Terms Of Trade For Wholesale Food Producers

Supplying retailers, cafes or distributors is exciting, but it can also feel a bit exposed if orders are coming in without clear written rules.

Food is different from many other products. Payment dates and delivery windows matter, but so do temperature control, shelf life, labelling, recalls and what happens if a customer rejects a batch.

Your food wholesale terms of trade in Australia don't need to be complicated. They just need to be clear enough that you and your customers know what happens when things go to plan, and what happens when they don't.

What Are Terms Of Trade For A Wholesale Food Business?

Terms of trade are the standard rules your business uses when you supply products to your wholesale customers.

For a food producer, they usually sit alongside your quote, order form, invoice, product list or wholesale price list. They can apply to retailers, cafes, restaurants, grocers, distributors and other business customers.

Good food product terms and conditions usually cover:

• who you're supplying, including ABNs or ACNs where relevant
• what products you're supplying, including pack sizes, specifications and substitutions
• how orders are placed, accepted, changed or cancelled
• prices, GST, delivery fees and minimum order values
• payment timing, late payment consequences and credit limits
• delivery, collection, cold chain and risk of loss
• shelf life, storage instructions and rejection rights
• food safety, labelling, allergens and compliance responsibilities
• product recalls, withdrawals and customer notifications
• limits on liability, termination and dispute handling

The goal isn't to make your customers feel boxed in. It's to avoid awkward surprises. Without written terms, you may struggle to recover unpaid invoices, prove when risk passed to the customer, or manage a complaint about stock that was stored incorrectly after delivery.

Do I Need A Wholesale Food Supply Agreement?

Yes, you should have written wholesale food supply terms if you're supplying other businesses on a repeated basis.

For smaller or regular customers, your terms of trade and standard credit terms may be enough. For larger customers, distributors or private label arrangements, you may need a fuller wholesale product supply agreement.

When Terms Of Trade May Be Enough

Your standard supplier terms or wholesale terms and conditions for a food business may work well where:

• customers place routine orders from your standard product list
• you set the price, payment terms and delivery rules
• the customer isn't asking for exclusivity
• there's no custom manufacturing or private label work
• you can use the same terms across most wholesale accounts

For example, say Mia makes bottled sauces in Melbourne and supplies independent grocers. Her terms say orders are accepted only once confirmed in writing, payment is due within 14 days, delivery is to the store's receiving area, and visible damage or incorrect products must be reported within 24 hours. That gives both sides a clear process without needing a long contract for every order.

When You May Need A Fuller Agreement

A more detailed agreement is usually better where:

• a distributor will resell your products across a territory
• a retailer wants exclusive supply or preferred pricing
• you're manufacturing to the customer's recipe or brand
• you're supplying large volumes or long-term forecasts
• you need detailed service levels, reporting or recall procedures
• the customer wants to use your logo, photos, recipes or marketing materials

Templates often miss the food-specific details that make these arrangements work in practice. If your products are perishable, chilled, frozen, high value or allergen-sensitive, a tailored document is usually worth it.

What Payment Terms Should I Use With Retailers And Cafes?

It depends on your cash flow, bargaining power and customer risk, but your payment terms should be specific rather than leaving payment to good faith.

Common wholesale payment options include:

• payment upfront, especially for new customers or custom orders
• payment on delivery, which can suit smaller cafe or restaurant accounts
• 7, 14 or 30 day invoice terms, often used for approved wholesale accounts
• credit limits, so a customer can't keep ordering while old invoices are unpaid
• direct debit or card on file, where your payment process and consents are properly set up

Your terms of sale should say when the invoice is issued and when payment is due. For example, payment might be due 14 days from invoice date, not 14 days from the end of the month.

You can also include consequences for late payment, such as:

• suspending new orders until overdue amounts are paid
• removing credit terms and requiring payment upfront
• charging reasonable debt recovery costs where your contract allows it
• charging interest on overdue amounts, if the rate is clearly stated and enforceable

For food businesses, payment terms should connect with delivery and rejection rights. A customer shouldn't be able to withhold payment for an entire invoice because one carton was short delivered, unless the issue genuinely affects the whole order. Your terms can say the customer must pay the undisputed amount while you work through the disputed part.

You may also want a retention of title clause, which says you own the goods until they're paid for. For goods supplied on credit, registering your interest on the Personal Property Securities Register may help protect your position in some cases. With perishable food, though, retention of title can be harder to rely on once products are resold, consumed or mixed with other ingredients, so get advice before treating it as your only protection.

What Delivery Terms Should A Food Producer Include?

Your delivery terms should spell out who is responsible for the goods at each stage of the delivery process.

This is especially important for chilled, frozen or fragile food products. A missed delivery window can become a food safety issue, not just an inconvenience.

Your food delivery contract terms should cover:

• lead times, such as orders needing to be placed by 2pm two business days before delivery
• delivery areas and any delivery fees, fuel levies or minimum order values
• delivery windows and whether they're estimates or guaranteed times
• delivery point, such as loading dock, front counter, commercial kitchen or nominated cold storage area
• authority to leave, and whether that's allowed for chilled or frozen goods
• failed delivery, including redelivery fees or disposal of perishable products
• temperature control, including who is responsible once goods are delivered
• proof of delivery, such as signature, photo evidence or electronic confirmation

You should also say when risk passes. For example, risk might pass when the goods are delivered to the customer's nominated premises, or when the customer collects them from your facility.

Title, which means ownership, can be treated separately from risk. You might say risk passes on delivery, but title only passes once you've been paid in full.

If you use third-party couriers, make sure your terms line up with your courier arrangements. If your courier only offers limited compensation for delay or spoilage, you don't want to promise customers a level of cover you can't actually recover.

How Should Your Terms Deal With Shelf Life, Rejections And Recalls?

Your terms should give customers a fair process for raising genuine product issues, while protecting you from late or unclear complaints.

Shelf life is a big one. Retailers and distributors often expect a minimum remaining shelf life on delivery. Your terms can deal with this by setting a standard, such as a stated number of days remaining or a percentage of total shelf life, depending on your product.

For example, if you supply fresh dips with a 21 day shelf life, a grocer might reject stock delivered with only 3 days left. Your terms should say what minimum shelf life you'll supply, how expiry dates will be shown, and what happens if the minimum isn't met.

Rejection Rights

Your terms should explain when a customer can reject goods and what they must do first.

Common rejection processes include:

• checking goods promptly on delivery
• notifying you within a set time for visible damage, missing items or temperature concerns
• providing photos, batch numbers, delivery details and temperature records where relevant
• keeping rejected goods separate and stored safely until you give instructions
• not destroying, returning or reselling affected goods without your approval, unless required for safety reasons

A 24 hour notice period is common for visible delivery issues, but it won't suit every situation. Hidden defects, allergen errors or contamination concerns may only become obvious later. Your terms should allow for that while still requiring prompt notice once the customer becomes aware of the issue.

Credits, Replacements And Refunds

Your terms can explain the remedy you'll offer if goods are genuinely defective or non-compliant. Depending on the issue, that might be a credit, replacement stock or refund.

Be careful not to write your terms as if you can avoid all responsibility. Some obligations under Australian law can't simply be contracted out of, especially where safety, misleading conduct or consumer guarantee rules are involved.

Recalls And Withdrawals

A recall is when unsafe food needs to be removed from the supply chain and, where relevant, from consumers. A withdrawal is usually used for non-safety issues, such as a quality problem or labelling error that doesn't create a food safety risk.

Your terms should say:

• who must notify whom if a potential safety issue is found
• how quickly the customer must stop selling affected stock
• how batch numbers and traceability information will be shared
• who handles customer notices, public statements and regulator contact
• who pays recall costs, especially if the issue was caused by one party's act or omission
• what records each party must keep to help trace affected products

If you're dealing with unsafe food, you may need to contact your state or territory food authority and follow Food Standards Australia New Zealand recall processes. Under the Australian Consumer Law, mandatory reporting can also apply if a consumer good is associated with death, serious injury or serious illness, and reports are generally required within 2 days of becoming aware of the relevant incident.

