What To Do If A Supplier Suddenly Changes Their Terms

You have placed the same order with the same supplier every month for the past two years. The pricing has been predictable, payment is due within 30 days and deliveries arrive in time for you to fulfil your own customer orders.

Then, shortly before your next delivery, the supplier sends an email announcing a 15% price increase, payment upfront and a higher minimum order quantity. The email says the new terms take effect immediately.

For a small business, a change like this can affect far more than the supplier relationship. It may influence your cash flow, profit margins, stock levels and the promises you have already made to customers.

You may feel that you have little choice but to accept, particularly if the supplier would be difficult to replace. However, new terms do not necessarily become legally binding simply because the supplier has announced them.

Whether the change is valid will usually depend on what your existing agreement says, whether the change relates to an existing commitment or a future order, and whether your business has agreed to the new arrangement.

Can A Supplier Change Their Terms Without Your Agreement?

It depends on where you are in the contracting process.

Before a contract is formed, a supplier can generally change the offer it is making. For example, if you request a quote and the supplier revises its price before you accept it, you can accept the revised offer, continue negotiating or decide not to proceed.

The position can be different once a contract has already been formed.

A supplier usually cannot rewrite an existing agreement simply by sending an email containing new terms. The change will generally need to be made under a valid variation process in the contract or otherwise validly agreed and documented by both parties.

Some supplier agreements contain variation clauses that allow the supplier to change particular terms. A contract might permit an annual price review, for example, or allow delivery fees to be adjusted where transport costs increase.

Even where a variation clause exists, it does not necessarily give the supplier an unlimited right to change anything it wants. The clause may only apply to certain terms, require a particular amount of notice or set out a process that must be followed.

The supplier may also be able to change its offer for future orders without changing orders that have already been accepted. This distinction is important. An ongoing trading relationship does not always mean the supplier must offer the same pricing indefinitely, but it also does not necessarily allow the supplier to alter a confirmed order retrospectively.

The position may change again when an agreement expires or comes up for renewal. A supplier may be required to honour the existing terms until the end of the agreed period but can generally propose different terms for a renewed agreement. Whether the relationship continues automatically, and what notice is required, will depend on the renewal and termination provisions in the contract.

Start With The Agreement You Already Have

If your supplier changes its terms, start by checking your existing agreement.

Look for any clauses about price increases, changes to the agreement, notice periods and ending the contract. These can help you work out whether your supplier has the right to make the changes.

For example, your contract might say prices are fixed for 12 months. If your supplier tries to increase them after six months, the agreement may not allow it.

Or, your contract might say prices can be reviewed once a year with 30 days' notice. In that case, the supplier may be able to increase its prices if it follows that process.

The same goes for other changes. Just because your supplier can review its prices doesn't necessarily mean it can also change payment terms, introduce higher minimum orders or add new fees.

That's why it's important to look at each change on its own, rather than assuming everything in the supplier's email automatically applies.

Work Out What The Change Means For Your Business

Once you understand what the agreement says, consider the practical impact.

A price increase is not just a different number on the supplier’s invoice. You may need to decide whether to absorb it, raise your own prices or change how you deliver your product.

A shorter payment period could place pressure on cash flow. A higher minimum order might leave you with excess stock. A longer delivery timeframe could prevent you from meeting deadlines promised to customers.

The business in the opening scenario may have already accepted customer orders based on the supplier’s original pricing and delivery schedule. Even if the supplier can change its terms for future orders, the business still needs to work out how to meet its existing customer obligations.

Understanding the broader effect of the change will help you decide what outcome to seek from the supplier.

What If There Is No Formal Supplier Agreement?

Small businesses do not always have one formal contract setting out the whole supplier relationship.

You may have accepted a quote by email, placed orders through an online portal or traded for years using purchase orders and invoices. There may also have been phone calls or conversations about pricing, delivery and payment.

A contract can still exist in these circumstances. The difficulty is identifying its terms.

The agreement may be made up of several documents and communications, including the original quote, an accepted purchase order, emails between the parties and any terms provided before the order was placed.

It is important to consider when particular terms were brought to your attention. Terms printed for the first time on an invoice sent after an order has already been accepted may not automatically form part of that transaction. Similarly, regularly issuing updated terms does not necessarily mean the other party has agreed to every update.

Where each business uses its own documents, there may also be uncertainty about which set of terms applies. For example, your purchase order may state that prices cannot change without written approval, while the supplier’s order confirmation refers to separate online terms giving it a right to vary prices.

