Business-to-business transactions are key to economic development. An organization cannot provide services or materials to consumers if it does not have reliable sources of raw materials. The trading that organizations do with one another represents a truly consequential facet of the domestic economy.
Contracts set terms for business-to-business transactions that allow organizations to lock in delivery dates and prices. They help vendors control their expenses as well by minimizing storage needs and making the rate of sales predictable. When a business signs a contract with a vendor, there’s an expectation that the organization will provide materials as agreed upon within the body of that contract.
Unfortunately, many vendors fail to uphold their end of the bargain. Their failure to deliver could leave a client in a very difficult position. Appropriate inclusions in a vendor contract can help limit the likelihood of a material breach of contract, such as failure to deliver goods.
A penalty can incentivize contractual compliance
All too often, vendors who fail to deliver goods or materials will walk away without consequence despite massively disrupting a client’s business. Although litigation is possible, not all businesses will pursue a lawsuit after a major failure by a vendor. Additionally, the outcome of such litigation can be hard to predict unless there are direct financial losses.
Those who are contracting with vendors can reduce the likelihood of a default or failure to deliver by imposing a financial penalty for a contract breach. For example, some businesses charge a progressive late delivery penalty that increases the longer a vendor delays a scheduled delivery. Others may offer lenience, such as the reduction of a penalty, if a vendor communicates quickly when an issue arises to help the client avoid major consequences because of the delay.
Proactive protection is preferable to litigation
Although it is often possible to take a vendor to court when they fail to fulfill their contractual obligations, avoiding major breaches is a better option. Even a successful civil lawsuit will typically take months to resolve.
Including thoughtful terms in vendor contracts can help those involved to avoid specific business challenges and can also provide opportunities for recourse in the event that difficulties arise. Organizations that partner with a lawyer both for the creation of custom contracts and the enforcement of their vendor agreements can mitigate their risk of hardship that may potentially be created by the failings of another business.