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Risk management has been a popular topic in business circles for at least 10 years, if not longer. Larger enterprises have full departments dedicated to surfacing and addressing business risk. One way to enhance value for a rep agency, or any business for that matter, is to capture sales or other opportunities. Similarly, managing or reducing risk can also add value through prevented or protected losses.

The following reflects a framework for manufacturers’ reps to assess risk and pass along how suppliers and customers might also be dealing with and managing risk, in an effort to better understand each other’s businesses. Common and best practices for reps will also be explored.

Framework and Classic Approach to Risk Management

It’s very typical for most manufacturing companies of any size to approach risk from three perspectives: safe practices, insurance and structure.

Regarding safe practices, this means that processes are developed to follow safe guidelines in terms of manufacturing products, and help the consumers and users of the product to understand risk associated with the use of the product. Safe practices reduce the risk of loss, damages, and even injury.

In addition, many forms of insurance are commercially available, as reps might have for their own agencies. The purpose is to provide some financial assurance and backing in the event of bad outcomes or replacement of the asset or revenue in the event of some unplanned peril. For reps, car insurance, business interruption insurance, umbrella coverage, and life insurance are all worth considering carefully.

Structure is frequently used as a risk management technique both outside and within the manufacturers’ rep world. It is very common for reps who are paid by commission to get involved in buy-sell or distribution-type activities. If so, to manage the risk associated with these activities, they frequently set up separate LLCs or other entities to isolate and contain the risk of those activities within those entities. Unincorporated agencies can be very risky and are to be avoided to reduce the chances of personal liability.

Risk Regarding Authority to Act

It is difficult to listen to the news and not hear some story about another fraud, embezzlement or theft of wired funds. These crimes are why from the banking world conferred authority becomes very important.

To manage this risk, it is important to designate who exactly has the authority to act on behalf of your agency, whether your agency is an LLC or other entity. No other person should be authorized to write checks, access bank accounts or bind your agency contractually.

It is also important to always designate and list the reference to your corporate entity, otherwise you might be held personally responsible. For example, a president or vice president might sign on behalf of a corporation. Managers or members might sign on behalf of an LLC.

To strengthen your limited liability protection, it is important that your corporate entity, such as “Inc.,” “Company,” “LLC,” or similar designations, are provided somewhere on your website and emails (which might not need to be shown prominently) and certainly in your signed contracts. Along with this designation, the proper officer designation should also be provided. From experience, far too many rep contracts which are signed by an individual without regard to the corporate agency name and this error could expose the individual rep to significant personal risk.

Risk of Interruption of Supply Sources

Especially as a result of Covid, many enterprises are concerned with whether or not key supply materials will be available to maintain productive output. The construction and other industries are experiencing shortages of raw materials and, unsurprisingly, prices rise. These shortages can present opportunities for reps to work hard to be sure supply is either fulfilled or find alternate sources of supply for the underlying customers.

Indemnification / Warranties

It is important that reps understand the terms and conditions under which their manufacturers operate. If so charged, they may want to pass these along to customers, or at least be able to point to the website where these are conveyed.

Typically, a rep functions as a facilitator, promoter and expediter and does not take title to the products they are promoting. The manufacturer, though, typically provides a warranty describing the extent to which they will stand behind their product. Limits on consequential damages are typically at the cost or value of the product along with some time limit for claims.

Information Protections

The trend for at least the last few years has been strong protections to safeguard data, not just regarding cyber liability, but also from a competitive information standpoint. Nondisclosure Agreements (NDAs) have become prevalent between suppliers and their customers and for good reason. It is important to be very careful with what information is shared with whom based on a rep’s duties to the underlying supplier. Appropriate use of NDAs has become a best practice for protecting trade secrets and confidential competitive information.

Taking appropriate steps to manage risk in your daily operations can help prevent unfavorable outcomes. Being proactive about risk management can provide a windfall similar to a new line or increased sales by preventing a loss from occurring. This article provides a list of strategies and techniques for managing risk as you go about your day-to-day agency operations. Careful management of risk can bear strong dividends!

MANA welcomes your comments on this article. Write to us at [email protected].