Resolving a dispute with your supplier

26th October 2023

A fully functioning supply chain is vital to ensuring that your business is able to perform effectively. Disputes and disagreements with suppliers of goods or services can arise and severely impact on your operations and profitability if you do not handle them in the right way.

What to do when the dispute first arises

Be proactive and try to work collaboratively with your supplier to try and resolve the issue.

  • It is often in the interests of both parties for business to continue as close to normal as possible. Try to understand your supplier’s position and engage directly with them early on to identify what the issue is
  • It is often a question of how flexible you are willing to be in order to minimise the impact on your ongoing business. This may result in a short-term solution to the dispute, in which case you should ensure this is communicated clearly and provisions should be put in place for what will happen in the long term to avoid any presumption that your contractual terms have been varied
  • When negotiating with your supplier, ensure all discussions or communications are made or headed ‘without prejudice’ to be afforded legal protection in the event that no settlement can be agreed. Without prejudice statements are those made by parties in a genuine attempt to settle a dispute and as such cannot be used later in court as evidence of an admission which can be used against your business.

Identify what your priorities are and whether it is possible to continue trading.

  • You must assess whether this supplier is critical to your supply chain running. For example, do you have built up stock that you can use in the meantime to give you time to negotiate with the supplier, or does your business model operate on a more ‘hand to mouth’ basis? This will dictate your bargaining position and how proactive you need to be
  • Do you have a variety of supplier streams? If so, it may be possible for an alternative supplier to step up whilst you seek to resolve the dispute with the current supplier. Alternatively, try to negotiate extended times for delivery and/or payment with other suppliers to ease the immediate financial burden caused by the dispute.

Check your contractual terms with the supplier to understand your options.

  • Check whether you are bound by any contractual obligations dictating how you should be resolving disputes with your supplier. For example, there may be provision for the parties to negotiate or engage in some form of alternative dispute resolution before escalating matters. Failure to follow what is set out in the contract could put you in breach and cause issues further down the line if the dispute continues
  • It’s also important to look at how this dispute will affect your onward supply of goods or services, or your sales to customers. You should establish what those contracts say should happen in these circumstances.

Gather relevant documents and keep detailed records of communications with your supplier.

  • This will help initially when engaging in discussions with your supplier, as you will be able to provide evidence to them in order to communicate your position clearly
  • Ultimately, parties to disputes are all under an obligation to preserve relevant documents should court proceedings be subsequently issued and disclosure of relevant documents be ordered. Try to keep copies of all relevant documents, including those which are detrimental to your business’ own case or those that assist the supplier’s case. You should be aware that the definition of ‘documents’ extends beyond invoices, receipts, letters of contracts to also include photos, emails, spreadsheets, text or WhatsApp messages, so put systems in place to safely store and retain all types of documents.

A regular review is key

A dispute with a previously reliable supplier can have long term consequences for your business, as it can lead to customers being unhappy as well as delays and increased costs involved in engaging new suppliers. With that in mind, it is vital to regularly review your contractual terms with suppliers to ensure there is little room for argument in the future. Adopting a diligent and proactive approach to your business will prove invaluable should similar issues arise further down the line.

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