It’s always best to have supply arrangements put into a clear written agreement to avoid confusion down the road. 

Be Careful About Accepting The Change Through Your Conduct

Acceptance does not always require a signature.

Imagine that you receive the supplier’s email, say nothing and continue placing orders for another three months. You pay each invoice at the increased price and comply with the new payment period. The supplier may later argue that your conduct showed that you accepted the revised arrangement.

Whether that argument succeeds will depend on the circumstances, including how clearly the changes were communicated and what the existing contract says. Continuing to trade does not automatically mean every new term has been accepted.

However, ignoring the change can create unnecessary uncertainty.

Where you need time to assess your position, it may be appropriate to respond in writing and explain that you are reviewing the proposed terms and have not yet agreed to them. The wording of any response should be considered carefully, particularly if you need to continue receiving supplies in the meantime.

Is Giving Notice Enough?

Not always.

A notice tells you that the supplier wants a change to occur. It does not, on its own, give the supplier a legal right to change the contract.

Whether notice is enough depends on the agreement. If the contract expressly permits a particular change after 30 days’ notice, following that process may allow the supplier to implement it. If there is no such right, giving 30 days - or even several months - of notice may not be enough to vary an existing contract without your agreement.

Notice is still relevant. A variation clause that allows immediate and unrestricted changes may be more open to challenge than one that limits when changes can occur, explains the reasons for them and gives the other party sufficient time to respond.

Could The Change Be An Unfair Contract Term?

Australian Consumer Law may offer extra protection if your supplier agreement is a standard form small business contract.

A standard form contract is usually one prepared by the supplier and offered on a “take it or leave it” basis, with little room to negotiate.

A term may raise concerns if it gives the supplier a broad right to change important parts of the agreement, such as prices, services or payment terms, without giving your business a fair way to reject the change or end the contract.

For example, a clause that lets a supplier increase its fees whenever it wants, while charging you a large fee to leave, could potentially be unfair.

These protections generally apply where at least one party has fewer than 100 employees or annual turnover below $10 million.

However, not every one-sided clause will be unfair. The whole contract and the circumstances need to be considered, so it is worth having the agreement reviewed by a legal expert before assuming the term does not apply or taking further action.

What If You Can't Agree?

If you're not happy with the proposed changes, don't assume your only options are to accept them or end the relationship.

Start by speaking with your supplier. There may be a genuine reason for the change, such as higher manufacturing or transport costs, and they may be willing to negotiate. For example, they might agree to delay a price increase, honour existing orders, phase in the changes over time or keep your current payment terms.

If you still can't reach an agreement, go back to your contract. It should help you understand whether the supplier has the right to make the changes and what options are available to you.

Before cancelling orders, withholding payment or ending the agreement, make sure you know what the contract requires. Some agreements include notice periods or dispute resolution processes that need to be followed first.

If the supplier refuses to honour the existing agreement or the changes could have a significant impact on your business, it's worth getting legal advice before taking further action. A lawyer can review the agreement, explain your options and help you avoid creating a bigger dispute.

Getting Clear On Your Supplier Agreement

Supplier disputes often highlight issues that could have been addressed before the relationship began. A well-drafted Supplier Agreement can clearly set out when prices may be reviewed, how much notice must be given before changes take effect, whether existing orders are protected and when either party can end the agreement.

The level of protection you need will depend on how important the supplier is to your business. If replacing the supplier would be relatively straightforward, a simple agreement may be enough. However, if your business relies heavily on a particular manufacturer, software provider or distributor, the agreement should address the risks created by that dependence, including pricing changes, supply obligations and what happens if the relationship ends.

If your supplier unexpectedly changes its terms, do not assume you have to accept them immediately. Start by identifying exactly what has changed and comparing each proposed change with the agreement already in place.

Where the changes could significantly affect your business, the agreement is unclear or the supplier is threatening to stop supplying goods or services, it may be worth getting legal advice before responding. A lawyer can review the contractual position, consider whether Australian Consumer Law may be relevant and help you negotiate or document a practical outcome.

A supplier may be able to introduce new conditions for future orders while remaining bound by the pricing, delivery dates or payment terms already agreed for existing orders. Clear written communication and a properly documented negotiation can help preserve the relationship without requiring your business to accept every proposed change.

If you would like help with your supply agreement, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.