To find prospects, leads and sell SaaS software to customers on a global basis outside of the countries in which the supplier is located, you will need to use a distributor or agent.
Suppliers need to decide whether the local partner acts as an agent or a distributor. There are important differences between agency and distribution and the advantages and/or disadvantages of both need to be carefully considered.
What is an Agent?
An agent is a person or company who acts on behalf of the SaaS supplier to find leads and/or assist with sales of the supplier’s SaaS software to local customers in the agent’s territory. The agent has no legal relationship with the customer – the agent has no contract with the customer. The supplier enters into a SaaS agreement, with the customer using the supplier’s terms and conditions and SLA.
Any implementation issues or software errors that the customer encounters during the course of the SaaS agreement will be the supplier’s problem. The supplier will be liable to the customer under the SaaS agreement and will be obliged to resolve all issues directly with the customer.
What is a Distributor?
A distributor is a person or company who enters into a distribution agreement with a supplier to purchase the supplier’s SaaS software and services. The SaaS software will be sold to the distributor pursuant to the supplier’s SaaS terms and conditions and SLA. The distributor then resells the SaaS software and services to its local customers in the territory using the distributor’s own terms and conditions and SLA. A reseller is the same as a distributor.
The supplier has no legal relationship with customers – the supplier has no contract with customers. The distributor sells the SaaS software directly to customers, as if it were his own software. Any implementation issues or software errors that the customer encounters during the course of the SaaS agreement will be the distributor’s problem. The distributor will be liable to the customer and will be obliged to resolve such issues directly with the customer.
Advantages and Disadvantages of Agency Agreements
- the local knowledge of the agent
- established commercial contacts of the agent
- the agent speaks the language in the territory
- the agent understands the local selling culture and customer requirements
- the supplier retains control over the sales process and the choice of customers
- the supplier uses its own terms and conditions
- the supplier must adapt its terms and conditions to comply with local law
- terms and conditions must be in the local language
- if the agent is located in the EU, the supplier must pay commission for up to a year after termination of the agency agreement (regardless of the reason for termination)
- the supplier can be liable for paying tax in some territories – as he is deemed to be trading there
Advantages and Disadvantages of Distribution Agreements
- the local knowledge of the distributor
- established commercial contacts of the distributor
- the distributor speaks the local language
- the distributor can provide customer support in the local language and within the customer’s local business hours
- the distributor understands the local selling culture and customer requirements
- the distributor uses its own terms and conditions which are already in the local language and compliant with local laws and regulations
- the supplier does not need to adapt its terms and conditions to comply with local law
- the supplier does not have to pay any mandatory fees after termination of the distribution agreement
- the distributor will be responsible for obtaining local licenses and permits
- the distributor has no control over the sales process
- the distributor has limited control over choice of customers
- in the EU, anti-competitive terms in the agreement can result in large fines, for example price fixing, prohibiting passive sales
- the length of the agreement cannot be unlimited if exclusive rights are granted
- local competition law will also apply to agreements involving parties outside of the EU
Irene Bodle is an IT lawyer specialising in SaaS distribution and agency agreements with over 10 years experience in the IT sector. If you require assistance with any agency or distribution agreement, SaaS agreement or any other IT legal issue contact me:
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