If your business sells goods or services to customers, a supply agreement will prevent misunderstandings between parties. A supply agreement is a legally binding document between a business and its customer setting out the rights and obligations of each party. This article describes how a well-drafted supply agreement can reduce common disputes that may arise.

How Can a Supply Agreement Reduce Disputes?

A well-drafted supply agreement is comprehensive that covers many possible scenarios that may arise. Therefore, if your customer raises a dispute about the supply of a product or service, you can refer to the terms set out in the agreement. This reduces the risk of an expensive legal dispute by providing clear guidance on how the dispute will be resolved.

You should ensure that customers sign your business’ supply agreement before you provide any goods or services. For example, if you sell online, you may require customers to tick that they accept the agreement before completing their purchase.

Payment Disputes

Payment disputes commonly arise. For example, does the purchase price include the delivery and GST costs? Will the price be paid upfront, or after the goods have been supplied? You can more easily resolve these issues if your supply agreement outlines how you will provide the goods or services, and who is liable for delivery costs.

Delivery Disputes

Your supply agreement should set out when and how your products or services will be supplied to your customers. This may minimise disputes about delivery delays. The agreement will specify who is responsible for the delay and how the other party will be compensated.

Quality Disputes

Disputes can arise if the products are faulty and there is not a clear arrangement to replace the faulty product. Your supply agreement should explain the customer process for receiving a faulty or poor quality product or service. It should also outline how the products or services will be refunded or replaced.

Exclusivity Disputes

Your customer may want exclusive rights to the supply of your products or services. In this case, a dispute can arise about who you can supply your products or services to. If both parties agree to an exclusivity arrangement, your supply agreement should contain an exclusivity clause.

Intellectual Property Disputes

Your supply agreement should establish who owns the intellectual property rights, how those rights will be assigned and how your customers can use the rights. For example, you may want to protect your brand when your customers are selling the same products. Therefore, you need to make clear that customers are prohibited from modifying your product packaging. These restrictions should be included in your agreement to prevent a packaging dispute in the future.

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. For example, if a product fails, unclear warranties can lead to disputes around the extent of your liability. Therefore, your agreement should expressly set out all the warranties you provide.

Key Takeaways

You should ensure that all your customers sign a comprehensive supply agreement before they purchase your goods or services. At a minimum, this agreement should address payment, delivery, quality, intellectual property and warranties. If your customer raises an issue, you can then refer to the agreed terms to reduce the risk of an expensive legal dispute.

If you need assistance with drafting a supply agreement for your business, call LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Joshua Elloy
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