Agreement on an Advance being made Creating Sole Agency for Buying Raw Materials and Selling Manufactured Products

Agreement between the principal and the agent regarding an advance being made creating sole agency for the purchase of raw materials and manufacturing of products.

Before a transaction can occur, the principal and the agent need to negotiate the price of the item to be sold and the conditions for the transaction. This includes any advancement required by the agent to procure the necessary materials for the final manufactured product.

The model agreement accessed on www.LawyersEzyfind.co.za provides a framework for the negotiation process. The agreement is often used in cases of a large purchase, such as a piece of real estate, or frequent purchases over a period of time.

These types of agreements are used by large, publicly traded companies in their supply chains. An agreement may be used when obtaining a large number of materials from a supplier or in the case of a large-scale single purchase.

This type of agreement may also function as a contract for revolving purchases, such as a monthly delivery of materials bought monthly over the course of a year. The purchase/selling price can be set in advance, even if the delivery is set at a later date or spread out over time. The agreement is set up to help the principal and agent forecast demand and costs, and this will become more critical as the transaction size increases.

Sole Mandate
An exclusive or sole mandate serves as insurance that an agent is accountable for the sale of your products. For an agent, a sole mandate guarantees their commission, they are fully incentivised to focus on marketing your products and to negotiate the best price. The agents know that they can spend money on wide-reaching marketing, premier listings on product portals and social media because they will earn their commission on the sale.

A sole mandate period is relative to the time your products are expected to sell in the market. Depending on the price presented to the market, this mandate may be between one to twelve months. If your agent does not sell your products within the mandated timeframe, the mandate may be extended. If you are unhappy with the performance of your agent, you can give notice to terminate the mandate and instruct another agent to sell your products on a sole mandate.

All potential buyers will need to be noted when the mandate is passed on from the first agent to the next, to ensure that a buyer introduced in the initial mandate is not introduced by the second agent. This may result in a reason for a double commission claim.

It is important to select an agent who has a good track record to ensure that any advance payment made to the agent is done so in good faith. As a seller, you should ask a prospective agent about their recent sales, request testimonials and test their knowledge of your area, after all, this is a short-term business partnership.

It is also important to know where the agent will be sourcing their buyers from and their marketing strategy for the sale of your products. When you are selling your products, it is safer to choose one great agent to deal with your transaction as this will ensure speedy accountability should any discrepancies occur.
Seek out an agent you can form a trusting, working relationship with and who also has the support of their sales team and effective interaction with other agents and agencies. Having one point of reference overseeing the marketing and sale of your products will give you peace of mind that you are working together to achieve the best price for your products.

Commission (Advance Payment)

Commission” means the part of the remuneration that varies depending on the number of sales or their value. In other words, the agent’s fixed remuneration, cost reimbursements, bonuses or profit- sharing schemes that relate to the principal’s success only, or after- sales service remuneration, are not “commissions” and thus fall outside the provisions dealing with the agent’s right to commission described in this section.

If the agent is remunerated by commission, the following provisions apply:
A commission can be due for a transaction that is concluded as a direct result of the intervention of the agent, for a transaction that is concluded with a customer that was previously solicited by the agent for similar transactions, or for a transaction with a third party customer if it has been agreed that the agent would be exclusive to a specific territory or a list of customers and the transaction was concluded in that territory or with one of those listed customers.
The commission is deemed earned when:

• the principal has performed, or should have performed, its obligations to the customer; or
• the customer has performed its obligations, whichever is earlier.

Thus, for example, commission will ordinarily be earned when delivery is made or should have been made, but if advance payments are made by the principal’s customers, pro rata commission will be earned earlier, on the date of such payments.
The parties can agree that commission will not be due until the customer performs its obligations (for example, pays for the goods/services) or until the date the customer should have done so if the principal had performed its obligations when it should have (a provision of “del credere”) but they cannot agree that the commission is due any later than this time.

The right to receive commission will become due the day the commission shall be paid in regards to the parties’ agreement.

Any commission due must be paid, at the latest, on the last day of the month following the calendar quarter in which the commission became due. The parties may agree to a shorter period for the payment of the commission. However, the agreement of a longer period will not be valid. The commercial agent may demand an advance payment on the commission due, plus any expenses or other disbursements (assuming that the agent is contractually entitled to claim such expenses or disbursements). The commercial agent may only demand advance payment for work completed. He may therefore not demand advance payment for future agency activities.