Requirement of Vendor Agreement

A vendor agreement is said to be complete and valid if it contains the below-mentioned details:

• The personal details of parties such as name, residential address and the date on which the agreement has been signed by both parties.
• A statement clarifying that the vendor has a valid vending license as such an organization has permission to engage with a certain type of product.
• A statement in brief mentioning the expectations of the vendor through the agreement.
• Levying of taxes on services and goods unless exempted.
• The details with regard to delivery such as place, time and date should be specified.

Need of a vendor agreement

There are various reasons specifying a need for parties to enter into a vendor agreement. These are as follows:

Defines the business transaction

A vendor agreement covers a proper business transaction between a vendor and the customer as such an agreement contains information like details of the parties, agreed terms and conditions, rules and regulations with regard to transfer of goods or services for consideration, etc.

The parties to a business transaction must enter into a vendor’s agreement so that the vendor and the customer can have a clear idea about all the mutually agreed conditions and details of the agreement. It is preferable for parties to have the agreement in writing to avoid any future conflicts or misunderstandings.

Increases efficiency

As a vendor agreement contains all the terms, conditions and process for the performance of a task, the employees have a road map for working efficiently without any interruptions in the workflow. It also reduces the time required to perform a task, reduces the chances of error and ambiguity, increases in efficiency of business and aims at achieving optimal performance level.

Outlines consequences

There might be a situation where either party to the agreement refuses to perform his/her part of the contract or commit fraud.

Thus, to avoid such situations, it is suggested to the parties form a vendor agreement. Such an agreement must contain a clause related to dispute resolution mechanism and punishment for violating the terms and conditions of the agreement.

With a help of a vendor’s agreement, a party who has been aggrieved can take the mutually agreed legal action against the opposite party for breach of the agreement. 

Minimizes risks

There are risks attached to a business always. The percentage of risk increases when the business deal involves other business parties as well.

Therefore, if the vendor makes a vendor agreement, it can help him/her to access the situation and find out any potential risks related to quantity, cost and delivery, etc and prepare himself/herself to find a feasible solution to lower the risk involved.

The agreement also contains a clause with regard to unforeseen occurrences such as floods, accidents, etc which might affect the business transaction and a potential solution for the vendor to be prepared in case any circumstantial event occurs.

Maintain business relationships

Whenever a vendor makes an agreement mentioning all the terms, rules regulations and conditions for performing work, it shows his/her responsibility towards a business deal. It is considered highly professional as valid proof of an agreement entered between the parties.

It ensures smooth and proper functioning in an organization and helps in maintaining a healthy professional relationship with his/her clients.

Essential requirements of a Vendor Agreement in India

A well-structured and drafted vendor agreement portrays professionalism and clarity about each and every term and condition to the parties. It is important to use clear and specific words in the agreement to avoid any confusion. For making a well-structured agreement, the draftsman needs to follow certain steps which will help the parties to cover every aspect of the agreement. The steps are as follows:

• The very first step is to mention the date on which the agreement is being made on the first page of the agreement along with the personal details of both parties involved in the vendor agreement. Personal details include the name, address and contact information of the parties to the agreement.
• The second step is to provide a statement clarifying that the vendor has legal permission to sell the goods and services which are mentioned in the agreement. It is essential for the vendor to provide his/her vending license along with the vendor agreement.
• The vendor is then required to provide a diagrammatic presentation of his/her expectations before composing the real frame. The diagram can include details of taxes, delivery dates, mode of payment, compensation, duration, the cost involved, etc.
• The vendor is required to mention a statement in the agreement that both parties have mutually agreed to the management and payment of taxes being imposed on the product or service for which the contract is being entered into.
• The last step is to mention the mode of delivery and payment for the order.

Common elements of a Vendor Agreement in India

There are certain common elements which are required to be mentioned in the vendor agreement irrespective of the type of industry of the vendor. These are as follows:

Pricing

It is one of the basic clauses displays that what consideration will be paid to the vendor by the vendee for the sale of goods or services in the contract. Without consideration, there is no valid agreement in the business transaction. The price for goods or services can be fixed or variable depending upon the market situation and type of business involved. The price of such goods or services can vary as per the need and time.

Delivery Terms

The agreement should clearly mention the time and terms for delivering the products or services to the customer. A vendor can provide delivery in several installments also.

Payment Terms

The agreement should also contain a clause which mentions the penalty amount or interest to be charged in case of delay in payment for goods or services. The vendor is required to provide a specific mode to receive payment.

Indemnity Clause

In case of receipt of defective or damaged goods, it should be the responsibility of the vendor to indemnify for losses incurred to the customer, if any. This should be mentioned in the indemnity clause of the vendor agreement.

Exit/Termination Clause

There should be a termination clause added to the agreement so that whenever a party to the contract is not willing to perform his/her part of the contract can do so in a legal manner using the termination clause. This option is also available when both parties mutually decide to terminate the agreement between them.

Representations and Warranties

The parties should mandatorily include a warranty and representation clause in their agreement. This clause includes all the terms and conditions related to the agreement which have been mutually agreed upon by both parties.

Confidentiality Issues

This clause includes an obligation to the parties not to disclose material information to any third party who is not a party to the agreement. The parties are required to maintain confidential information among themelves.