Vendor Contracts (Pt. 3)

vendor contracts
Business Lawyer Asheville, Hendersonville and WNC

Does my business need to hire a business lawyer for vendor contracts?  A question I get asked a lot, the answer is not always, but often times it helps to have the guidance and control that good legal advice and drafting can provide. Something as basic as a written contract can help the parties determine their obligations such as quantity, delivery terms, payment terms, and warranties.

So when should your business call a lawyer for vendor contracts?  I advise my clients using multiple criteria plus my personal experience doing this for over 20 years.  Ultimately it comes down to the businesses ability to withstand economic pain if something goes wrong versus the transaction costs to set up a safe structure for the transaction and similar transactions going forward.

Some criteria I consider when advising business clients can be classified as:

· Ownership

· Customer

· Vendor Contracts

· Product or service

· Liability

· Social / personal

Today’s article will discuss VENDOR centered factors, that is, when do you need to have the clarity and protection of the laws set out clearly between your business and your vendors.

Under basic principles of contract law in North Carolina, any contract for the sale of goods for the price of $500 or greater must be in writing to be enforceable.  This sets a bare minimum threshold in a businesses relationship with vendors (or even customers).  Certain occupations also have written contract requirements.  For further protection, a business should insist on quantity and quality provisions; delivery terms; payment terms; remedies in the event of breach; and warranties.

Imagine this: you order 1,000 widgets from your vendor to be used in assembling your product.  You have routinely received them within ten days, but that’s not in writing.  The widgets don’t show up on time because the manufacturer thought delivery on a certain date wasn’t important to you based on your past dealings, you miss a delivery deadline, and lose a customer. 

Simply putting a delivery date into the contract would have avoided this situation; and there is likely no recourse against the widget manufacturer for the “late” delivery.   You should always insist that vendors present you with a written contract so that *you* know the terms of your agreement; or draft and present one to them.

Likewise, if your business acts as a “vendor” to others, you should standardize your PO’s, contracts, and web-order form terms to have these minimum items in them to protect your business.  Even in contracts valued at less than $500, and especially as the contract value increases, having a qualified lawyer such as myself draft a standardized contract may be worth the cost in peace of mind. 

The cost for the attorney would likely be cheaper than one blown major deal (or a series of them).  I’m reminded of a client I had in Chicago whose contracts were routinely worth less than $500, and who routinely did not get paid. No written contracts.  A simple written agreement between the parties with a fee-shifting provision, I think, would have gone a long way to getting him better results.

Conclusion on Vendor Contracts

No one factor is determinative for every business, often the nature of the business determines when it’s appropriate to put some legal protections between the owner and vendors.  The factors have to be weighed against the other factors I’ll discuss in future articles. 

Contact me if you have any questions on business transactions. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.

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Be sure to check out my other blog posts HERE.  Be sure to listen to my podcasts with Matt Mittan at BizRadio.US