What is a Supply Contract?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 December 2019
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Supply contracts are types of contracts that establish the terms of a working relationship between a vendor and a customer. A supply contract is often necessary in order to lock in discounted pricing and other benefits that the supplier is agreeing to provide to the client for a specific period of time. The terms of a supply contract often define everything from the means whereby the products are delivered, terms of payment, and any other aspect of the relationship that the two parties have determined to be necessary.


While the exact form of this type of requirement contract varies from one industry to the next, there are a few elements that are inherent for most examples of the supply contract. The most common element is the pricing schedule that will govern the charges for goods or services rendered to the customer. Often, this portion of the contract will be structured to identify special pricing extended to the customer, either as a flat rate, or on a sliding scale, based on the volume of units ordered. For example, a supply contract for teleconferencing would be structured to either extend a specific rate per minute per connection for conference call services, or include a chart that indicated a gradual reduction in unit price as the customer used more conference minutes over the course of the contract. The rate structure is usually in effect for whatever duration is specified in the contract, with periods of one year, two years, and five years being the most common.

Another aspect that is very common to a supply contract is the creation of sections and clauses that govern how the supplier will provide goods and services to the customer. This may include the terms for shipping, or any additional charges that may apply for expedited shipping above the terms defined in the contract. Some contracts include guarantees of shipment within a specific time frame after the order is placed, such as within twenty-four hours of receiving the order.

A supply contract usually defines the terms of payment, such as the different means whereby the customer may pay an outstanding invoice. This may include terms as payment by postal mail, online payment options, or even an electronic transfer of funds from the customer’s bank to the supplier’s bank. This section usually also defines the options open to the supplier in the event that the customer fails to pay invoices within terms, including rendering the contract null and void, or revoking the discount extended to the customer off the standard unit price.

In the best of situations, the supply contract protects the rights of both parties. The client knows what to expect in terms of the goods received and how they will be delivered. In turn, the supplier knows what the client is likely to need and how payment will be submitted. As long as both parties honor their responsibilities to one another, the business relationship is likely to be a profitable one for everyone involved.


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Post 2

Sounds like the basic rules for any contract -- all parties need to know their rights and obligations and what happens when one side doesn't perform under the agreement. What is fascinating about contracts is how involved they can become and how many details can be hidden in them. The most important thing about any contract, I think, is that they're written in "plain English" and everyone knows exactly what they're getting into when they sign.

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