Should I Draft My Business’ Supply Agreement?

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Table of Contents

• How Can a Supply Agreement Reduce Disputes?
• Payment Disputes
• Delivery Disputes
• Quality Disputes
• Exclusivity Disputes
• Intellectual Property Disputes
• Warranties Disputes
• Key Takeaways
• Frequently Asked Questions

If your business sells goods or services to customers, a well-drafted supply agreement is essential to set out the key terms covering the relationship to ensure all parties are on the same page, help prevent misunderstandings, and protect your business. A supply agreement is a legally binding document between a business and its customer that sets out the rights and obligations of each party. This article describes how a well-drafted supply agreement can proactively address and mitigate risks and common disputes that may arise.

How Can a Supply Agreement Reduce Disputes?

A well-drafted supply agreement should be comprehensive and cover all likely scenarios that would arise in the supply relationship. This should set out the expectations of each party and what would happen if there were to be a dispute between the parties.

This means that if a customer has a question about your supply of the goods or services, you can refer to your supply agreement. This ensures clarity and consistency in your customer relationships.

Payment Disputes

Payment disputes are one of the most common disputes that can arise between a supplier and a customer. To avoid ambiguity, your supply agreement should include:

• the total cost of the goods or services, including any taxes (e.g. GST), delivery fees, or other additional charges;
• whether you require payment upfront before delivery or if you will issue an invoice after the goods or services are provided;
• accepted payment methods (e.g. credit card, bank transfer, etc.) and any associated processing fees; and
• payment deadlines and procedures for late payments, including potential interest charges or penalties.

By clearly defining payment terms, there is less room for common misunderstandings or disagreements further down the line.

Delivery Disputes

Delivery delays or issues can quickly sour a business relationship. Your supply agreement should comprehensively cover:

• expected delivery timelines and any potential factors that may impact this (such as product availability);
• the delivery method and who is responsible for delivery costs; 
• processes for dealing with delivery delays, damages during transit, or failed deliveries; and
• any specific delivery instructions or requirements, such as delivery windows or access requirements.

Properly managing delivery expectations from the outset can prevent costly disputes and dissatisfied customers.

Quality Disputes

Even with the best intentions, products or services occasionally fail to meet the expected standards and include faults. Your agreement should include provisions on: 

• processes for customers to report faulty, damaged or poor-quality goods or services;
• how will you respond to or investigate any complaints; and
• what remedies are available.

Australian Consumer Law may also apply to your supply arrangement, and you cannot contract out of your obligations under the Australian Consumer Law. Consumer guarantees may apply where your products or services do not meet quality standards, and different remedies are available to consumers, depending on whether the fault is minor or major. 

Exclusivity Disputes

In some cases, the customer may want exclusive rights to the supply of your products or services. If this is the case, your supply agreement should be apparent on: 

• the geographic region or market where exclusivity applies; 
• types of products or services included under the exclusive arrangement; and
• what happens if they breach the exclusivity rights.

Intellectual Property Disputes

Clearly identifying intellectual property (IP) ownership is crucial, especially for product branding, designs, or unique products or services. Your supply agreement should clearly state: 

• the IP rights of each party, including who owns the rights to any new IP created under the supply agreement; 
• what permissions or licenses grant you the ability to use the IPs; and 
• any restrictions on the use of IP.

This will help protect your brand and know how to respond to any IP issues.

Warranties Disputes

You cannot contract out of the warranties set out under the Australian Consumer Law. However, it’s important to establish the warranties you will provide. Without a supply agreement, your customers may expect you to provide additional warranties outside the Australian Consumer Law. To ensure your customers know what warranties you provide, you should set these out in your supply agreement. 

Key Takeaways

As a supplier, you should have a straightforward yet comprehensive supply agreement with your customers that addresses your risks and covers common questions about the supply arrangement. Anticipating the common questions that will arise in your supply arrangement and addressing those in your supply agreement will help reduce the likelihood of any disputes arising.

If you need assistance drafting a supply agreement for your business, 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 our documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions