Ingredients for success – what your food business needs in its supply agreements
You can’t make good food without good ingredients. So if your business depends on good ingredients, you need strong supply agreements in place.
Your supply agreements should be in writing and should set out the following:
Agreed price and/or method of determining price
Your supply agreement must state a price. If the product price depends on the market at the time, then the agreement must set out how the price you pay is calculated. You don’t want your supplier raising prices for no reason or unreasonably inflating market prices when on-selling.
Also, you shouldn’t be prevented from purchasing from other suppliers, as this may lead to the higher prices.
Delivery requirements
The agreement should cover:
- what the supplier must to ensure food is kept at the right temperature during travel and delivery
- timing of delivery – for example, a cold drink on a hot summer’s day must be delivered early in the morning and chilled, so that it is ready to be served
- whether and how the supplier will collect and remove any returnable packing. You don’t want containers or rubbish building up on your premises.
Check with other business that the supplier is reliable in meeting delivery times. Delayed delivery may lead to unsatisfied customers and negatively affect your business.
And try to contract with sellers who are either close by or who have closely-monitored refrigeration and packing techniques. This is the best way to make sure your produce isn’t damaged during transportation.
The agreement should allow you to terminate the contract if the supplier fails to meet delivery times and obligations
Any quantity and quality requirements
State what quantities you need, the quality that will be acceptable, and detail how this will be discerned and by whom.
The agreement should also state what happens if this quality standard isn’t met. Are you required to pay for the goods if they are late or of poor quality or past their best-before date?
When you must pay and how
The agreement should state the payment schedule. How long after delivery are you required to pay? The agreement should also state when you may withhold payment, for example, until quality issues are fixed.
The term of the agreement
Does the supply agreement last forever? If not, when does it end? Or how can you bring it to an end?
How much notice does the supplier need to give you before they can bring the agreement to an end? What options do you have to renew the supply agreement? And when and how can you exercise these rights?
Your supply agreement should clearly answer all these questions.
This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.
Published June 20, 2017
Jessica Kerr is the Director of Sinclair + May, a female-led, boutique commercial law firm based in Melbourne’s inner north. Sinclair + May work with small businesses to ensure their legals are in order. Book a free 15-min chat here to talk with one of our solicitors.