Choose and manage a commercial agent

Commercial agents are intermediaries that sell your goods or services on your behalf in return for commission.

Businesses usually appoint agents because they need their specialist help in reaching markets in a particular sector or geographical location.

Agents can be particularly useful for new businesses that have yet to build up a substantial number of contacts or can’t yet afford to employ a dedicated salesperson.

Many businesses use agents to access domestic markets – but they can be particularly useful in overseas markets where different customs, ways of doing business or language barriers come into play.

This guide will help you decide whether a commercial agent can help your business and explains how to find and choose a commercial agent and ensure the relationship works.

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Pros and cons

There can be advantages and disadvantages to using commercial agents.

Advantages

• Lower overheads – you don’t have to pay for the salary, the car or the office of sales agents.
• Agents are easier to recruit than experienced sales executives with specialist knowledge.
• Using a network of agents can be a cost-effective way of reaching a wide variety of markets.
• Some markets are difficult to break into without existing contacts, local knowledge and experience.

Disadvantages

• It can be difficult to control the agent’s activities and to make sure they continually work hard on your behalf.
• An agent might not sell your product or service in the way that you would like.
• They might sell to unsuitable customers who might undermine the integrity of your product.
• An agent might not fully understand your product or service and you may be better off with hands-on control.
• They can be entitled to compensation on termination of the contract even if they breached the agreement.

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How a commercial agent can help your business

Whether using commercial agents can help you develop your business often depends on the nature of your product or service and where you want to sell it.

If you are producing an easily recognisable product or service for a local market then there may be little point in appointing an agent.

But an agent may be able to gain access to a market that is unfamiliar to you or to a region where you have never sold before. They can also be helpful if your product or service has a wide appeal and you don’t have the resources in house to reach all those potential customers.

Agents are also useful if no one in your business has sales expertise, particularly in new businesses being developed by entrepreneurs whose main skills are in creating products or services.

Agents can also be used to experiment with selling into new markets and seeing whether they have any long-term potential.

Many businesses interested in targeting overseas markets appoint local agents to make contact with potential new customers. For information on selling overseas, see our guides on exporting: an overview and entering overseas markets.

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Find a commercial agent

There are a number of routes to finding the right commercial agent for your business.

Your local Chamber of Commerce library is likely to keep a database of agents.

It may also be useful to contact one of the major UK commercial libraries such as the Commercial Library in Manchester and Business Insight, part of the Birmingham Central Library.

It is important that you narrow your search to agents relevant to your sector. If you belong to a trade association it is likely to have listings of agents with specific knowledge of your industry or market.

Similarly, if you attend your industry’s exhibitions you may be able to have face-to-face meetings with potential agents who are always looking for companies to represent.

If you are looking to sell to overseas markets, joining trade visits is a good way of making contact with agents. For information on selling overseas, see our guides on exporting: an overview and entering overseas markets.

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Making sure you select the right agent

When you’re recruiting an agent, it’s a good idea to regard it as a decision equal in importance to hiring your own number two. Only selling can bring money into your business – and if an agent fails to meet your targets you could end up with cashflow problems or worse.

You have to clearly define your own needs, what you want the agent to achieve, and how you want them to achieve it. They need to be aware of factors such as the average call cycle needed to make a sale, competitors and any unusual conditions in the territory.

When sifting through agents’ details you will have to make a number of decisions:

• Do you want a well-established agent? Or might you benefit from using a relatively new one who might be keen to use you to raise their profile in the market?
• Is the agent capable of handling your scale of business?
• Can they cope with your growth plans?

When drawing up a short list and making the final selection it is important you choose someone you feel is compatible with your business.

You should always interview potential candidates – several times if necessary. If they are interested they won’t mind and it’s a way of making sure they are enthusiastic to work on your behalf.

If you’re seeking to find an agent in an overseas market, you should visit the agent in their territory first. For information on selling overseas, see our guide on exporting: an overview.

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What to look for in an agent

There are a number of factors you need to look for in a commercial agent:

• Trading history – is the agent established with a strong track record in the relevant sector?
• Financial security – carry out appropriate credit checks. If the agent goes out of business it could seriously damage your sales and reputation. You can check bank or trade references or use a credit checking agency.
• Reputation in the marketplace – is the agent well respected and seen as reliable, trustworthy and effective? Ask trusted business associates or your trade association their opinion of the company. Check references from existing customers. Be aware that the agent is likely to provide you with references from companies that will portray them in a favourable light.
• Current portfolio – does the agent have a good portfolio of existing clients and, importantly, are any of them are competitors who might raise a conflict of interest? Ask for a list of clients or check if there’s a list on the agent’s website.
• Knowledge of your sector – how well does the agent know your marketplace and the trading conditions within it? Ask the agent about their experience. The current client list will also demonstrate whether they have worked with similar businesses.
• Willingness to take on your business – how keen is the agent to take on your business? How hard will they work on your behalf? Consider how promptly and thoroughly the agent responds to your queries and calls.

