How to Allocate Pricing, Inventory and After-Sales Responsibilities When Entering Sri Lanka Through a Local Distributor

Using a local distributor to test the Sri Lankan market can reduce the upfront investment required to build an in-country sales team, warehouse and sales network. However, pricing, inventory and after-sales arrangements should not simply be described as “the distributor’s responsibility”. Before the first shipment is dispatched, the exporter and distributor should establish an operational responsibility matrix that identifies who makes decisions, who performs each task, who retains records and who is responsible for escalating exceptions.

The main risk in a distributor model is often not whether a distributor can be found. It is discovering after products have entered the market that the distributor holds all customer information, actual selling prices are not visible, stock levels cannot be reconciled, or customer complaints have no clear resolution process. The answer is not to make the distributor responsible for everything. It is to design commercial control points separately and retain the necessary approval and information rights at each stage of the business relationship.

First decide: is the distributor a buyer or a sales operator?

Before discussing pricing and inventory, both parties should describe the commercial model in practical business terms rather than relying only on broad labels such as “agent” or “distributor”. At a minimum, the following points should be confirmed:

• Whether the distributor sells products to the market in its own name;
• Who purchases and pays for the initial and subsequent shipments, and who owns the inventory;
• Who receives orders and payments from end customers, and who issues commercial documents;
• Whether the distributor may appoint sub-distributors, retailers or online sales channels;
• Which customers, territories, product lines or project opportunities must be reported in advance;
• How unsold stock, customer records, spare parts and marketing materials will be handed over if the relationship ends.

These matters may affect contract structure, tax treatment, import arrangements and customer communications. They should be reviewed by instructed legal, tax and other relevant professional advisers based on the actual transaction chain. Internally, the exporter should first decide which commercial controls it wishes to retain, rather than asking the distributor to change established sales practices after the agreement has been signed.

Pricing: turn the price list into an authority and exceptions process

Sending the distributor a product price list alone is usually not enough to create effective pricing management. A more practical approach is to establish a pricing authority schedule covering quotations, discounts, promotions and payment terms.

Pricing items to separate

Item	Points to clarify
Supply price	Product scope supplied by the exporter, quotation currency, conditions for quotation validity and the process for communicating price adjustments
Market reference price	Whether to provide recommended retail prices, project quotation references or minimum margin targets, and the products to which they apply
Discount authority	Situations in which the distributor may offer standard discounts independently; customer, volume, use case and competitive information required for discounts beyond that scope
Special project pricing	Who approves pricing for major accounts, tenders, long-term supply arrangements or bundled sales, together with approval criteria and validity period
Promotional activity	Who initiates and funds gifts, trials, samples, rebates, display costs and online promotions, and how related costs are verified or settled
Credit terms	Whether credit sales, instalment arrangements or special payment terms are permitted; the boundary between commitments made by the distributor and support assumed by the exporter

The objective is not for the exporter to intervene in every quotation. It is to distinguish between routine commercial discretion and exceptions that could affect brand pricing or profitability. For example, a distributor may prepare ordinary quotations within an agreed range. Strategic accounts, cross-territory sales, unusually low prices, extended payment terms or major promotions should enter a written approval process.

The exporter should also ask the distributor to provide regular reports on transaction prices, reasons for discounts, key competing products, reasons for lost opportunities and expected orders. The purpose is not to replace the distributor’s sales role, but to help the exporter assess whether its pricing strategy aligns with local market feedback.

Inventory: manage quantity, status and decision rights together

Inventory disputes often arise when sales are weaker than expected, the commercial relationship changes or customers return products. Inventory management should therefore not be limited to the number of cartons in a warehouse. It should also record the status of inventory and who has authority to decide how it is handled.

Inventory may be managed in the following categories:

• Stock available for normal sale;
• Stock reserved for customers or linked to confirmed orders;
• Stock used for demonstrations, trials or samples;
• Stock awaiting resolution due to packaging, quality, shelf-life or technical issues;
• Returned products, products under repair or products awaiting assessment;
• Spare parts and after-sales replacement items.

Each category should have a corresponding inventory record. At a minimum, it should include product codes, batch or serial information, receipt date, storage location, status, related orders and the most recent stock count record. For traceable products, the exporter should confirm in advance which movement records must be retained so that goods can be identified if a complaint, recall communication or quality review occurs.

Inventory responsibilities should also cover who manages storage conditions, who performs routine stock counts, how discrepancies are reported, who proposes solutions when stock is approaching slow-moving or damaged status, and who approves markdowns, transfers, returns or destruction. These matters should not be left until the relationship is ending.