How Do Australian Consumer Law And Food Safety Rules Affect Your Terms?

Australian Consumer Law and food safety rules affect your terms because you can't use a contract to sidestep key safety, labelling and fair trading obligations.

Several legal regimes can matter at the same time.

Australian Consumer Law

The Australian Consumer Law, which is set out in Schedule 2 to the Competition and Consumer Act 2010, applies to misleading or deceptive conduct, unfair contract terms, product safety and certain consumer guarantees.

Wholesale transactions can be tricky. A retailer buying goods for resupply may not always have consumer guarantee rights in the same way an end customer does. But ACL risks can still arise if your packaging, website, wholesale catalogue or sales pitch makes claims that are false or misleading.

Be careful with claims about:

• Australian made or country of origin
• organic, natural, vegan, gluten free or allergen free status
• health or nutrition benefits
• shelf life, storage and serving instructions
• approved uses or compliance with particular standards

Since 9 November 2023, unfair contract terms in standard form small business contracts can attract penalties. This can matter if you use take-it-or-leave-it terms with small retailers, cafes or distributors. The rules generally cover contracts where at least one party has fewer than 100 employees or annual turnover below $10 million.

Clauses that let you change prices, cancel supply, reject claims or limit liability in a one-sided way may need extra care. The clause might still be fine if it's reasonably necessary to protect your legitimate business interests, but the wording and context matter.

Food Standards And State Rules

Food businesses in Australia must comply with the Australia New Zealand Food Standards Code. Your state or territory Food Act and local council requirements may also apply, depending on where you operate and what you make.

Your business may need registration, notification, a food safety supervisor, a food safety program or particular handling procedures. The exact rules depend on your state or territory and the type of food you're producing.

Your terms won't replace these obligations, but they can help support them. For example, you can require customers to store products at the temperatures shown on the label, follow use-by dates, keep batch information and notify you immediately if they suspect contamination or tampering.

Common Mistakes To Avoid

A few small drafting gaps can cause outsized problems in food supply arrangements.

Watch out for these common issues:

• Relying only on invoices. Invoices are useful, but they often arrive after the deal is already made. Your terms should be accepted before or at the time the customer places an order.
• Leaving delivery risk unclear. If stock spoils after being left unrefrigerated at the customer's premises, your terms should help show who was responsible at that point.
• Using generic product terms. Food terms need to deal with batch codes, shelf life, allergens, labelling, recalls and cold chain issues.
• Giving customers unlimited rejection rights. Customers need fair rights if something is wrong, but you also need timeframes and evidence requirements so you can investigate properly.
• Overpromising to distributors. Be careful with exclusivity, minimum supply volumes, marketing promises and guaranteed margins.
• Trying to exclude everything. Very broad liability exclusions may not work and can create unfair contract term risk.
• Forgetting IP and branding. If customers use your product photos, trade marks, recipes or brand story, your terms should say what they can and can't do.

A practical way to manage this is to build your ordering process around your terms. Send them with your wholesale application, attach them to quotes, refer to them on order forms, and keep a record of acceptance.

Key Takeaways

• Food wholesale terms of trade should cover payment and delivery, but also shelf life, storage, rejection rights, recalls and food safety responsibilities.
• Use clear payment rules, such as upfront, on delivery, 7 day, 14 day or 30 day terms, and set credit limits for higher-risk customers.
• Delivery clauses should say when risk passes, who manages cold chain issues and what happens if delivery fails.
• Recall and rejection clauses should be practical, with batch information, notice periods, evidence requirements and safe handling steps.
• The Australian Consumer Law, Food Standards Code and state or territory food rules can all affect what your terms can and can't say.
• For distributors, private label deals or exclusive supply, a fuller wholesale food supply agreement is usually safer than basic terms.

If you'd like help with your wholesale food terms, delivery and rejection clauses, recall processes or distributor agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.