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Eversheds warns retailers to examine the terms on which they do business
Friday March 5th 2010
In the current market, it is vital that retailers should be examining the terms on which they do business and be taking active steps to protect themselves when entering into relationships with new companies, be they established players or new entrants.
by Fiona Ghosh
In reality though, putting this into practice can be tough. While it is easy to say that businesses should be taking a hard line approach to defend the bottom line, retailers know all too well how difficult trading conditions are; this applies all too readily for those who own SMEs or operate as sole traders. “Business is business” as some would say. It remains critical, as ever, to manage cash flows effectively - the contractual terms for payments in from customers should be set in stone and those for payments out, such as to your suppliers, should be as flexible as possible. In contracts where you are procuring or sourcing from third party suppliers, here are a few other areas to watch out for: - Try, if possible, to negotiate flexible payment terms, such as a longer time to pay (e.g. from the usual 30 days to 45 or even 60 days) together with lower rates of penalty interest on late payments. - Make sure that you cannot have the rug pulled from under you merely because you miss a single payment. Grounds for termination of the contract should apply only once the counterparty can show that you have persistently failed to pay. - With international retailers, it is vital that the parties are free to come back to the table to renegotiate the financial terms struck where currency fluctuations potentially render the relationship commercially unviable. There has been a rise in these types of requests from our international clients, especially those tied to the pound/dollar exchange rate. Above all, clear lines of communication with your suppliers is vital in this market. Dealing with the issues head on and with time to spare could mean the difference between sinking and keeping your head above water. [b]Fiona Ghosh is a Partner at International law firm Eversheds[/b]Add a comment
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