Supplier-customer relationships are governed by contracts that ensure the stability of the business. These are the relationships that define under what conditions a purchase will be made, who will pay for it and how much, or how any complaints will be handled. They include the terms and conditions and other contracts that are entered into in the course of business. In this article, we look at why supplier-customer relationships are important and what to look out for in them.
When you order something from an e-shop, you are establishing a relationship with that shop. When your business orders a supply of office equipment from another, you are again forming a relationship. These are called supplier-customer relationships, and they are created when each transaction is made.
Stable supplier-customer relationships are the foundation of a successful business. This type of relationship is an interaction between the supplier of a good or service and the customer who purchases it. Each supplier-customer relationship lasts a different length of time, some are one-off, others are long-term. However, they are always governed by contracts.
Supplier-supplier relationships deal with how and how much the customer pays for the service or goods, the time and manner in which the supplier must deliver the goods, the quality of the goods or services to be delivered and how the customer can deal with any complaints.
Supplier-customer relations in the Czech Republic are primarily governed by the Civil Code.The Business Corporations Act regulates rather the internal relations of the companies that conclude these contracts. Relations between supplier and customer are most often regulated by a written contract, which must clearly define who has what rights and obligations in this relationship.
Drafting a good commercial contract so that it is legally clear and covers all the necessary areas is not a simple matter. Pre-prepared contract templates on the internet often do not contain specific terms and conditions that apply to a particular business. We will create bulletproof contracts and terms and conditions that protect you and your interests first and foremost.
A relationship that doesn’t have clearly defined rules would probably have a miserable life in the business world. Companies that clearly define their contracts at the outset and set the terms of cooperation well minimise the risks of not delivering goods on time, not paying invoices or delivering poor quality goods that do not match the order. If a company has quality contract documentation prepared, it protects itself, but also its business partners, from legal disputes. But most importantly, it protects the financial stability of the business.
Well-established supplier-customer relationships provide companies with several advantages. The first is ensuring continuity of supply, because if you work with a supplier you can rely on, you are not at risk of a disruption in production or services because of it. And because money always comes first, the company is not at risk of unpaid invoices or poor cash flow because a supplier or customer has not paid what they should have.
Thanks to reliable business partners, every entrepreneur can concentrate fully on development and innovation, because they will not be consumed by time and energy in crisis situations caused by poorly set relationships with business partners. In addition, well-set contracts with clear terms and conditions make things easier for the business partner if there are any legal tensions.
If you feel that you are not at risk of this and can afford to underestimate the set-up of supplier-customer relationships, we may be able to disabuse you of this misconception with an example we have dealt with in our law practice. In the past, we were approached by a client, let’s call him Mr. Veselý, who as a businessman had entered into a contract with a new supplier. However, in this contract he did not clearly and in detail define what deadlines the supplier must meet when delivering the goods and what penalties he faces if he fails to do so.
Unfortunately, after a couple of months, Mr Vesely started receiving goods from the supplier several weeks late compared to the deadline by which he required and needed them. This led to delays for Mr Vesely’s entire business chain and dissatisfied customers. However, due to the lack of clear rules in the contract, Mr Veselý was not entitled to any compensation for the lost orders and had to look for a replacement supplier in a time crunch. Based on this experience, we always stress the importance of setting out all the terms and conditions in contracts at the outset.
Whether you are entering into a business relationship with another company (B2B) or with your own customers (B2C) you always need to ensure that you have a clear and legally binding agreement. Each type of contract and document has its own specific characteristics and consequences in supplier-customer relationships. So what to look out for above all?
A contract of sale is used when transferring ownership of goods. It refers to the normal supply of products, raw materials or equipment. The buyer acquires ownership either immediately on receipt of the goods or only after payment of the full purchase price (if retention of title is agreed). So, if a company orders 50 office chairs, it should find specified in the sales contract, in addition to the quantity, the price, the method of delivery and the transfer of ownership. The transfer of ownership determines when the buyer, i.e. our company, becomes the legal owner of the goods, i.e. the chairs.
In contrast, a works contract is used when the subject of the contract is the manufacture or customization of a specific item. In this case, the responsibility for the result lies with the supplier, who must deliver the work according to the agreed specification. In this case, be sure to clearly specify the technical parameters, the quality of the materials and the conditions for acceptance. Thus, if a machine builder receives an order for special pressing equipment, the works contract should set out specific performance requirements, delivery date and warranty conditions.
It is often in the terms and conditions that the general terms of cooperation are defined, for example payment terms, method of complaint or delivery terms. However, in order to be legally enforceable, the terms and conditions must be expressly accepted by both parties.
A common mistake is that a company simply refers to its terms and conditions on the invoice, but the other party does not explicitly agree to them – in which case they may not apply to the contractual relationship. Therefore, attach the terms and conditions to the contract and ensure that the other party agrees to them, for example by ticking the acknowledgement of reading. Whether the other party has actually read the terms and conditions is no longer your responsibility. You will be legally covered.
The contractual relationship can be established in various ways. Sometimes it is created by signing a contract, sometimes by exchanging an order and confirming it. Therefore, you should always clearly determine the point at which your supplier-customer relationship is established and when the contract is considered concluded. Then communicate this clearly to the counterparty to avoid misunderstandings. It may happen, for example, that a Czech company orders goods from a foreign supplier. However, the supplier does not explicitly confirm the order and only sends an invoice. In such a case, it may not be clear whether a contract has actually been formed.
As we pointed out above, beware of the transfer of ownership. This is what determines when the buyer becomes the legal owner of the goods. This can occur as soon as you take delivery of the goods, which is common in retail sales or personal collection, for example. Other times, however, ownership does not arise until the price has been paid in full, which is the case, for example, in instalment sales and larger commercial transactions. However, a company may specify in its contracts that the transfer of title occurs, for example, when the goods are loaded onto a means of transport or when certain conditions are met.
When actual ownership of the goods takes place may be relevant in later legal disputes. For example, in the case of hire purchase deliveries, it is necessary to determine exactly when ownership passes in order to avoid disputes in the event of non-payment or insolvency.
Supplier-customer relationships are commercial relationships between supplier and customer that arise in the course of any transaction. They are key to the stability of the business and are governed by contracts that specify delivery terms, payment terms, quality of supply and complaints processes. In the Czech Republic, they are regulated by the Civil Code and the Commercial Corporations Act. Clear contracts protect companies from legal disputes, financial losses and ensure continuity of supply. Key documents include the purchase agreement, work contract, terms and conditions and purchase orders. The transfer of ownership is also important.
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