As a business owner, the relationship you have with your suppliers is vital to client satisfaction and ultimately, the success of your business. If you promise quick delivery turnarounds to your customers, but in reality your supplier delays fulfilling orders, this may threaten your business' reputation.

But fulfilling orders is not the end of the relationship with your suppliers. If the goods are faulty, you will want to make sure that your suppliers will take responsibility for replacing the item at their expense.

A well-drafted supply agreement will clarify each parties’ rights and obligations by setting out how goods will be paid, delivered and if necessary, returned. Your supply agreement should also set out how you will resolve a dispute with your supplier if an issue arises, for example, missing a scheduled delivery. If you already have an agreement in place with your supplier, make sure that you are familiar with the terms and update the terms if your agreement has changed

Have a conversation

If you have any issues with your supplier, the first step is to raise it with them directly. If you and the supplier agree on terms verbally, make sure you write them down and send them to the other party so that you both have a clear understanding of any new arrangement. It is in everyone’s interests to resolve issues quickly to maintain a strong business relationship. The issue you’re facing may be the result of a misunderstanding or mistake that can be easily fixed by reaching out to the supplier.

Find an alternate way to resolve the dispute

If you can't resolve the dispute through a conversation, then you may consider alternative dispute resolution. Alternative dispute resolution takes place outside of a court, such as formal negotiations or mediation. At every stage of resolving a dispute, you should consider commercial questions around what the relationship with the supplier is worth and how much time and money resolving the dispute will cost. For example, missing an invoice due to an administrative error compared to ongoing supply issues affecting large customers and business cash flow. Following alternative dispute resolution, one of the outcomes you may consider is amending clauses of your supply agreement to prevent a similar situation occurring with your supplier in future.

Terminate the Supply Agreement

As a last resort, you can terminate the supply agreement. If you have a written supply agreement, you should follow all the necessary steps to bring the agreement to an end. Depending on the terms of the agreement, this may include a notice period and making any final payments owed to the supplier. If you have suffered a financial loss because your supplier breached the supply agreement, you may consider taking them to court. But if your supplier is no longer trading or has no valuable assets, it may not be worth pursuing your claim. From a commercial perspective, litigation is costly and time-consuming and is likely to distract you from running your business. Depending on your particular circumstances, you may also choose to write off the loss.

Do you need a new Supply Agreement?

When an issue arises with a supplier, it may become obvious that the terms of your existing supply agreement does not adequately address the rights and obligations of each party. At a minimum, a supply agreement should describe:

  • the exact goods being supplied,
  • the timing of delivery,
  • the consequences of late delivery,
  • the payment terms,
  • the supplier’s obligations under Australian Consumer Law, and
  • a clear dispute resolution process.

If your existing supply agreement does not address these terms, you may wish to consider amending or redrafting your agreement.

  • A supply agreement is a key legal document that sets out the relationship, obligations and duties between a business and their supplier(s).
  • A supply dispute has both legal and commercial elements that you should consider, including cost, time and relationships between the parties.
  • It may be simpler to resolve a dispute between parties when the rights and obligations of each party are clearly set out in a well-drafted supply agreement.

Author: Kirstie Le Lievre. Kirstie is a lawyer at LegalVision and the first point of contact for clients with business structuring and contract enquiries). If you have any questions, or need a supply agreement drafted, get in touch with LegalVision contract lawyers on 1300 544 755.