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Beginning a Business Relationship with a Vendor

In the rush to court a new vendor, companies may be tempted to quickly sign a standard form agreement and begin work immediately. If you find yourself caught up in the rush, take a step back, properly investigate, and negotiate your relationship to help it be profitable and happy for years to come.

First, investigate the vendor. Look into the relationships it has with other companies and reach out to your contacts to learn more. Does it fill orders on time and promptly remit refunds? Are other customers happy? Even more important, do some due diligence into whether the vendor is solvent and where it derives other sources of income. A good place to start for publicly traded companies are annual financial reports. If you see any red flags such as multiple past bankruptcies or court judgments, think hard about entering into a long-term contract with the vendor. Check that the vendor is up-to-date on any licenses or regulatory compliance, if you can locate compliance records in your industry. Doing a quick Internet search on the business and skimming the results also can be revealing.

Assuming your investigation was satisfactory, determine your essential deal terms for the contract negotiation. Perhaps your vendor will be providing a fragile part that you use in manufacturing an item, and you want to ensure that any parts broken in transit will be replaced by the vendor. Maybe you had a bad experience with the last vendor and want to short-circuit those problems with contract terms. Then consider those essential terms from the vendor’s perspective before you negotiate. Many companies prefer to have a lawyer do the negotiation; others do it themselves.

Once you and the vendor have hammered out a deal, get it in writing. Spend time working with an attorney to craft a tailored contract addressing all of the deal points, plus dispute resolution and other standard contract terms. Ensure that the vendor agrees to each point as drafted in the contract. Then obtain signatures and make sure your company has a fully executed copy of the agreement on file.

Now, rather than rushing into the deal, you know your company’s expectations for the relationship. Live up to your end of the contract by ensuring that payment is promptly remitted to the vendor and that any issues with delivery or quality of goods get addressed according to the dispute resolution and other provisions in your well-crafted contract. Check in with the vendor to see if everything is going smoothly, and then look forward to a good relationship in the future.

Conducting due diligence on a new vendor and negotiating deal points involve many legal issues. Protect yourself and your business by seeking out an experienced business attorney. Michael Leonard, Esq., of San Diego Corporate Law, named a “Rising Star” for 2017 by SuperLawyers, has the experience and the insight to resolve vendor-related issues or prevent them before they arise. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.

Entering a contract with a vendor?


Schedule a Consultation: 858.483.9200