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Be careful to avoid a contract killing

In the current market it is vital for retailers to examine the terms on which they do business and take steps to protect themselves when entering into relationships with new companies.

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 how difficult today’s trading conditions are.

It is critical that you manage your cash flow effectively. The contractual terms for payments from customers should be set in stone and those for payments out should be flexible.

In contracts where a service is sourced from third-party suppliers, there are a few areas to watch out for.

Apart from trying to negotiate flexible payment terms, such as more time to pay, together with lower rates of penalty interest on late payments, retailers must make sure that the rug can’t be pulled from under them for missing a payment.

Grounds for termination of the contract should apply only once the counterparty can show that you have persistently failed to pay.

In the case of international retailers, it is vital that parties are free to come back to the table to renegotiate the financial terms where currency fluctuations potentially render the relationship commercially unviable.

There has been an increase in these types of requests from Eversheds’ international clients, especially those tied to the sterling/dollar exchange rate.

Clear lines of communication with suppliers are vital. Dealing with the issues head on could mean the difference between sinking and swimming.

Fiona Ghosh is a partner at law firm Eversheds

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