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Why do I need a Supplier Agreement?

Why do I need a Supplier Agreement

You often hear business owners say that, either their business is too small, or they only provide a modest service or deliver humble products. For example, baking muffins in your kitchen and selling same on order. So why is there the need for a supplier agreement to regulate something seemingly this simple from the surface?

This is ultimately true, but let’s look at the simple example above – you bake muffins and the local school puts in an order for the year’s sports days. Suddenly your normal order of a dozen muffins once a week increases to 2000 muffins once every two weeks. So, what happens if 3 months down the line you are still awaiting payment? Or the muffins fall off a table at school and they refuse to pay you? Or all the muffins are baked and ready to be delivered and they cancel the order on last minute?

This is exactly the type of situation that could’ve easily been saved by having an agreement in place. Not only does an agreement protect you, should payment not be forthcoming, but it also clearly sets out each party’s obligations and rights to ensure there is no confusion or blame-shifting possible. It basically ascertains where the risk lies at all stages.

Even when you are dealing with the corner shop
A supplier agreement is an agreement between a business and a client or customer for the delivery of a defined set of products and/or services. This agreement documents the terms of your agreement with the client or customer. It really does not matter if you are dealing with your corner store or a multi-million rand business. Not having at least a one page agreement in place, can cause irreparable harm in future dealings.

It goes both ways as well. If you buy from a supplier, how will you ensure the quality of the product, the timely delivery and the option to send it back if it is damaged? These terms and conditions are set out in the agreement and legally enforceable.

Now I know many business owners are thinking surely we can come to a verbal agreement? Yes, you can, but what happens if you have a disagreement? Proving who said what, and when is likely to be impossible. Having a written contract removes any confusion or misunderstanding about responsibilities.

What goes into a Supplier Agreement?
The key elements that your agreement should contain are the price, services or products provided, warranties on quality, what happens if something goes wrong on either side, who takes ownership and when, dispute resolution, and the dates and methods for delivery.

Ideally, the consequences to be suffered for any possible scenario will be spelled out specifically. This means it is important to describe in detail the goods or services to be provided under the agreement and the terms of delivery or term if a service is the subject of the agreement.

The parties need to agree on the price and set out the specifics on how or when the agreement can be terminated.

Parties also need to consider what happens if one of them does not adhere to the terms of the agreement, i.e. in the case of a breach.

The advantages to having a professionally drafted supplier agreement include:
• planning ahead is easier
• clear terms and conditions
• legal security and enforceability
• security of supply for the buyer
• security of orders for the supplier
• pre-agreed pricing formula
• less admin in the long run

It is clear that a supplier agreement is not only for certain size businesses and it is indeed necessary from the get-go to ensure you are protected in all your dealings. Importantly, such a contract can save your business money in the long run.

Supplier agreements should not only be in place but also monitored regularly to make sure both sides are upholding their side of the bargain.

© Arinda Truter - Schoemanlaw Inc. - 2017

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