How Can Negotiating a Supplier’s Terms Protect My Business?

As a customer, you will likely work with several suppliers during your business journey. Often, suppliers will ask you to sign their own contract terms. However, signing a supplier’s contract terms may come with several risks. As such, contract reviews and negotiations are essential to protect your business and define your business needs. This article will explore how negotiating a supplier’s terms can protect your business.

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Why Have a Contract When Working With a Supplier?

When engaging a supplier, a contract is vital. Your contract should properly record the terms under which you will do business with the supplier and document each party’s obligations.

You will need to understand key contractual points, including:

• when you need to pay for the products or services and delivery times;
• how you can terminate the contract; and
• available remedies if the supplier fails to deliver.

Failing to sign a contract with a supplier exposes your business to risk.

Is Agreeing to a Supplier’s Terms Risky?

It can be tempting to immediately sign a contract with your supplier to get operations up and running. However, this approach is risky. Your business is unique, and you should ensure that the contracts you sign are fit for purpose.

Negotiating contracts with suppliers is critical, as it could affect several factors, such as:

• the quality of the products or services you will receive;
• the costs you will need to pay;
• timeframes for delivery of the products or services will take place; and
• available remedies if things go wrong.

Generally, a supplier will draft their contracts in a way that best protects their business. For example, they might seek to include several clauses that heavily limit their liability, even in situations where they cause the breach. This would leave customers without recourse. As such, it is important to always review and negotiate supplier terms before signing them.

As a customer, it may be difficult to understand the legalese in a contract and whether a supplier’s terms will put you at a disadvantage. Businesses often have to take a pragmatic and commercial view on negotiations to help get deals across the line. Working with an experienced contracts lawyer can help you with this process if you require support. For example, an experienced contracts lawyer can review a supplier’s terms and advise whether they are reasonable. They can also assist during negotiation to mitigate issues and secure the supplier relationship.

How Can Negotiating Supplier’s Terms Protect Your Business?

To Review Whether Supplier’s Terms Are Appropriate

As a customer, you know what you are looking for from a supplier. Your needs will be unique to your business, and you may even have extremely bespoke requirements. However, supplier terms and contracts are unlikely to be bespoke and tailored. This is particularly the case where a supplier rolls out the same standard terms for all customers.

Using a supplier’s generic terms may mean that your contract is unsuitable or not bespoke enough to cover what you are seeking for a specific project.

Issues to look out for when negotiating supplier terms include:

• checking whether the supplier’s terms include any niche requirements or specifications you have requested;
• whether the contract contains specific payment terms you have agreed to – negotiating payment terms can be hugely beneficial for your business;
• whether the contract documents particular key milestones or timeframes for delivery and whether you have remedies if the supplier fails to deliver to those timeframes; and
• checking for any mistakes in the term, discrepancies or gaps that you should address.

To Raise Onerous Clauses With Your Supplier

Although some suppliers may offer balanced contracts to protect both parties, a supplier’s terms will often be heavily one-sided. This scenario can be risky for your business. By negotiating with your supplier, you can raise terms that you are uncomfortable with and find a middle ground. For example, negotiating the supplier’s terms offers you the opportunity to:

• discuss onerous clauses with the supplier and negotiate a balanced position you are comfortable with;
• ask the supplier to offer you clear rights to end the contract if you are unhappy with their services; and
• negotiate key clauses to protect your business, such as limitation of liability clauses – for example, you may want to request that the supplier’s liability for breaching data protection laws or misusing your confidential information should be unlimited.

To Determine if the Supplier is Right for Your Business

As a customer, you will want to build long-term relationships with trustworthy suppliers. By having open and honest negotiations with suppliers, you can gauge whether those suppliers seem fair and reasonable. If suppliers are particularly difficult and fail to accept any changes to their terms, you might reconsider whether you wish to work with them.

Negotiation is a good chance to test out how a supplier responds to your requests, what their communication skills are like and whether they work hard to listen to what you are asking and accommodate your requirements.

Successful negotiations can help build rapport and a relationship of trust with your suppliers. It can also help you set out your expectations from the outset, reducing the chance of misunderstanding and potential problems later.

Key Takeaways

As a customer, you should always review and negotiate a supplier’s terms. Negotiating a supplier’s terms can help you protect your business, ensure your contract is suitable and help develop good relationships with suppliers. Failing to negotiate a supplier’s terms could be risky for your business, particularly if their terms are onerous and one-sided, and leave you with few remedies if things go wrong.

If you need legal advice or help negotiating a supplier contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.