By Fiona Dott, solicitor in the Corporate & Commercial team. Article first published in a leading daily broadsheet newspaper.
I have a food production business in Kent with 17 employees. A few months ago we entered into a contract with a producer in another part of the country for provision of certain foodstuffs. All was well until last month when I received a letter announcing that from now on payment would be due in advance rather than in arrears. This is a huge inconvenience because we in turn depend on retailers for payment and this would make our payment schedule difficult. I’ve checked the contract and it doesn’t say anything about changing the date of payment. Can they vary the terms like this?
This is an increasingly common issue for businesses of your size as suppliers seek to improve their own cash flow by requiring payment in advance even if that was not their usual course of dealings in the past.
The fact that the contract does not reserve any right for your supplier to unilaterally vary the payment terms means the letter sent to you by your supplier cannot constitute a variation of those terms.
In practice, however, if you do not agree to your supplier’s proposed new payment terms, your supplier may decline to accept future orders from you. Often contracts for the supply of goods do not oblige a supplier to accept future orders and may include wording such as “the supplier shall be free to accept or decline orders at its absolute discretion”. I advise you to check the contract to see whether there is any obligation on your supplier to accept future orders which you place.
If your supplier is able to refuse to accept future orders (or to terminate the contract) you will need to make a commercial decision about whether to agree to your supplier’s new payment terms or whether to find an alternative supplier.
If the contract gives you reassurance that your supplier is obliged to accept future orders which you place, your bargaining position is strong. In this instance, a firmly worded letter from you, asserting your position and rights under the contract, and rejecting the proposed variation to the payment terms is appropriate.