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Distributor

We are setting up a deal to become an exclusive distributor in our territory for a product and I am wondering how I record revenues. To set up this question, consider the Producer to be ABC Co and the Distributor (us) to be XYZ Co.

XYZ has sales reps that will identify potential customer stores and sell product as XYZ Co selling ABC's products. ABC's has the name and reputation so the end buyer (store) understands they are buying ABC and XYZ is the exclusive seller.

XYZ will provide sales support until tranx is complete and will remain the account manager.

ABC will produce, accept PO, ship, collect revenues and handle returns directly with end buyer (store).

ABC will pay XYZ once the PO is placed. (I am not sure yet how product returns will affect the commissions paid)
The commission is a flat rate for each unit sold.
Does XYZ simply record Commissions Revenue with no COG? Our main expense will be the cost of managing the sales team.

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

If your company XYZ is a "seller" then by implication you are buying inventory and selling it. Even if you drop ship it.
If you are not taking ownership then you look like a sales agent.
What do your contract terms with ABC say about this?

Anonymous
(Associate) |

I agree with Len in that the contract terms are important. My company is both a distributor and manufacturer's rep. As a rep, the setup is much like yours. We provide sales support but the PO is sent directly to the producer and we get a commission from the producer. The commission is accounted for as such.
For the same producer, we also distribute. Our sales support is the same, but the PO, product, and all money flows through us. We record these as sales and COGS. There are times when they are drop ships from the producer, but the yearly amount sold or sometimes the customer identity determines whether it is our sale or the producer's sale. It's contractual.

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