Suppliers – Know your payment terms!

Recent headlines have highlighted that some large companies are putting pressure on smaller suppliers by extending payment terms. The Federation of Small Businesses is lobbying to try to get in place better protection for small businesses from the consequences of customers unfairly extending the time they take to pay suppliers.

In the meantime, if you are a supplier you should ensure that you carefully consider the terms on which your customers are trading with you. Sometimes smaller suppliers struggle to impose their own terms and conditions on bigger customers, but you may be able to negotiate specific changes to those terms. Even if you can’t change the terms it is important that you, as a supplier, make a considered decision whether you want to trade on unfavourable customer terms.

A few key things which you, as a supplier, should look out for are:

1) Payment terms – How long before the customer will pay you? This information is paramount to allow your business to plan its cash flow. Is there any flexibility to increase the price if the work is more complex than you anticipated?

2) Termination – Can the customer cancel the order? If it’s an ongoing contract, how much notice does the customer have to give to you to bring it to an end? Are there any circumstances where the contract is automatically terminated? What are the consequences if delivery is late or delayed?

3) Supplier obligations/Customer remedies – Customers will sometimes seek to impose higher standards on you than would usually be implied by law. For example, the customer may oblige you to use the best quality materials and techniques available. You should review what you have to do if the product or service does not meet the specified standard-there could be an obligation to offer a full refund, a replacement or to repair.

4) Retention of Title – A customer will generally want title to the goods to be transferred to them when you deliver the goods. However, you should push to retain title until the goods/services are actually paid for by the customer. This gives you a better chance of getting the goods back if the customer becomes insolvent.

There are many other legal and commercial considerations which businesses should consider when entering into contracts, irrespective of whether they are the customer or the supplier. If you would like further advice on contracts, contact Elaine Mann, at Barker Gotelee Solicitors, by phone on 01473 611211 or email [email protected]

This article is for general information purposes only and does not constitute legal or other professional advice. We would advise you to seek professional advice before acting on this information.

A version of this article appeared in the East Anglian Daily Times on 17 February 2015.

Elaine Mann is a solicitor in the company commercial department at Barker Gotelee, Ipswich Solicitors.

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