What To Do If A Supplier Suddenly Changes Their Terms

You have placed the same order with the same supplier every month for the past two years. Prices have stayed predictable, payment is due within 30 days and deliveries arrive in time for you to fulfil your own customer orders.

Then, shortly before your next delivery, the supplier sends an email announcing a 15% price increase, payment in advance and a higher minimum order. The email says the new terms take effect immediately.

For a small business, a change like this can affect far more than the supplier relationship. It could put pressure on your cash flow, reduce your profit margins and make it harder to keep the promises you have already made to customers.

You may feel that you have little choice but to accept, especially if the supplier would be difficult to replace. However, new terms do not necessarily become legally binding simply because the supplier has announced them.

Whether the change applies will usually depend on your existing agreement, whether it affects an order that has already been accepted and whether your business has agreed to the new terms.

This article focuses on commercial contracts governed by the laws of England and Wales.

Can A Supplier Change Their Terms Without Your Agreement?

It depends on whether a contract has already been formed.

Before a contract is agreed, a supplier can generally change the offer it is making. For example, if you request a quote and the supplier changes the price before you accept it, you can accept the new price, keep negotiating or decide not to proceed.

The position can be different once a contract is already in place.

A supplier cannot usually change an existing agreement simply by sending you an email with new terms. The change will normally need to be allowed under the contract or properly agreed between both businesses.

You should also check whether the agreement says that changes must be made in writing or signed by both parties. English courts have recognised that clauses requiring changes to follow a particular written process can be legally effective.

Some Supplier Agreements include clauses that allow particular changes. For example, the contract might allow prices to be reviewed once a year or delivery charges to increase when transport costs rise.

Even where a clause like this exists, it does not necessarily allow the supplier to change anything it wants. The clause may only cover certain changes, require notice or set out a process that must be followed.

A supplier may also be able to offer different terms for future orders without changing orders it has already accepted.

For example, it might be able to increase the price of orders placed from next month. That does not necessarily mean it can increase the price of an order that has already been confirmed.

An ongoing relationship does not always mean the supplier must keep offering the same price forever. However, it also does not usually allow the supplier to rewrite past or confirmed orders.

Different terms may also be proposed when an agreement expires or comes up for renewal. Whether the existing terms continue automatically will depend on what the contract says about renewal and notice.

Start With The Agreement You Already Have

If your supplier changes its terms, start by checking your existing agreement.

Look for any clauses about price increases, changes to the agreement, notice periods and ending the contract. These can help you work out whether the supplier has the right to make the change.

For example, your contract might say prices are fixed for 12 months. If the supplier tries to increase them after six months, the agreement may not allow it.

Alternatively, the contract might say prices can be reviewed once a year with 30 days’ notice. In that case, the supplier may be able to increase its prices if it follows that process.

The same applies to other changes. Just because the contract allows the supplier to review its prices does not necessarily mean it can also change payment terms, increase minimum orders or introduce new charges.

Look at each change on its own rather than assuming everything in the supplier’s email automatically applies.

Work Out What The Change Means For Your Business

Once you understand what the agreement says, think about the practical impact.

A price increase is not just a different figure on an invoice. You may need to decide whether to absorb the extra cost, increase your own prices or change how you supply your products or services.

A shorter payment period could put pressure on cash flow. A higher minimum order may leave you with more stock than you need. A longer delivery time could make it difficult to meet deadlines you have already promised customers.

In the opening example, the business may already have accepted customer orders based on the supplier’s original price and delivery schedule.

Even if the supplier can introduce new terms for future orders, the business still needs to work out how it will meet its existing commitments.

Understanding the wider effect of the change can help you decide what to ask for when you speak to the supplier.

What If There Is No Formal Supplier Agreement?

Small businesses do not always have one formal document setting out the whole supplier relationship.

You may have accepted a quote by email, placed orders through an online account or traded for years using purchase orders and invoices. There may also have been conversations about pricing, delivery and payment.

A contract can still exist in these circumstances. The difficulty may be working out exactly which terms form part of it.

The agreement could be made up of several documents and communications, including:

• the supplier’s quote
• your purchase order
• the order confirmation
• emails between the businesses
• terms provided before the order was accepted

The timing matters.

For example, terms that appear for the first time on an invoice sent after an order has already been agreed may not automatically form part of that order.

There can also be confusion where both businesses use their own terms. Your purchase order may say that prices cannot change without written approval, while the supplier’s order confirmation refers to separate online terms allowing price increases.

