, with little local fixed cost

Worked example

Sacha inchi oil in Mexico: distributor or agent?
  1. Situation (fictional company): Sacha Gourmet S.A.C. wants to sell 8,000 bottles a year of sacha inchi oil (250 ml) in Mexico. It evaluates an exclusive distributor or a commercial agent. The same international freight is assumed in both cases and is left out of the comparison.
  2. Distributor option: it buys at US$ 6.00 per bottle and resells at its own price. Exporter's income: 8,000 × US$ 6.00 = US$ 48,000. The distributor keeps the inventory, serves customers and bears the collection risk.
  3. Agent option: the exporter sells directly to stores at US$ 8.00 per bottle: 8,000 × US$ 8.00 = US$ 64,000. The agent's commission is 8%: US$ 64,000 × 0.08 = US$ 5,120.
  4. Costs the exporter now bears (assumed): local warehousing and delivery at US$ 0.60 per bottle = 8,000 × US$ 0.60 = US$ 4,800, and bad debts of 2% of sales = US$ 64,000 × 0.02 = US$ 1,280.
  5. Result with agent: US$ 64,000 − US$ 5,120 − US$ 4,800 − US$ 1,280 = US$ 52,800. With distributor: US$ 48,000. The agent leaves US$ 4,800 more, but requires capital, logistics and collection management in Mexico.
  6. Decision: it is its first export to Mexico and it has no warehouse or collection experience. It chooses the distributor, with exclusivity limited to the territory of Mexico and an initial term of 2 years.
  7. Minimum target: 6,000 bottles a year, that is 6,000 × US$ 6.00 = US$ 36,000 of annual purchases. If in the first year it buys less, the exporter can end the exclusivity with 60 days' notice.
  8. Close: at the end of the contract, the exporter can buy back the unsold inventory at the original price and the distributor stops using the brand. Before shipping, the company registers its brand in Mexico.

Result: The agent leaves US$ 4,800 more a year, but the exporter chooses the distributor because it cannot store, deliver or collect in Mexico. It protects its position with limited exclusivity, a target of US$ 36,000 and clear rules for the end.

Real cases

The ICC offers separate models for agency, distribution and franchising

10/2026

The International Chamber of Commerce (ICC) catalog of model contracts includes, among others, a Commercial Agency model, a Distributorship model, an International Franchising model and a confidentiality and non-circumvention agreement for occasional intermediaries. The fact that separate models exist for agency and for distribution confirms that they are different relationships, with different clauses. An SME without a lawyer in every market can start from these texts.

Start from a recognized model for your type of relationship and adapt it with a lawyer from your partner's country.

Source: ICC (CCI) – Model contracts and clauses

The European Union regulates commercial agents by directive

18/12/1986

The Council of the European Communities adopted on 18/12/1986 Directive 86/653/EEC on self-employed commercial agents, which appears in EUR-Lex, the official portal of Union law. It is a Community rule that harmonizes the laws of the member states on this type of contract. For a Peruvian exporter, appointing an agent in an EU country does not depend only on what the contract says: local law may grant rights to the agent.

Before appointing an agent abroad, ask a local lawyer what rights the law of its country gives it.

Source: EUR-Lex – Directiva 86/653/CEE sobre agentes comerciales independientes

The Andean Community allows registration of a trademark license to be optional

2008

Decision 689 of the Andean Community allows member countries to make optional the requirement to register the license contract for the use of a trademark. That is, the rule on registering licenses does not have to be identical in all Andean countries. Whoever licenses its brand must check, at the industrial property office of the partner's country, whether registration is mandatory or voluntary.

Before licensing your brand in a country, confirm at its industrial property office whether you must register the contract.

Source: Comunidad Andina – Decisión 689 (texto en WIPO Lex)

Common mistakes

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