Everything You Need to Know About Vendor Contracts
If you are running a rapidly growing business, you’re likely find yourself in need of vendors that can provide you with products or services critical to your operations. While many vendor businesses today choose “standard form” contracts for the sake of consistency and uniformity, it is still possible that you may find yourself negotiating customized vendor contracts.
Regardless of whether you have some negotiating room or your vendor is sending a standard business contract, there are certain items that you should make sure are discussed in detail. To keep track of your vendor agreements, it is always a good idea to use a contract management platform.
Read on to hear what our experts have to say about reviewing and managing vendor contracts effectively.
What is a Vendor Contract?
A vendor contract is a legal agreement between an individual or organization and another party to exchange specific amounts of services and goods for a particular price or compensation.
The vendor agreement describes the terms and conditions under which the exchange will occur and whether the exchange between parties is to be performed once or regularly.
Types of contracts between customers and vendors can cover various areas, such as office supplies, software, consultants, event planning, technology services, marketing, and much more. For example, you may hire a vendor once to organize a special event or consistently outsource your business marketing or other professional services.
What to Include in Your Vendor Agreement
A standard contract always includes some typical clauses. You must study each clause in detail, look for fine print, and tailor the document to the specifics of your particular business deal to reduce the level of risk of a contract dispute with your vendors. Remember: if the vendors themselves created the vendor contract, the contract may be in a language favorable to them, instead of you.
- Scope of services or products. The most important thing that a valid contract must lay out in detail is what exactly the vendor is expected to do for your business. The agreement should include what services or products, or software licenses are provided and how and when they will be delivered.
- Payment terms. A vendor contract must include some form of payment or compensation given in exchange for vendor services. The payment does not need to take the form of currency – it can be anything from debt forgiveness to in-kind contributions, but it must absolutely be specified in the agreement.
- Contract term. The document must also outline for what period of time the vendor will be providing services for you. This could include deadlines or at what time of the day or days of the week the vendor will deliver the services or products. If you require continuous services, you must watch out when the contract expires and renew it before the expiration date. You can use Contract Hound to set up automatic reminders before the end date of the contract.
- Exit clauses. The agreement should specify termination rights under which either party can walk away from the relationship and how the exit will be handled in that case. Some contracts may expire as soon as a specific project is completed, while others may last indefinitely until either party objects.
- What happens in case of a breach. A breach occurs when someone doesn’t follow the terms of the vendor contract. If a vendor breaches their part of the agreement, the contract must contain some clauses that describe how the offending party can fix the breach. On the other hand, larger breaches may give you an option for automatic termination for breach with appropriate compensation.
- Intellectual Property. Suppose either party is using or providing Intellectual Property under the contract. In that case, the document should indicate the IP owner, how it will be used, and whether a license will be granted for the other party to use the IP.
- Representations and warranties. The contract should clearly describe what representations and warranties will be provided by the vendor if any. Specific warranties can include: the products being provided will conform with the specified requirements, the services will be provided according to the industry standards, and more.
- Other clauses. Other clauses may include confidentiality, insurance, limitations of liability, indemnification, vendor relationship clause between parties, disclaimers, and more. Make sure to take a close look at each clause and request changes if necessary.
Read our contract review checklist article to find out what other elements a standard vendor contract needs to have, in addition to the ones highlighted above.
How to Simplify the Vendor Contract Process
Vendor agreements are a driving power behind rapid business growth. To create and build long-lasting relationships with service providers, you must ensure that they receive a positive experience from the vendor contract process.
Here are a few ways you can use a contract management software (such as Contract Hound) to make the process of managing a contract or agreement for services as simple as possible:
- Handle all your contracts in a unified workplace. Handling the contract lifecycle in a unified system with a built-in approval process can reduce the back-and-forth process and improve your efficiency and time savings. With Contract Hound, you can store all your document iterations in a single place, collaborate internally and externally, sign, and track the agreement’s progress.
- Use a searchable repository. A searchable online repository will allow you to create, manage, and track dynamic, machine-readable documents. This means that you can quickly access your old documents without having to go through them manually.
- Sign electronically. You can speed up the time frame required for signing by incorporating e-Signature into the vendor agreement process. This will decrease the overall time needed to sign, as contract parties won’t have to waste time printing, signing, scanning, and sending the documents back. With a mobile solution, you and your vendors can sign documents on the go.
- Keet the vendor contract concise. You don’t have to include every possible detail in the contract. To keep the document concise, you can include any related documents as addendums, and then store them together with the original contract in your contract management software.
It’s Time to Level Up Your Vendor Contract Management
When reviewing or negotiating a contract with your vendor, remember to take your time to go through contract provisions and understand exactly what each of them means to you and your business.
And while you should never rush with vendor agreement reviews, you can save your time by making the management of even the most sophisticated contracts more efficient.
Try Contract Hound today to benefit from smooth and efficient contract management.
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