Working out which terms apply can become complicated, especially where the businesses have exchanged several different documents.

Having important supply arrangements set out in one clear written agreement can help avoid this uncertainty.

Be Careful About Accepting The Change Through Your Actions

You do not always need to sign a new agreement to accept a change.

Imagine that you receive the supplier’s email, say nothing and continue placing orders for another three months. You then pay every invoice at the higher price and follow the new payment terms.

The supplier may later argue that your actions showed you accepted the changes.

Whether that argument would succeed depends on the circumstances, including how clearly the changes were explained and what the existing agreement says. Continuing to trade does not automatically mean that every new term has been accepted.

However, ignoring the change can create unnecessary uncertainty.

Where you need time to review the new terms, consider responding in writing. You could explain that you are reviewing the proposed changes and have not yet agreed to them.

Take care with the wording, particularly if you need the supplier to continue delivering while you work out your position.

Is Giving Notice Enough?

Not always.

Giving notice tells you that the supplier wants to make a change. It does not, by itself, give the supplier the right to change an existing contract.

Whether notice is enough depends on the agreement.

If the contract allows a particular change after 30 days’ notice, the supplier may be able to make that change by following the agreed process.

If the contract contains no such right, giving 30 days - or even several months - of notice may not be enough to change an existing agreement without your consent.

Notice may still matter for future orders or renewals. For example, a supplier might be unable to change a confirmed order but may be able to offer new prices once the current contract ends.

What If The Clause Is Very Broad?

Some contracts give suppliers a wide right to change prices or other terms.

However, the supplier still needs to act within the wording of the clause and follow any process set out in the agreement.

For example, a clause allowing an annual price review may not let the supplier introduce a higher minimum order or change the payment period at the same time.

It is also important to understand that business contracts do not generally receive the same broad unfair terms protections as consumer contracts.

The Consumer Rights Act 2015 mainly protects individuals acting outside their trade or business. It would not normally apply where both sides are entering the agreement for business purposes.

The Unfair Contract Terms Act 1977 can apply to certain business contract terms, particularly clauses that try to exclude or limit liability. However, it is not a general rule allowing a business to challenge any term simply because it seems one-sided.

If a clause is unclear or appears to give the supplier an unusually broad power to make changes, consider having the agreement reviewed before accepting the supplier’s position.

A legal expert can help you understand what the clause actually allows and whether any other legal protections may apply.

What If You Cannot Agree?

If you are unhappy with the proposed changes, do not assume your only choices are to accept them or end the relationship.

Start by speaking with the supplier. There may be a genuine reason for the change, such as higher manufacturing, transport or energy costs, and the supplier may be willing to negotiate.

Once you reach an agreement, record it clearly in writing. A phone call may help solve the immediate problem, but a written variation can reduce the risk of another disagreement later.

If you still cannot agree, return to the contract. It should help you understand whether the supplier can make the change and what options you have.

Before cancelling orders, withholding payment or ending the relationship, check whether you need to give notice or follow a dispute resolution process first.

Acting too quickly could create a second dispute. For example, ending the contract without a valid right to do so could leave your business open to a claim that it has breached the agreement.

If the supplier refuses to honour an existing order or the changes could seriously affect your business, consider getting legal advice before taking further action.

Getting Clear On Your Supplier Agreement

Supplier disputes often highlight issues that could have been dealt with when the relationship began.

A clear Supplier Agreement can explain:

• when prices may be reviewed
• how much notice must be given
• which costs can be passed on
• whether changes apply to confirmed orders
• how minimum orders are set
• when either business can end the arrangement
• what happens if supplies are delayed or stopped

The level of detail you need will depend on how important the supplier is to your business.

If you could replace the supplier within a few days, a simpler agreement may be enough. However, if your business relies heavily on one manufacturer, software provider or distributor, the contract should address the risks that come with that dependence.

If your supplier unexpectedly changes its terms, do not assume you have to accept them immediately.

Start by identifying exactly what has changed. Compare each change with the agreement already in place, consider whether it affects existing or future orders and work out what it could mean for your business.

Where the contract is unclear, the supplier is threatening to stop deliveries or the changes could have a serious impact, a legal expert can review the agreement and help you come up with a practical solution.

Clear terms and written communication can help protect an important supplier relationship without requiring your business to accept every proposed change. If you would like help with your supply agreement, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.