Office contract

Throughout this series, “A Guide to Building Successful Channel Sales Programs,” we’ve identified best practices that will help you get the most from you channel sales program. We’ve outlined the benefits of channel sales programs, helped you choose the right partners, prepare for a program, manage and measure it.

But to ensure that your channel sales program is a resounding success, you will also need to keep on top of a handful of legal and accounting considerations. (Of course, after reviewing the ‘basics’ that we outline, we recommend you consult with a lawyer and an accountant).

Legal Issues: The Basics

The core legal document that guides the working relationship with your chosen vendor and/or channel sales partner is the Channel Partner Agreement. There are five key issues that are covered in that agreement to which you should pay particular attention.

Exclusivity: Make sure that you are clear about whether working with one vendor or channel partner legally prevents you from establishing channel sales programs with others. During contract negotiations, seek to remove any clauses that restrict who you can work with.

Renewal Period: Every partner agreement will identify a period of time for which you remain bound to your vendor or channel partner. In addition to being aware of the duration of this period, it’s also crucial to establish whether that period is renewed automatically. Chances are, after you’ve worked with a vendor or partner for a year—the most common time period—you will want to renegotiate terms based on whether you are achieving your goals. An automatic rollover clause will rob you of the chance to do that.

Termination: When you begin negotiating with a vendor or channel partner, you will be focusing on the great potential of your soon-to-be launched program. But some channel sales programs need to be drastically overhauled, put on hiatus, or cancelled. For your own protection, be clear about the conditions that can lead to the termination of the business relationship with your vendor or channel partners. If you are a channel partner making a considerable investment to meet vendor requirements, pay special attention to the phrase ‘termination for convenience’ which could see a vendor cancel the program with little notice.

Indemnities: When things go wrong in a channel sales relationship, it can prove pricey. An indemnity is the promise to pay for the cost of possible damage, loss, or injury. Be very clear as to what constitutes a ‘breach’ within your agreement, since the associated financial risks can be considerable.

Governing Law: Even in the most successful channel sales programs, disputes will arise from time to time between channel partners and vendors. Such issues are often resolved according to the laws established in the jurisdiction of the vendor’s head office. If you are a channel partner, that can meant you incur additional costs for hiring legal representation in a different region.

Accounting Issues: The Basics

“At the heart of managing a successful channel sales program is the ability to accurately track, and report on, transactions,” says Frank Portugais, a partner at Bennett Gold LLP Chartered Accountants. Whether you are a vendor or a channel partner, your channel sales program lives, dies, and thrives based on how quickly and often the products and services in question are exchanged for payments and/or commissions.

To that end, Portugais recommends that vendors and channel partners alike tap into a reliable and adaptable management information system. “Ultimately, you need to understand transaction details about what is sold, who sold it, dates of deliverables, prices, discounts, payment terms, and rebates,” he says. “Of course, the volume of the transaction details quickly mounts with the addition of each product. At the same time, the complexity increases when you have to deal with a variety of conditions or commission levels. Making sense of the wave of data associated with every transaction can be daunting for any channel partner or vendor.”

Portugais also highlights a handful of other issues that, if not planned for and regularly monitored, can put your channel sales program at risk. These include

  1. having controls in place so that the exchange of funds between you and your partner(s) is secure
  2. being clear about the documentation your partner(s) needs from you
  3. keeping track of the different income tax and sales tax rules and obligations that kick in when transactions cross borders; and
  4. ensuring your accounting system accurately and quickly exchanges information with your channel partner or vendor’s management information system

• • • • •

In the next in our series, “A Guide to Building Successful Channel Sales Programs,” we’ll discuss how to pull out of a channel sales program when it becomes necessary to do so.

Andrew Z. Brown has launched and promoted over 150 products and services, spanning 15 industries. He has established and managed successful channel/alliance programs internationally, co-produced Canada’s most successful business podcast, and written over 350 articles on the topics of marketing strategy, strategic alliances, product innovation, and C-Suite communications. He is the author of “The Fastest Path to Revenue,” which will be released in 2016.

For over 25 years, Phil Hogg has built successful channel programs, partnerships, and strategic alliances. He led such programs at top tier brands including Bell Canada, Rogers Communications and Moneris Solutions. He previously served as the President of the Association of Strategic Alliance Professionals’ Toronto Chapter and is currently, General Manager, Merchant Services at Everlink Payment Services.

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