How to Protect Yourself When Selling for a Foreign Vendor

With globalization, it’s not unusual for software vendors located in other countries to recruit experienced software sales pros to help them build a presence in the U.S. market. In many cases, those firms are offering commissions far superior to those being offered by comparable U.S.-based vendors. However, contracting to sell software for a foreign vendor has some unique challenges. Here are five rules to help ensure that you personally profit from the relationship:

Rule #1. Understand which currency exchange rates will apply to your commissions. You do not want to have to be dealing with exchange rates and getting nicked coming and going. If you are selling to a U.S. customer, the sales price will most probably be in U.S. dollars and your commission payment will likely also be calculated and paid in U.S. dollars. However, this should be clearly defined in your sales representation agreement. For example, if you are representing a Canadian principal who collects the sales price in Canadian dollars, be sure that you are in agreement with the methodology for determining how the exchange rate will be established.

Rule #2. Be sure the contract specifies that the laws of your own state apply to any contract dispute. Chances are that the customers will be located in your home state and your principal (if they’re serious about the market) will likely have occasion to come to your state anyway. Your principal is also generally in a better position to hire an attorney in your state than you are to hire an attorney in the foreign country where your principal is located. In many cases your principal will already have a relationship with an attorney or law firm in your state.

Rule #3. Understand your state laws governing sales commissions. You do not want to have to pay an attorney to issue a legal opinion regarding the impact that foreign laws will have on your rights and obligations pursuant to your sales representation agreement. If your state has a sales commission act protecting the right of sales representatives to be paid commissions in a timely manner, specifying that the laws of your home state will apply should make it easier for you to utilize the protection of your home state sales commission act. Most states currently have laws on the books protecting the rights of sales representatives to be paid their commissions. The foreign jurisdiction will probably lack that protection.

Rule #4. Be sure the contract specifies that any legal disputes will be resolved in your state. You do not want to have to hire a lawyer in a foreign jurisdiction or to go there for the duration of a trial or arbitration in the event that you have to litigate a claim for commissions. In many cases, the costs will outweigh the benefit of pursuing the claim and you will need to have a very large commission claim in order to justify litigating the claim in another country. You may likely end up not pursuing your claim for commissions because of the significant upfront costs. So be certain that any dispute must be handled on your own turf.

Rule #5. Be sure that the purchase orders are issued in the name of your principal. If the foreign principal has an American subsidiary, you should be sure that both companies are signatories to your sales representation agreement. Additionally, be sure that both companies have the contractual obligation to pay the commissions. You do not want to be in the position where the company that receives the sales dollars is not the same company that has the obligation to pay your commissions. For this reason, always try to make sure that the purchase orders are issued in the name of the principal who has the contractual obligation to pay your commissions pursuant to your sales representation agreement. Otherwise, you may have difficulty enforcing the commission payment obligation.

The above is based upon information provided by Randall J. Gillary, recognized as a top legal expert on sales commissions. He can be reached at www.gillarylaw.com or 800/801-0015.