Production is behind schedule and goods need to be airfreighted to avoid stockouts. Raw material costs spike due to geopolitical events. In many instances importers become saddled with these costs, meanwhile suppliers apologize for the inconvenience and feign ignorance of any Terms and Conditions clauses that should have protected importers.
Ask a VP of Supply Chain or a COO at any mid-market company if they use Terms and Conditions and their response is almost always, yes. Ask if their suppliers understand the Terms and Conditions or how frequently those terms are enforced and you are often met with a chuckle.
Truly valuable Terms and Conditions used in emerging markets need to be clear, concise, and have a monitoring mechanism for enforcement. In reality, few companies are going to litigate or go to arbitration in a foreign country and even fewer exporters are going to do so here in the States. In turn, Terms and Conditions for mid-size importers and their foreign manufacturers are largely built on trust. Trust that a supplier will fill orders properly and on time, and trust that when supplier related issues do occur, they will take accountability.
Routinely our firm inherits supply chains that are underperforming. Clients are contending with late shipments, costly air freight, and declining quality performance. In many instances, however, clients would have been well-served by addressing these performance issues proactively along with questions around IP and tooling ownership with properly crafted Terms and Conditions.
The fact is, T&Cs along with supplier manuals are vital tools to help standardize supplier performance across global supply chains, take relatively little effort to craft, and provide an objective lens to monitor supplier performance and guide procurement decisions.
For most importers, having four pages of fine print on a Purchase Order is far from effective. Legal departments are quick to draft multi-page and complex Terms and Conditions, but the operational reality on the ground is that less is truly more.
When companies have long and complex Terms and Conditions with foreign suppliers, they often go unread or at least are disregarded. This renders those T&Cs useless, and often, this only becomes apparent once an issue arises. This then puts importers in a firefighting or reactionary posture.
Four signs your T&Cs are just decoration.
While most companies submit Purchase Orders along with their “standard” Terms and Conditions, there are a few signs importers can look for when determining if their T&Cs are indeed just decoration.
Assuming a supplier has read and understood the full implications of your Terms and Conditions in English when their native language is Chinese, Hindi, or Vietnamese is naïve. If you have not actually walked foreign suppliers through your performance expectations and received their commitment to meeting those requirements in writing, it is very challenging to enforce T&Cs when performance issues arise.
How exactly do you measure on-time delivery — is it ex-works or when goods reach your loading dock? How is quality data collected and benchmarked? What currency or raw material exposure is acceptable? Without making a concerted effort at tracking supplier performance consistently, any enforcement of your T&Cs can feel ad hoc or at worst combative when problems do arise.
Who at your company makes the decision to enforce your T&Cs? Who is notified at your supplier and what is your success rate in actually recovering costs such as air-freight or excess returns? Terms that are never enforced quietly teach suppliers that terms are optional.
If your supplier is consistently late on shipping goods or quality remains at elevated levels and you fear taking a hardline stance will result in losing a supplier, you are not a customer, you are a hostage and no T&Cs will correct that. Instead, companies in this position should qualify secondary sources to rebuild leverage with underperforming suppliers.
Terms that are never enforced quietly teach suppliers that terms are optional.
From decorative to enforceable.
Companies with decorative T&Cs, however, can address this issue in short order. To begin, companies should focus on three to five key performance clauses. Reviewing historic supplier performance and identifying any surcharges or unplanned costs is a great starting point for crafting these clauses.
In most cases, companies want to address late shipments due to supplier delays, quality defects, benchmarking currency and raw materials to international exchanges, and defining IP or tooling ownership.
Ultimately regardless of which clauses are selected, companies should strive to ensure the language of each clause is clear and simple to understand. These T&Cs are not looking to address every potential performance shortcoming, but the most common and/or the most impactful. Brevity is what helps avoid confusion and subjective interpretation.
Beyond drafting clear T&Cs, companies should then reintroduce these T&Cs with their foreign suppliers, walking them through the expectations and receiving written confirmation that a supplier indeed understands the performance expectations you have outlined.
Lastly, importers do need to invest effort in actually monitoring and holding suppliers accountable for their performance. This is best accomplished through regularly pulling ERP data and issuing supplier scorecards on a monthly basis. This opens dialogue on supplier performance so that issues can be addressed proactively, or in the worst case, lays the foundation for objectively enforcing your T&Cs when needed.
The one thing T&Cs cannot manufacture, however, is leverage. If a supplier knows you have no qualified alternative, no clause — however well-drafted, translated, or acknowledged — will change the math when they decide a problem is yours to absorb. Enforcement ultimately rests on a supplier's belief that the relationship is worth protecting. This is why T&C discipline and supplier diversification are not separate initiatives; they are the same project.
None of this is complicated, but all of it requires consistency. Terms need to be walked through in person, performance needs to be tracked monthly, and enforcement needs to happen the first time a clause is triggered, not the fifth. For most mid-market importers, the honest constraint is not knowledge — it is bandwidth, language capability, and presence on the ground. That gap is usually how the T&Cs became decorative in the first place.
So pull out your current Terms and Conditions and read them the way your supplier does. If you cannot point to the last time a clause was acknowledged, measured, or enforced, you do not have an enforcement problem. You have decoration.