When Things Go Wrong: Ending Vendor Relationships

In many cases there comes a time when your relationship with a vendor should come to an end. There are a variety of possible reasons, including:
 
  • Supplier won’t deliver goods at all
  • Supplier delivered goods late or didn’t meet specifications
  • Service from your vendor deteriorates to the point where calls are not returned
  • Staff changes in your vendor’s team, or possible sale of the business where new personnel don’t value your business
  • Supplier’s operations have been disrupted by disasters, such as fire, flooding, earthquake, etc.
  • Financial difficulties at your vendor, or even potential bankruptcy
If a vendor relationship begins to decline, you’ll probably notice that supplies arrive late and explanations seem vague and ambiguous. If you allow this to continue without discussion, vendors have little incentive to correct issues or furnish additional details you need to make key decisions about what to do.
 

If You Decide to End a Vendor Relationship

Whatever the reason your vendor relationship has declined, you may need to end the relationship and turn to an alternative company.
 
Presumably you’ve kept in contact with other resources so you can switch suppliers with as little disruption as possible. In addition, you should check your contract with your current vendor, possibly with the help of an attorney, to make sure you can end it without penalty.
 
In some more extreme cases, you may be able to sue your vendor for failure to comply with their contract, but that can become expensive and may not result in a judgment in your favor. Even if you do win a judgment, it may be difficult to collect on it.
 

Managing the Transition

If you do change vendors, there may be disruptions to your business as you shift relationships to alternative suppliers. Your new vendor may have different operating practices and processes. There’s also the possibility that the new vendor may charge more, meaning a possible increase in your own pricing structure.
 
If the reason for deterioration in a vendor relationship is bankruptcy, you should consult with an attorney. In some cases, vendors can continue to operate – and that may not automatically cancel your contract.
 

Consider Insurance Coverage

Finally, for cases where suppliers may face disasters that prevent delivery of supplies, you may wish to add business interruption coverage to your business insurance policy. This type of insurance generally covers disasters and other contingencies with your business, but sometimes it can cover supplier-based incidents. Check with your insurance expert to see whether this coverage is available and makes sense for your business.

Game Plan

  • Maintain relationships with other suppliers in case your main supplier fails to deliver for a variety of reasons.
  • Watch signs that a vendor has changed the way it does business, delivering supplies late or providing poor customer support, and ask your vendor for an explanation.
  • If you need to end a supplier relationship, consult with an attorney to review your contract. If warranted, get advice on whether suing your vendor is an appropriate course of action.
  • Consult with your insurance agent to see if business interruption insurance that covers key supplier related incidents is already covered or can be added to your policy.
  • Refer to these resources:
     
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