Vendor Agreement: Important Elements

Have you ever wondered how does a business manage to partner with the same buyers or suppliers for a long period of time?

Just like any other type of agreement, a vendor’s agreement is a standard agreement wherein all general terms and conditions of a particular supply are agreed upon between the parties to such agreement.  The vendor agreement is usually in the usage of businesses that are into manufacture, production, or delivery of goods and services.

To be precise a vendor agreement is prepared between the user and the provider of the goods and services. It is an agreement by which parties enlist the terms and conditions for all the matters which are ancillary to specific transactions. The vendor agreement is executed for once and it can be amended from time to time to incorporate all kinds of generic and specific matters. For ensuring the smooth functioning of businesses, it is important that a vendor agreement is prepared as it has the following benefits:-

  • The terms and conditions agreed are reproduced through documentation that safeguards the parties in the situation of a dispute and it minimizes the risk of future transactions and payments which might otherwise be risked.
  • It helps in minimizing the risk of confusion or conflicts of terms verbally agreed upon.
  • It helps to increase efficiency in core business activities.
  • It assists the parties in maintaining smooth relations through a one-time agreement on the same terms and conditions applicable for a specified tenure.
  • It clearly defines the right and liabilities of all the parties which permits easy access to resources and promotes mutual reliability.
  • In the vendor agreement, the functions and authorities of parties are also defined, the payment-related terms and other possible situations thereby assuring smooth coordination.

Pre- Requisites of the vendor agreement

Vendor agreement describes the right and obligations between the businesses and vendor which includes:-

  • Date of execution of the agreement;
  • Necessary details of parties to a transaction like a name, address, a designation of all parties;
  • Determination of cost of products or services involved;
  • Payment related terms and conditions;
  • Grounds of termination of the agreement;
  • Place of delivery or  rendering services and determination of essential details thereof;
  • Limitation of liability of both the party i.e. user and provider of the goods and services;
  • Insurance-related details if the vendor holds any insurance;
  • Duration of the agreement;
  • Terms of Renewal of the agreement;
  • Mode of payment;
  • Event/ time frame for making payments

Factors affecting the terms of the agreement

Following are the essential terms of vendor agreements:-

The mode of making payments, installments, penalties of late payment should be duly contained in the agreement.

  • Confidentiality of information:

It should contain the clauses relating to the confidentiality of information. If parties provide any confidential information to each other then the party being victimized shall be protected and if needed duly compensated.

  • Limited liability:

Clauses relating to liabilities of parties, determination of the amount of liability, the time limit for payment and related matters should be clearly stated with all probable details. If in any circumstance the liability is limited to the cost of services should be writing in the agreement.

  • Insurance:

In case the vendors, get any insurance for the goods and services then the same must be disclosed in the agreement.

  • Termination of vendor agreement:-

The steps should be mentioned in the agreement as to how parties can terminate the contract after completion of set goals.

  • Period:

The period of the functionality of agreement or for how long the agreement is binding on the parties should be mentioned in the agreement.

  • Modification of vendor agreement:

If any parties want to change or modify the agreement they can do so by following the steps which are contained in the agreement for modification of the contract.

  • Dispute resolution terms:

It is advisable to mention how the dispute shall be resolved in case of dispute, jurisdiction, and all other related matters.

  • Ambiguous circumstances:

In vendor agreement indemnity clause should be mentioned, and the name of the party who shows the interest to bear losses of other parties under ambiguous circumstances shall be clearly stated.

Preparation of Vendor agreement

Following steps should be followed for preparing vendor agreement:-

  • To initiate the vendor agreement, both parties need to draft the agreement with mutual consent on terms and conditions, and competency to act on such contract.
  • Once the agreement is ready and finalized with the signature of both the parties, the witnesses are required to sign the documents
  • The payment of requisite stamp duty is very essential to make it enforceable in the court of law.

The agreement must have been duly approved from both parties and it is required to be made sure that the agreement is accurately framed otherwise it will create conflicts of interest or more chances of confidential information falling into wrong hands.

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We at are one step ahead to guide you on preparing agreements, for making a valid agreement with required clauses in the agreement which help to execute the best possible business transactions in the future.