Over the last few years, our team has worked with several manufacturers and distributors on their terms and conditions of sale and/or purchase.  We have even developed a questionaire that we typically use when we speak to a client for the first time.

Readers of this blog may recall posts regarding indemnification clauses, anti-assignment clauses, non-compete provisions and the like.  Yet, I thought it would be useful to provide three general over-arching business observations that often guide our analysis:

  1. Your Terms Should Be Written For Your Problematic Customers: There are clearly situations in which a contract should be written in a manner in which each side should get something in the deal.  Most times, I recommend that a company’s terms and conditions are not one of those situations.  Manufacturers and distributors should adopt terms that protect the company at all costs.  Now, we all recognize that customer relations is what drives sales.  But, remember that even if your terms are written in a way that protects your company, your team could always agree to waive a requirement in order to keep a customer/vendor/supplier happy.  It is much harder, however, to deal with a problematic customer if your terms are written in a way that gives the other side a lever that it should not have.
  2. Terms and Conditions Should Be Tailored To Your Business:  This piece of advice seems simple enough.  But, I have seen many situations where a company’s terms and conditions are pulled from the Internet or from another company.  For instance, the terms regarding the sales process may have procedures that do not reflect the actual process followed by the manufacturer and distributor.  Sometimes the process has changed over time or never existed.  For this reason, I encourage a periodic review of your terms and conditions to make sure it reflects the current state of affairs and also takes into account issues raised by problem customers (see #1).  Often, I have seen companies do this as part of their review of pricing for the next year.
  3. Beware of Competing Terms and Conditions:  Almost invariably, the other contracting party will have its own terms and conditions that are different than yours.  It is easy for a lawyer to tell a company that they need to confront all of those issues at the time of the sale, but even good legal advice needs to be balanced with the needs of the business.  For that reason, I often encourage manufacturers and distributors to identify the handful of provisions that are a must (i.e., that they cannot live without) and focus on those when reviewing the other party’s terms and conditions.  It is better to have the discussion upfront while everyone is motivated to make the deal than after the container goes missing, the product fails inspection, or the money is not paid.