smallbusiness.co.uk: Helping your business think big

Here we look at the best ways to improve the terms of existing contracts without damaging your business relationships.

Michael Evans, partner at legal firm Davenport Lyons, says that although most contracts won’t have scope for renegotiating built into them, it’s relatively straightforward to change terms either unilaterally or through consultation.

He says: ‘If you try a unilateral approach – by laying down the new terms and conditions to your supplier/client – there are three possible outcomes: they never undergo a new order with you again; they don’t accept the new terms; or they send a new order in without commenting on the new terms.’

Two-way agreement

However, Evans believes there are problems with this approach. ‘As a course of trading it isn’t very robust, as the client/supplier may change their mind and say they didn’t notice the change. And of course, it could harm your relationship.

‘The best thing to do is to vary the terms on both sides. It is much easier to enforce a new agreement if you offer something in return. For example, if you are the buyer and want a price reduction, you may want to offer new payment terms meaning that the invoice will be settled in a shorter period of time. That way, both sides will feel they have gained something from the change,’ he says.

Business breakdown

For Jamie Taylor, director at training company MTa International, an attempt at a unilateral change in a contract from Boots proved disastrous for both parties. ‘Our terms of payment were 28 days, but Boots decided to change this to 90 days with an added arrangement fee, which meant they could take a percentage off the contract as a settlement charge.

‘They just laid down the terms without consultation. We were very surprised and angry when they did this, as it was such an obvious case of a large company bullying a smaller one,’ he says.

Taylor’s reaction was to help mount a campaign against Boots through the media and expose its bullying behaviour. ‘We were
fortunate that we didn’t rely on them for a big proportion of our revenue, and so we were prepared to fight at the risk of losing their business. The whole thing was quite embarrassing for them, and in the end they had to back down,’ he says.

There are currently no comments on this article