Reasons To Contract With A Supplier

Putting a contract in place can seem like a hassle. On one hand, it may seem like a tedious, nit-picking exercise that you probably don’t really need to do. But on the other hand, having a good contract in place is one of the most insightful things you’ll ever do for your business. It offers a great return on effort that helps you to quickly pick up the pieces when a supplier doesn’t deliver.

A WELL-STRUCTURED CONTRACT DOES THREE IMPORTANT THINGS FOR BOTH YOU AND YOUR SUPPLIER:

1. Clarifies What You Are Buying

A contract should describe what the supplier is delivering for you. What things, how many, to what level of quality, when it will be delivered, and all the other important aspects to ensure that you are satisfied with the supplier’s performance. This helps to avoid future disagreements and disconnects.

Suppose you run chain of organic health food stores, and you advertise that you are selling organic, vegetarian fed, free range, antibiotic-free chickens. The contract between you and your poultry supplier should clarify these specific needs to ensure you don’t get stuck with a delivery of 200 chickens that don’t meet those specifications.

2. Specifies What You Are Paying

On the flip side of the first point, the contract should state what you need to pay for the standards of delivery that you agreed to. This is a great way to minimize those “extra” charges that often seem to get piled on at the last minute.

“What do you mean I need to pay an added $500 fee to have my chickens delivered to my dock?! Where does it say that in the contract?”

3. Describes What Happens if Things Go Horribly Wrong

Although we hope that bad things never occur, sometimes things do. The terms and conditions (Ts & Cs) of your contract should cover all the situations you and your supplier may need to be prepared for.

What happens if your supplier gets your order mixed up with another and delivers 200 LIVE chickens to your store? What happens if one of those chickens knocks over a box in your store and breaks your customer’s foot? And your customer sues you?!

What obligation does your supplier have to be accountable? If it’s not in the contract, then your supplier can argue that they are not responsible.

This is a pretty simplified explanation of why you should contract with your suppliers, but we hope you keep the vision of 200 wild chickens running around in your mind next time to you start to wonder whether or not you should execute a contract with a new supplier!

The information contained herein is shared for educational purposes only. This information does not represent any opinion, guidance or recommendation, whether formal or informal, of Capital One, National Association, or any of its officers, directors, employees, advisors, attorneys, consultants, affiliates or subsidiaries (collectively, “Capital One”). Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional. Nothing contained herein shall give rise to, or be construed to give rise to, any obligations or liability whatsoever on the part of Capital One. Capital One is not affiliated with, nor does it endorse, any of the companies mentioned. Any trademarks or other intellectual property used and displayed are the property of their respective owners. ©2023 Capital One.

Reasons To Contract With A Supplier

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