Are you importing from overseas and on shaky ground with your supplier? This simple, yet little known, secret to success with your supplier is the subject of this brief article where we take you through what to include in your own terms sheet with your suppliers so that you can prevent future problems...
 

The good news is that implementing a Terms & Conditions sheet is surprisingly EASY to do.

This simple, yet little known, secret to success with your supplier is the subject of this brief article where we take you through what to include in your own terms sheet with your suppliers so that you can prevent future problems.

 1.  What is a Terms Sheet?

When we say 'terms sheet', we are referring to an agreement which is signed between you and your supplier, containing the general terms and conditions of your business relationship. In essence, a terms sheet is a contract, but we usually reserve the word "contract" for an even more formal and specific agreement you may have with a particular supplier.

The reason that contracts are less common and more difficult to implement than terms sheets is because a-simple-secret-to-success-with-your-supplier2suppliers are often weary of the complex rules and legal jargon which make up many contracts. A terms sheet is a more concise, straight-forward agreement, which can usually be implemented quickly.

Terms and conditions for purchases may also be included directly on your purchase order and, in some cases, buyers may feel more secure by having both. However, we recommend completing a standard terms sheet for all suppliers, and then on your purchase orders simply stating "All orders are regulated by the agreed upon terms sheet which must be completed as a condition of accepting this order", or something similar.

2.  What are the Key Contents of a Terms Sheet?

Each company will have its own variations and requirements when it comes to its supply chain. However, here are some common aspects we recommend including:

    • Right to inspect

      – must confirm that the buyer has the right to inspect both the goods and the facility used to produce the goods, and the exact terms of that right (for example, are unannounced visits acceptable?).

    • Expectations of Quality

      – must reference your agreed upon "QC Checklist" which you have already implemented with the supplier (for more information see this article: How to Create a QC Checklist). If applicable, you should also include expectations with regard to lab testing and mention any available product specification.

    • Inspection Requirement

      – include this if you require good to be inspected by your representatives prior to shipment and note whether they must receive a certain rating or result.

a-simple-secret-to-success-with-your-supplier3

  • Intellectual Property

– outline any intellectual property conditions and how violations would be handled.

  • Order Acceptance

– exactly what constitutes acceptance of the order by the supplier, and, upon acceptance, rules that will be followed with regard to price and shipping.

  • Late Shipment

– any conditions or penalties that would apply in the case of late shipment.

  • Non-delivery, Shortage, Overage

    – conditions for instances when the supplier fails to deliver the goods or does not deliver the correct quantity of goods.

  • Failed Inspection

    – conditions that would apply when an order fails quality inspection by your representatives.

  • Receipt of Unacceptable Goods

    – state the conditions in the instance that goods are received which do not meet the agreed upon QC Checklist. Youa-simple-secret-to-success-with-your-supplier3 may need to clarify based on goods which were inspected by your representatives versus goods which were not inspected prior to shipment.

  • Notification of Changes to Product Specifications

    – Clarify that you must be notified when there is a change to the materials or processes used to manufacture the product.

  • Cost of Re-work in Home Country

    – State the estimated costs of re-working product upon receipt and instances when the seller may be responsible for such fees.

  • Confidentiality

    - Non–Disclosure Agreements between buyer and seller.

 3.  Payment Terms and Shipping Terms

a-simple-secret-to-success-with-your-supplier4The reason we do not mention payment terms (such as Net 30, etc.) or Incoterms (shipping terms, such as FOB, CIF, etc.) in the above list is because those terms often change based on the order. For this reason, those terms are generally best put directly on the PO, which should always be signed back to you as part of the PO confirmation process.

 

4.  Translation

Do not make the mistake of providing a terms sheet which is only in English. That may intimidate and disengage your supplier from what you are trying to accomplish. Be sure that your document is professionally translated; it should be the local language version which is the binding verbiage (see #5 below).

5.  Law and Jurisdiction

Are you ready for the second biggest mistake we see buyers make time and time again? Many companies are prudent enough to implement a terms sheet but state their own country as the one for arbitration, in case a conflict arises. Don't make that mistake. If you are buying from a supplier in China, make sure you know where their head office is registered and designate that as the country or province of arbitration. You may need a local lawyer to help you set that up, but it's worth it.a-simple-secret-to-success-with-your-supplier5

Although you may feel uneasy about a legal system that is foreign to you, this is done for the simple reason that you will have a difficult, if not impossible, time getting your overseas suppliers to appear in court in your country. Although the supplier's legal system may appear strange to you, most countries have similar legal stipulations for the buying and selling of goods. If you ever needed to, you could always pursue a case against them in their home country.

Conclusion

Working with an overseas supplier can present a lot of challenges for you – the buyer. So how can you get on good footing with your supplier from the beginning and prevent potential problems later down the road? The answer lies in creating and implementing a written agreement that clearly stipulates the terms and conditions of your business relationship. Many of the rules and guidelines which appear in an effective terms sheet address potential problems that plague many of the buyers with whom we’ve worked. This includes matters involving order acceptance, failure to meet shipping deadlines and intellectual property.

Even buyers wise enough to implement a terms sheet with overseas partners can make costly mistakes that hinder their efforts. ALWAYS have the document professionally translated into the local language for the consideration of the supplier, as this is likely the version that will be cited in the event of a breach of the terms and conditions. On a similar note, make sure the country of arbitration referenced in the terms sheet is that in which the supplier’s head office is located. You’ll find it easier to pursue legal action with a supplier in their own country than getting them to travel to yours.

Keep in mind that terms sheets exist as a procedure for clarifying expectations and a tool for preventing future problems. Create and implement your terms sheet now and set out on the path to smoother cooperation and success with your supplier!

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