Non compete agreements -- anyone have experience of these?

[Lexual]

Hello people.. I'd like some help please..

I am quoting for quite a substantial job at the moment where I will be using a 3rd party supplier to supply goods directly to my client.

My supplier is giving me their 'trade price' that I am then adding my little bit on before quoting my client. If I get the order I will then be wanting my supplier to deal directly with the client with regards to invoicing and deliveries and I will want to make an agreement with my supplier that they pay me my cut/commission from the gross. I obviously want to protect myself from my supplier just going directly to my client in the future and cutting me out completely, I don't really want to rely on a 'gentleman's agreement' so I would need some kind of non-compete agreement? signed to protect me for the next 3-5 years or so (the order is placed annually for their yearly stock)

Is the non-compete agreement the correct contract? I've done some googling and found templates but some of them didn't seem to give quite the protection I'm looking for.

If anyone has any experience of this or knows of someone who could best advise me I'd be very grateful!

Thanks,
Oliver

[Eleven]

Lexual said:

Hello people.. I'd like some help please..

I am quoting for quite a substantial job at the moment where I will be using a 3rd party supplier to supply goods directly to my client.

My supplier is giving me their 'trade price' that I am then adding my little bit on before quoting my client. If I get the order I will then be wanting my supplier to deal directly with the client with regards to invoicing and deliveries and I will want to make an agreement with my supplier that they pay me my cut/commission from the gross. I obviously want to protect myself from my supplier just going directly to my client in the future and cutting me out completely, I don't really want to rely on a 'gentleman's agreement' so I would need some kind of non-compete agreement? signed to protect me for the next 3-5 years or so (the order is placed annually for their yearly stock)

Is the non-compete agreement the correct contract? I've done some googling and found templates but some of them didn't seem to give quite the protection I'm looking for.

If anyone has any experience of this or knows of someone who could best advise me I'd be very grateful!

Thanks,
Oliver

I used to use them fairly successfully when I ran a telecoms firm. We used sub-contract engineers exclusively and some larger firms who were in fact our direct competitors.

Nine times out of ten the existence of the agreement was enough to warn off the contractors from trying to poach. The agreement stated for example that engineers must not wear image wear with their own company name and most complied. Occasionally they didn't and on one occasion some installers stuck stickers with their own company name ever meter along dado trunking. They were warned that if they did it again they'd cease to get work. They didn't do it again.

Edited to add: I wrote ours based upon the needs of the business. It was never tested in court but seemed to do a reasonable job of setting the rules.

[andy-xr]

Can you invoice direct and drop ship from the supplier? Or have the items routed through an address that you control?

In the IT sales bit I've been in, we used to put together a special bid that ringfenced the deal, but the sales channel was such that dealers went to a supplier that was trade only, so they werent likely to compete anyway.

[Lexual]

I can invoice the client directly and the supplier does drop-ship, it would be up to 5 large deliveries through the year. My main problem is the cash flow, I'm a relatively new business and I don't have enough cash in the bank to cover my costs to the supplier for each order before receiving payment from the client if it's going to be on a standard invoice schedule. Unless the client is willing to pay me upfront for each order, I would need them to invoice my supplier and for the supplier to pay me my bit.

Any suggestions welcome as to how I can go about this as I am a little lost and this would be a big chunk of income for me..

[blueg33]

We use non compete and non circumvention contracts all of the time

They generally seem to work but then we dont have any single supplier who is fully aware of how the business model works

[andy-xr]

Lexual said:

I can invoice the client directly and the supplier does drop-ship, it would be up to 5 large deliveries through the year. My main problem is the cash flow, I'm a relatively new business and I don't have enough cash in the bank to cover my costs to the supplier for each order before receiving payment from the client if it's going to be on a standard invoice schedule. Unless the client is willing to pay me upfront for each order, I would need them to invoice my supplier and for the supplier to pay me my bit.

Any suggestions welcome as to how I can go about this as I am a little lost and this would be a big chunk of income for me..

Agree longer terms with your suppliers than you give the client, if the supplier can see an order book and their Finance people are aware of the end client, there shouldnt be a problem. In that case I'd go down the route of NDA, but really, if it ever comes to people waving bits of paper at each other then you've already lost

If the supplier doesnt have exclusivity of whatever it is you're selling, it might be worth shopping around and picking one who can give you terms you need. I would bet there's an internal salesperson at the supplier who'll be able to twist Finance's arm better to get a terms deal in from you

Edited by andy-xr on Saturday 8th November 10:19

[cashmax]

Good deterrent, but completely useless for a legal perspective. Often getting them to sign is enough.

[russy01]

I know nothing about this, and dont have any input about the agreement etc.

But from my personal experience we have had cases where we've really wanted to cut out a middleman. Mainly because the bloke was a rude tool who added absolutely nothing - he just made the initial introduction.
So don't get me wrong, they deserved something for putting the deals together and the work at that stage, but long term it didn't feel right and started to grate. Especially when he added nothing at all....some sort of finders fee would have been more suitable.

So agreements aside my very simple advice is to make sure you actually add value, help them and are nice. There are a lot of firms out there who will look to cut out the middleman immediately and hopefully your "agreement" will sort these people out. But there will also be a lot of firms who are more than happy to pay a middleman if it eases admin in other areas and makes dealings more pleasant.

For me recruitment agencies are a good example - we have a lot of dealings with them. If they are good I am more than happy to pay their margin as their actions make my life much easier. But if they were st and added nothing, id look to poach the staff at the earliest opportunity!

[johnfm]

How much is the deal worth to you?

If £££££, spend £ on a decent commercial lawyer (realpigdog on here for example) to advise and draft the appropriate agreements between you and your customer and you and your supplier.

[Cheib]

I think a non-compete for repeat business you are describing would be incredibly easy to circumvent if you're the supplier. It's your customer that you need to get tied up.

If you're the supplier you could quite easily approach another firm to replicate your roll....they could cut a better deal with them than they have with you. If they are careful about how they do it (i.e. no written evidence) I think you'd find it very hard to stop it.

It's worth doing it because your supplier might not be devious and hopefully want to have a long term relationship with your business. However your contract is only as good as the lawyers you are prepared to pay to enforce it!

We use non compete's but for one off transactions and not for what you are describing. I'd say you need the contract to confirm that your supplier will not supply your customer either directly or through a third party.

[raywillden]

Lexual said:

I can invoice the client directly and the supplier does drop-ship, it would be up to 5 large deliveries through the year. My main problem is the cash flow, I'm a relatively new business and I don't have enough cash in the bank to cover my costs to the supplier for each order before receiving payment from the client if it's going to be on a standard invoice schedule. Unless the client is willing to pay me upfront for each order, I would need them to invoice my supplier and for the supplier to pay me my bit.

Any suggestions welcome as to how I can go about this as I am a little lost and this would be a big chunk of income for me..

Have you though about factoring your invoices? I do this and get 90% of the invoice value back straight away, and the final 10% when the client pays their bill. This only costs me about 2.5% which is mainly for the credit insurance. We're also a relatively young company and we got plenty of credit to cover all the work we do from day 1 with no trading history.

[Rude-boy]

raywillden said:

Have you though about factoring your invoices? I do this and get 90% of the invoice value back straight away, and the final 10% when the client pays their bill. This only costs me about 2.5% which is mainly for the credit insurance. We're also a relatively young company and we got plenty of credit to cover all the work we do from day 1 with no trading history.

The only thing I can say about factoring is that every single business person I know who has had it has said that the day they got rid of it (no longer needed) was one of the best days of their business life...