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GUEST EDITORIAL

Posted: 03/1998

GUEST EDITORIAL

By Bill Stevens,Principal, Mayfair-Group.
Inc.

Mayfair Group Inc. has been fortunate to grow into a
decent-sized national master agency with just one or two reseller
sources. We have been paid promptly; our contracts are really
fair to both parties; and there have been some rewards for our
narrow focus. Though we’ve had some other desultory reseller
discussions over the years, nothing ever reached the contract
stage.

Recently a bright young salesman for a reseller, who shall
mercifully remain unnamed, called on Mayfair. He was terrific,
and his product offering filled a void in Mayfair’s affinity
repertoire. Executives flew in to meet with us (people love a
business reason to come to Chicago) and their enthusiasm was
infectious. FedEx soon arrived with two contracts and a note,
"…Please read and sign both copies…any contract
questions, please call me…" We dutifully shut off the
phone, put on Beethoven, and pulled up our easy chair to review
the 10-page document.

What a shock! Mayfair entered this business in 1992 knowing
that nobody had any marketing money; we exchanged draws and
up-front commissions for a promise of residual monthly payments
based on our clients’ collections–15 days after month end. Our
resellers assume responsibility for credit checking–it’s their
month and their business responsibility. These subjects were
covered in our discussions; we were assured that credit was
company responsibility and that, as a selling point, this
reseller paid on billing instead of collections. And that was
true…until we read the fine print.

All reseller contracts
have shortcomings; it is not a perfect world. But the
residual monthly feature of the contract must remain
sacrosanct if there is to be any real protection for the
agent’s efforts.

Item 7.2 b) of the contract defined "net monthly
revenue" as our basis for payment, "…the dollar
amount of a customer account, less a 2 percent reduction for bad
debt…" and added further in this subsection "(Bad
debt percentage is subject to change when a company’s actual
history warrants an adjustment.)" WOW! No matter what we do,
the company can change our income based on their history, their
numbers and their representations. Does any serious agent believe
this adjustment can go down?

Worse, Mayfair sees some recession clouds ahead, and expects
that credit losses will increase. According to the contract, we
had already agreed that orders are accepted subject to a credit
check (Item 6.3) an acceptance and even continuation of service
are at the company’s sole discretion (Item 6.4). This reseller
then expected us to pay 2 percent of gross for their credit
losses and to pre-agree to any increase in the bad-debt
allowance. What kind of "fair deal" was this?

Item 7.3 stated that, "Commissions shall be paid monthly,
no later than 45 days after the close of the commission
period…" (defined as the calendar month in which the
customers’ billing occurred.) The company knows these numbers
hours after month end, trumpets their willingness to pay on
billings, and then, in the fine print, keeps our commissions for
45 days. What kind of a "fair deal" was this?

All reseller contracts have shortcomings; it is not a perfect
world. But the residual monthly feature of the contract must
remain sacrosanct if there is to be any real protection for the
agent’s efforts. That’s a deal breaker! Item 4 began with a
promise "…This agreement shall automatically renew from
year to year thereafter unless either party shall
terminate…within 30 days of agreement expiration date."

Then came item 4.2, which listed six reasons for company
termination of the agreement (none for the agent) without notice.
Pretty standard stuff, except that if company property gets
destroyed by fire or an Act of God; or either party goes into
bankruptcy or receivership; or "Contractor moves base from
(reseller) to other carrier," this termination clause would
apply.

Nothing in the foregoing sounded particularly threatening
until we read on to Item 7.3.3. regarding "Commission
Payments." It stated, "No ongoing commissions will be
eligible if contractor is terminated for any reason from Section
4.2." Ow! Fire at the office: Ashes in the agent’s pocket!
If the company decided that the agent moved base, ZAP! No further
compensation. And most importantly, receivership would cancel the
deal. The trustee would be able to take our business, sell it to
some third party (usually composed of company management) without
further agent compensation, and we would be history. And do
resellers ever go bankrupt?

We then moved on to Item 7.3.2. regarding commissions.
"Commissions after the termination of this contract will be
paid as follows: as long as net monthly revenues remain greater
than $10,000, contractor will be paid at the same rate specified
in schedule A; net monthly revenues of less than $10,000 will be
paid at one-half the rate specified in schedule A; and net
monthly revenues of less than $1,000 will be paid no commission
at all." What happened to the sanctity of residual monthly
income if commission payments are subject to unfettered reseller
manipulation? What kind of a "fair deal" is this?

Further, there was a cruel hoax embodied in this section. This
is a tough business. All experienced agents know that most
entrants to our industry fail; and few ever achieve even $10,000
in monthly billings. So does the company in question. These
clauses set up a company procedure of termination followed by
legal non-payment with impunity, trapping the innocents.

Those who downplay the fine print analysis, or listen to the
agent manager’s soothing explanations that, "Oh, that would
never happen!" must realize that Item 14.1, included in all
the contracts we’ve seen, is there for a purpose. "Entire
Agreement
…This agreement, which constitutes the entire
agreement of the parties (and into which all prior negotiations,
commitments, representations and undertakings of the parties with
respect to the subject matter hereof are merged)." The terms
of this agreement could not be waived, modified, altered or
discharged, except in writing, executed by the parties hereto, or
their authorized representatives. They mean it!

One clause I particularly enjoyed was Item 10.5. "It is
also understood that essentially, the spirit behind this contract
is one of trust, confidence and reliance of each other to what is
fair and equitable for all parties concerned." This had
better be true, because in the fine print of the contract, the
agent is taking the gas pipe.

We respect the salespeople for this reseller, though we
question their interest in fine print. We confided our
contractual reservations to the director of sales, who was
surprised at our response. He had been told that the contract was
fair for the industry. And that’s the point! It protected the
reseller against every contingency, including Acts of God! What
kind of "fair deal" was this?

Mayfair will survive. But what about the new, or smaller
independent agents? What kind of fair deal will they get until we
band together to convince our suppliers to offer equitable
contracts to all?

PHONE+ invites you to air your views. Call us
at (602) 990-1101 or e-mail
pbernier@vpico.com.


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