One of the rookie mistakes that drop ship businesses make is neglecting to thoroughly read through a vendor’s wholesale contract. You might be in a hurry to get going, and get lost in all of the legal and technical terms that are so often contained in a wholesale contract. However, if your business is going to be successful and profitable in the long term, you need to know what’s in there.
You might be tempted, if you’re working directly with a salesperson, to take their word for what’s in the wholesale contract. While your salesperson may not be trying to hide anything from you, you really don’t want to take that chance. In addition, even if the salesperson isn’t intentionally trying to mislead you they may be unfamiliar with exactly what’s in the contract themselves.
So, what are you looking for when you read a wholesale contract? You’re looking for two types of things: what the wholesaler provides to you, and what restrictions or limitations you have by signing the contract.
For example, you want to know what the wholesaler is giving you. You want to make sure that any warranty on their products is stated in the contract. You should also make sure that any support or any services that the wholesaler offers to you or your drop ship customers is stated clearly in the contract, as well.
It is in the area of limitations that most people wind up with a problem in their wholesale contract. For example, the wholesale contract may have restrictions on advertising, on using competitor wholesalers, and on other issues.
One area you may wish to heavily consider is an arbitration clause. An arbitration clause eliminates your right to sue, and instead binds you to utilize an arbitrator if there is a problem between you and the wholesale company. Without the right to sue, you are in many ways at the mercy of the wholesaler, and are susceptible to fraud and other problems. Look for the arbitration clause, and carefully consider whether you’re willing to agree to the stated terms.
If you have problems reading or understanding a wholesale contract, ask for help. You might be able to ask a friend or associate in the industry. In some cases, it is worth talking with an attorney about what your obligations and rights will be under a particular contract.
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