Let’s start with how not to do it.  Don’t shoot first and ask questions later.  We still come across suppliers who choose to end 18-year relationships by sending in an unknown vice–president on the red eye to tell their erstwhile partner: "Thanks, but we are going direct – with immediate effect". In most countries, that will be a very expensive decision.

More often than not, suppliers fail to build the right safeguards into their contracts.

Ask yourself whether the partner you want to axe is, in fact, in breach of part of the contract.  We recently discovered, before offering a long notice period and indemnities, that a particular distributor was chronically late in payment.  After a few written reminders the agreement was terminated – without notice or indemnity.  Interestingly, the supplier’s sales department was unaware of the late payments.  It pays to collate all the data you have on a partner’s behaviour.

So ask. Have they missed sales targets?  Have they been paying, and on time?  Did they train staff?  Did they supply marketing and/or sales reports?  Have they sold competing products?   Have they been selling outside their territory?  Have they complied with the agreed marketing/promotional campaign?  Can you prove it?  If proof is inadequate, you will need to build your case – in writing. 

Even if there has been no breach of the contract, it is worth carefully studying the contract. You need to know the total liability you face before taking action. 

No breach, or inadequate proof?  Is there a provision for advance notice prior to termination?  If so, how long?  Any provision for payment of goodwill or customer indemnities?  How about inventory?  Any mandatory buy-back?  Is there a post-termination non-competition requirement?  If all else fails, what is the customary notice period in the territory?  Does it depend on length of service?  What if you wish to appoint a new distributor or go direct in the short term – can an indemnity be paid in lieu of notice?

If you are abandoning the market entirely, it may be that no indemnities will be payable, but only that reasonable notice must be given.

Before you take any steps, you need to know which law applies.  It’s common knowledge that, in Belgium, distributors casually sign contracts with foreign suppliers over lunch, having barely glanced at them.  They know that no matter what law the contract stipulates, Belgian law will apply, and that it favours the distributor!