Top 10: Ways to avoid legal problems from supply woes

By Elizabeth Wilkinson
Law firm Slater Heelis on how to avoid supply chain legal conflict in times of supply disruption, rampant inflation and geopolitical instability

With rising inflation, energy and operational costs, many businesses will be feeling the squeeze and the imperative to hang onto cash will create a ripple effect of risk up and down supply chains. Whether by cutting back services or hiking up prices, any response to the situation could trigger a contract dispute if a party fails to do what was originally agreed or doesn’t provide enough notice. 

Here are ten tips (from a lawyer) that hopefully will help prevent you needing to call one.

Avoid supply chain legal disputes: Communicate

Keeping in touch is always a sound principle, especially in worrying times when somebody going silent usually means bad news. Also, communicating the simple message “I haven’t forgotten about you” works both ways: to reassure creditors and act as a gentle reminder to debtors.

Avoid supply chain legal disputes: Keep the bank informed

If you’re expecting to struggle either with debtors or payables, it always makes sense to get in touch as soon as possible. Simply missing payments will give the bank no alternative but to take action against you. If you approach them with a plan and costings you should receive a much more sympathetic reception. 

Avoid supply chain legal disputes: Pre-empt with suppliers

Just as with the bank, as soon as you detect headwinds it is imperative to prevent misunderstandings. Keep in touch with suppliers particularly if you need a little more time to pay. Ensure you are contactable and provide updates before being chased.

Avoid supply chain legal disputes: Credit control

If you are a smaller business and do not benefit from a credit control department or provider, now is the time to invest. Things like running updated credit checks on clients and suppliers, putting in place credit management procedures and reminders are necessities that some business leaders can tend not to find palatable – but it will reap benefits.

Avoid supply chain legal disputes: Revise payment terms

In bountiful times, payment terms of 30 days or more are seldom questioned, but it is by no means unfair or unacceptable to ask customers to pay invoices on 15-day terms or even in advance. This is especially true if they are a first-time customer or if a credit check has flagged them. In both these cases, they should not take it personally if you make it a non-negotiable policy. Indeed, if they object then that’s another warning flag.

Avoid supply chain legal disputes: Monitor payment plans

These should be treated with care but are all part of maintaining a fair and supportive relationship. In some cases they may be essential – and although they do not need to be ‘enshrined’ in contractual form, do at least make sure they are in writing (email is fine) so you have some evidence to refer back to and rely on.

Avoid supply chain legal disputes: Be patient

It can be alarming when a debtor stops paying and the instinct may be to escalate immediately to legal action. By exercising patience and asking the advice of others, you need to ask: is this debt worth permanently torpedoing this relationship? And more to the commercial point: which will cost me more in the long run, fighting and legal action or patience and perhaps partial recovery of the debt? Do not underestimate the power of gut feel when trying to work out whether or not you are being strung along.

Avoid supply chain legal disputes: Discount for speedy payments

This can be written into contracts and service level agreements up front as a policy, but there is also nothing wrong with reactively offering it if you feel it may benefit both parties in difficult times.

Avoid supply chain legal disputes: Late payment interest

The Late Payment of Commercial Debts (Interest) Act 1998 means a business can legally charge interest on overdue debts. In the same way as offering discounts can induce quicker settlement, so can a reminder that this interest is mounting, but could be waived as part of a payment plan.

Avoid supply chain legal disputes: Maintain your reputation

We have seen time and again that businesses that act supportively, cooperatively and with restraint in difficult times are rewarded in the long term with the best relationships and reputation. Truly leading businesses are those that step up in times like these to offer reassurance and innovative strategies to help not only themselves but the entire community of stakeholders around them to survive.

Elizabeth Wilkinson is Head of Dispute Resolution at leading Manchester law firm, Slater Heelis

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