If initial inventory needs to be imported into Sri Lanka, exporters may also refer to the published article, “How to Build a Sri Lanka Customs Documentation and Responsibility Checklist Before Importing Equipment and Initial Inventory”. This can help link customs documentation, receipt of goods, warehouse intake and inventory records, so that responsibility records do not break once goods arrive at the warehouse.

After-sales service: separate the customer interface, technical decisions and cost responsibility

After-sales responsibility is often misunderstood as simply requiring the distributor to answer customer calls. In practice, after-sales work includes at least six stages: customer intake, issue assessment, repair execution, spare parts supply, replacement arrangements, cost confirmation and complaint escalation. Different parties may be responsible for different stages.

Questions an after-sales responsibility matrix should answer

Stage	Matters to confirm in advance
Customer intake	Which channels customers use to report issues; whether the distributor must record customer details, product details, proof of purchase and the issue description
Initial assessment	Which issues the distributor may address using product guidance; which situations must be referred to the exporter’s technical team
On-site service	Who arranges personnel to attend on site; whether the distributor has appropriate training, tools and spare parts support
Spare parts management	Who stocks, stores, issues and replenishes commonly used spare parts; how urgent shortages are escalated
Replacement or refund communication	Which circumstances allow a replacement proposal to be offered directly to the customer; who approves matters involving significant cost or brand risk
Complaint review	Which complaints must be documented in writing; when the exporter receives summaries; how recurring issues are followed up

Exporters should avoid committing to service capabilities that the distributor cannot realistically provide, such as coverage of all regions, a particular response level or technical work for which the distributor has not been trained. Instead, the initial service scope can be determined based on product complexity, customer location, spare-parts availability and the distributor’s team capability, with an escalation path for more complex cases.

Customer information: retain visibility without bypassing the distributor

Distributors may be concerned that the exporter will contact customers directly, while exporters may be concerned that the distributor controls all customer information. A layered information-management approach can reduce this conflict.

For ordinary retail or low-value transactions, the distributor may retain the day-to-day customer service relationship, while providing deduplicated sales summaries, channel structure information and complaint data. For key projects, major accounts, long-term service customers or opportunities requiring the exporter’s technical support, a joint registration process is advisable. The distributor leads commercial progress, while the exporter retains visibility over project status, key contacts, product configuration and quotation approval records.

The collection, access, use, retention and transfer of customer data should be reviewed by professional advisers in light of the actual business model and applicable requirements. Internally, the exporter should define which information is necessary for business analysis and which personnel may access it, so that customer information management does not become an open-ended request for data.

Use a monthly review to test whether the arrangement remains controllable

During the early stage of a distributor relationship, reviews should take place on a fixed schedule rather than only after sales decline. A monthly review can focus on the following matters:

• Sales targets, actual orders and key customer opportunities;
• Actual transaction prices and approved exception quotations;
• Inventory balance, stock age, discrepancies and slow-moving stock risk;
• Customer complaints, repair cases, spare-parts consumption and unresolved matters;
• Competing products, channel conflicts and promotional feedback;
• Replenishment, training, marketing activities and approvals required for the next period.

The designated representatives of both parties should confirm this review. Repeated low-price sales, inventory discrepancies, unregistered customers or delays in after-sales handling should be recorded with the facts, impact and next responsible person, rather than discussed only verbally in meetings.

Minimum pre-signing checklist

Before issuing an initial order to the distributor or authorising it to promote products externally, the exporter can complete the following checks:

1. The transaction chain, customer coverage and product scope have been described in writing;
2. Approval boundaries have been established for routine quotations, exceptional discounts and special project pricing;
3. Inventory record fields, stock-count frequency and procedures for handling abnormal inventory have been determined;
4. Responsible persons have been identified for customer intake, technical escalation, spare parts and complaint review;
5. A joint registration mechanism has been established for key customers or projects;
6. Matters relating to termination, inventory handover, brand materials and customer information have been identified for review by professional advisers;
7. An internal channel owner has been appointed so that headquarters sales, finance, technical and marketing teams do not issue conflicting instructions to the distributor.

A distributor model does not mean an exporter must immediately establish a complete sales organisation in Sri Lanka. The key is that, even when a local partner performs sales activities, the exporter can still see prices, inventory, customer opportunities and after-sales issues, and can make timely commercial decisions when exceptions arise.

This content is provided for general information only and does not constitute legal, tax or immigration advice. Specific requirements should be confirmed against the latest guidance of the relevant Sri Lankan authorities and instructed licensed professional advisers.