Business Law 101: The Importance of Vendor Agreements

The Vendor Agreement Explained

The vendor agreement, or vendor contract, outlines the terms and conditions of the work to be performed by the contractor. It specifies several key points in the business relationship, such as delivery schedules, payment terms, and warranties.

Vendor agreements help protect you from future issues because they set the expectations of the parties when it comes to things like the service type and quality, pricing, payment terms and schedule, and liability if something goes wrong.

Provisions to Include

Vendor agreements can take many forms, depending on the kind of service you are contracting with the other company, but there are some details that all agreements should include. These include:

1. Goods or Services:

The agreement should clearly describe what you are purchasing, such as baking supplies for your new cafe or electronic components for your computer repair business.

2. Payment Terms:

The payment terms are the next most important provision to include. Will payments be made after specific milestones are reached or will everything be pad in a lump sum at the end of a project? Regardless of the arrangement you choose, be sure to make clear the total cost and the date by which each payment is due to avoid any potential conflicts.

3. Term/Termination:

The term defines how long the contract will run and termination specifies how each party can get out of the relationship. Generally speaking, the term is for a fixed period or until the services are completed.

4. Representations & Warranties:

This section sets out specific representations and warranties that both sides need to make. These include the ability to enter into the contract, the vendor’s qualifications to perform the services, and an assurance that third parties’ intellectual property rights will not be violated.

5. Confidentiality:

If you plan to share sensitive information with the vendor, include a confidentiality provision. This provision will make it clear that any information shared cannot be disclosed to anyone else and it may not be used for any purpose other than performing the services as described in the agreement.

6. Limitation of Liability and Indemnification:

This clause should always be included to protect you from errors or omissions made by the vendor. Indemnity is a contractual provision where one party agrees to cover the losses of another party in specified circumstances.

As a business owner, you will likely have to contract for services or goods outside of your company (if you haven’t already). The Florida Small Business Legal Center has years of experience helping entrepreneurs like you navigate the complexities of running a business, and can assist you in drafting and negotiating vendor agreements. To learn more about how we can help, contact us today at 1-866-842-5202.