Commercial Clauses we should consider before signing agreements with Suppliers

Commercial Clauses we should consider before signing agreements with Suppliers

Contracts drafting and processing is sometimes considered as Legal department’s responsibility. In fact, legal department is actually responsible to ensure that what we have written is legally correct and the wording used reflects what we really want to say in the agreement. The Procurement department has the responsibility to ensure that the agreement we are about to sign has all terms and conditions that protect the company and includes provisions for changes of the situation or needs differentiation that might occur in the future. Obviously, different agreement topics include different risks and require different provisions, however below we can see some basic Commercial Clauses that are good to have in mind when you are negotiating a contract.

  1. Volume rebates

Signing an agreement for one, two or more years, without been 100% sure about the quantities? You then can negotiate volume rebates, that will ensure you receive additional discounts if initially planned consumption is exceeded. Of course make sure to avoid the opposite, i.e to pay additional cost if your consumption is below estimated.

  1. Renewal clause

For agreements, where there is still a need for services after the termination of the contract (e.g. facility services, stationary supply etc). I would suggest to include an automatic renewal clause, so the contract will be valid with the same terms and conditions in case no other communication takes place one month before termination. This will protect you from disregarded expired contracts and reduce renewal processing effort.

  1. Termination for Convenience

Even if you have forecasted that you will need this service / supply for the complete duration of the contract, I would recommend you to include a termination clause for convenience at any time with a reasonable notice period (one month for example). This will give you flexibility and protect you from unforeseen situations.

  1. Payment Terms

Sales are important but liquidity sometimes is even a bit more. Make sure you negotiate the maximum credit period you can get, provided there is no credit limit restriction by law in the country you are negotiating and in any case try to have longer credit with your suppliers than the credit you provide to your customers.

  1. Delivery terms

It is important to be familiar with Incoterms in order to select the Delivery terms that are applicable for your case. Transfer of liability, insurance and duties payment are critical and should be well decided before selecting delivery terms.

  1. Insurance & Penalties

All agreement should protect you from possible risks and issues that might occur during a collaboration. Do not hesitate to add Insurance and penalties clause for points that are critical, such as delivery time, quality, performance levels etc.

  1. Applicable law

In international agreements, you might be requested to have the law of a different country than yours being applicable. In that case it is highly recommended to have your contract draft reviewed by a lawyer with expertise in that country’s law to avoid unpleasant surprises during the collaboration.

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