One of the main missions of an agent is to obtain orders – the more the better for both principal and agent. An agent may well be assessed periodically on his sales performance and a lack of orders or substantial drop in orders will often spell trouble or worse herald the termination of the agency agreement.
However, it’s not simply a numbers game. Orders need to be fulfilled and if a customer cannot pay for an order or tries to cancel an order then this can also cause tensions between agent and principal, including requiring the reimbursement of commission depending on contractual terms.
It follows that an important aspect of an agent’s role is to monitor the financial position of customers and advise them on volumes of orders to manage any problems before they arise.
An occasional situation where a customer has encountered financial difficulties or been overly optimistic is unlikely to merit termination. However, agents should ensure that they keep an eye on these types of issues and approach orders pragmatically. Continued issues with non-payment or cancellations could be used by a principal as a foundation for action.
But how big of a step is it from taking a substantial order from a regular long term customer to anticipating their needs? The practice of producing orders for a customer, which then just appear at the customer’s premises without them being “ordered” is a high risk strategy and can sometimes be referred to as “ghost” orders. While it might seem a “no harm” situation if it is likely that the customer will not reject the order, agents should avoid the temptation of this practice at all costs.
Even if the customer does not complain, this could be in breach of a trinity of agent’s duties and could result in termination if the principal finds out. Under the Commercial Agents Regulations agents have a duty to look after the interests of their principals and act dutifully and in good faith. Placing orders not agreed by a customer on the basis “it’ll be ok” is not complying with this duty. The same or similar duties arise under common law and will also often be reproduced in written agency agreements.
Such activity will represent a serious breach of the agency agreement which could go to its heart and allow a principal to terminate without notice.
Principals who discover that this has happened, can potentially pull the plug on an agent. However, to the extent that a principal decides to retain the agent, the principal needs to make clear that it cannot happen again.
Whatever choice is made the principal should ensure that any investigations are documented and discussions are held with the agent and/or the customer carefully. If the principal actively or even passively allows the practice to continue then, in addition to the obvious commercial difficulties with the customer, this could be considered an acceptance of the practice meaning the principal loses the right to terminate.