The risks are often greater when entering overseas markets with longer lead times, greater financial risk and less control over the sales process.

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Drawing up a contract with an agent

It’s important to draw up a contract with an agent, clearly setting out the responsibilities of both parties to the business relationship.

The contract should define exactly where the agent can sell your products and services, precisely what they are expected to sell and which customers they are expected to sell to.

It should also make clear what payment the agent will receive (commission, a retainer, or both), what both parties expect from the relationship and also the duration of the contract.

Even if the relationship is relatively informal, it’s important to draw up a contract – you may have legal obligations to the agent even if they’re not in writing.

The agreement should also include information on how either party can terminate the contract, any notice periods and any dispute resolution procedures to be followed should the need arise.

You should use a solicitor who specialises in this form of commercial work to draw up the contract.

When drawing up a contract with an overseas agent you have got to be aware of potentially different interpretations of contract law across borders. For information on selling overseas, see our guide on exporting: an overview.

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The law on commercial agents

A commercial agent is defined as a self-employed intermediary who has continuing authority to negotiate the selling or buying of goods on behalf of another person (the ‘principal’), or to negotiate and conclude the selling or buying of goods on behalf of and in the name of that principal.

This definition covers incorporated and unincorporated bodies as well as individuals.

An individual cannot be a commercial agent if they are:

• an officer of a company or association and they have the power to enter into binding commitments on behalf of that company or association
• a partner who is lawfully authorised to enter into commitments binding on their partners
• an insolvency practitioner

The law on commercial agents also sets out the following:

• Agents are given substantial legal protection – similar to that given to employees.
• You must supply a commercial agent with all necessary documentation and information concerning the goods or services you wish the agent to sell.
• You have to inform the agent if sales volumes are likely to be lower than expected.
• The agent is also required to make proper efforts on behalf of your business and to communicate all necessary information to you.
• The agent is entitled to the same rates of pay as other agents in the same sector if no figures are mentioned in the contract.
• The law also sets out statutory notice periods of up to three months for agents. In many cases, the agent is also entitled to compensation when the agency’s contract is terminated.

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Getting the most out of the relationship with your agent

To get the most out of any commercial agent, you’ll need to invest some time managing the relationship.

While it’s obviously in their interests to sell as much of your product or service as they can, you need to bear in mind that they won’t be as passionate about your business as you are – and they won’t necessarily understand the needs and complexities of your business.

Keep regular contact, agreeing set intervals and what form the contact will take – email, letter, telephone or face-to-face meetings.

Both sides need to be clear about what is expected from the other. Your contract should outline where responsibilities lie and should clarify what each side expects from the other. This will also help to minimise the risk of disputes.

You need to keep detailed records of what sales have been achieved, the level of goods returned and the commission paid to the agent. If you send letters or telephone your agent and you get no reply make a note of that also. All records relating to the relationship should be kept in a dedicated file.

You need to keep a check on how hard the agent is working on your behalf, which trade shows and exhibitions they have attended.

Keep notes of all conversations with your agent and what was said – such information may be useful in the event of a dispute. Also, make a note of any customer complaints.

If there are any problems, you need to deal with them straight away and not let them grow into something more significant.

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Handling problems and ending the relationship with your agent

Relationships with commercial agents sometimes go wrong.

If you are dissatisfied with your agent’s performance for any reason you must deal with the problem without delay.

If you are unhappy with sales levels don’t immediately blame it on the agent not doing their job. There may be other market factors depressing sales volumes such as the economy, exchange rates or rival products entering your market.

Support your arguments with facts and figures and get the agent to explain his or her case similarly. If you have kept accurate records, it will help you prove your case. Don’t lose your temper or become abusive since this could reflect badly on you if a case goes to court. It’s important to keep records of any disputes you have with your agent.

If the relationship is not working and problems can’t be resolved you may have no alternative but to terminate the agreement. You should follow any termination process outlined in your agreement.

If your agent is self-employed, you will usually be required under the Commercial Agents (Council Directive) Regulations 1993 to give your agent a relevant notice period.

He or she may also be entitled to compensation set out either in your contract or under the Commercial Agents (Council Directive) Regulations 1993, which govern agent relationships.

Agents can enjoy similar rights to employees so it is usually important to take legal advice when terminating a contract.

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