There are a variety of distribution channels that you may use or consider using and you can use the contracts with your distributors to transfer significant risks to them, rather than bearing it yourself. The amount of risk that you transfer depends on the type of arrangement that you have – but as a rule of thumb, the more autonomy that the distributor has to deal with your technology, the greater the amount of risk that you should seek to transfer to them. If a distributor is actually sub-licensing your software to end users directly and therefore dictating the terms on which the software is being used by an end user with whom you have no contract, the contract with the distributor should ensure that all risks of dealing with that particular end user is transferred to the distributor.

The following considerations should always be taken into account when planning your distribution strategy;

Who is licencing the software to the end user?
If it is the distributor, your contract with the distributor should dictate the key terms which the end user licence agreement should contain. Your contract with the distributor should also transfer all risk to the distributor in respect of a number of potential liabilities including: misrepresentation of the functionality of the software, failure of the software to work in the customer’s environment or to fulfil their requirements, failure of the software to integrate with third party software and so on.

Is the territory in which they can sell clearly defined and have you considered how issues will be resolved if you wish to either sell in the same territory as your distributor or have independently approached their prospects?
One of the biggest issues between software suppliers and their distributors is the risk of competition between them. The best way to avoid lengthy and costly disputes is to mandate a contractual process for managing prospects.

Are the payment terms clear between you and your distributor?
You need to consider whether you wish to despatch software prior to receipt of the charges. Your payment terms do not need to reflect those of your distributor, so there is no reason why you should wait for the distributor to be paid before you are paid.

What right does the distributor have to use the software both for their own internal use and also for demonstration purposes?
Many suppliers do not adequately address the licensing of their software to the distributor, creating a risk that the software could be used for purposes outside those that you intend.

Does the distributor have the right to distribute competitive products?
If so, it is advisable to regulate the distributor’s specific obligations when marketing your software in the contract.

Do you have the right to audit the distributor’s records to ensure compliance with the commercial terms?
Without this right, you would find it very difficult to prove non-compliance without actually taking your distributor to court.

Have you agreed the performance targets against which the distributor will be measured?
Unless these are contractual obligations, you may not be able to take any action or terminate the contract if the distributor fails to meet the performance obligations.