Supplier Agreements: What You Need to Know About Content, Risks and Selling a Business

A supplier agreement is one of the most common — and simultaneously most underprioritized — contracts in a business. It sets out what a supplier is to deliver, at what price, and what happens if something goes wrong. Not taken seriously, it can become a source of real problems, both in day-to-day operations and if the business is one day sold. Want to enter into one yourself? You can download our free template (currently in Danish), which also accounts for what should happen on a change of ownership.

What is a supplier agreement?

A supplier agreement sets out the terms for a supplier delivering goods or services to your business — as opposed to a distributor agreement or an exclusive distributor agreement, where it's your business that resells goods to others. The terms are easy to confuse, but the roles are reversed: in a supplier agreement, your business is the buyer, while in a distributor or exclusive distributor agreement, you're the party delivering or granting the right to resell.

What does Danish law say about supplier agreements?

Supplier agreements between businesses aren't subject to special legislation the way, say, employment relationships are. Instead, the Danish Sale of Goods Act applies as a default framework, filling gaps the agreement doesn't itself regulate — but the parties have wide freedom of contract to deviate from most of the act's provisions in a B2B relationship. A concrete example is the complaint deadline: the Sale of Goods Act's default is 2 years, but in commercial relationships it's common to agree a shorter deadline. It's therefore important that the agreement itself addresses the key points, rather than leaving it to the law.

What should a supplier agreement include?

Parties and what's being delivered

Full identification of both parties, plus a precise description of the goods or services the agreement covers.

Delivery location, delivery time and transfer of risk

Where and when should delivery happen, and when does the risk for the goods transfer from supplier to buyer — for example on dispatch or only on receipt? If delivery times are binding, the consequences of delay should be clearly stated, including any penalty or liability for damages.

Quality requirements and defects

What counts as a defect, and what's the buyer entitled to on defective delivery — remedy, replacement, a proportionate price reduction, or termination of the agreement in serious cases?

Prices and payment terms

The agreed price, any price adjustment mechanisms, payment deadlines, and consequences of late payment.

Limitation of liability

Most supplier agreements include a clause limiting the supplier's liability for breach. A sensible liability limitation should reflect the actual risk and cover at least direct losses.

Warranties, confidentiality and force majeure

Any warranties on the goods' durability or properties, a confidentiality provision on business matters, and a force majeure clause releasing the parties from liability for circumstances beyond their control.

Contract length and termination

How long does the agreement run, how is it renewed, and what notice period applies for each party?

Why are supplier agreements relevant when selling a business?

Supplier dependency is a real risk factor

If a large share of your business's operations depends on a single supplier — or just a few — that's a risk a professional buyer will investigate thoroughly during due diligence. If the supplier is financially unstable, geographically vulnerable, or without a written agreement that genuinely protects you, it can drag down the value or give rise to demands for warranties and indemnification in the purchase agreement itself.

Do supplier agreements automatically transfer on a sale?

The same mechanics apply here as for other partnership agreements: in a share purchase, the agreements generally continue automatically, unless there's a change of control clause giving the supplier the right to terminate or renegotiate the terms. In an asset purchase, transferring the agreement to a new owner generally requires the supplier's consent. We go deep into this mechanic in our walkthrough of exclusive distributor agreements in a business sale, which applies equally to supplier agreements.

Can a documented supplier strategy strengthen the price?

Yes, indirectly. If you can document that you have multiple alternative suppliers, written agreements with clear terms, and a deliberate picture of your own vulnerability, the business appears more robust and less risky to take over. That's exactly the kind of preparation that separates a professionally run business from one where supplier relationships have never been documented — and it's often one of the differences you can see directly when comparing businesses for sale within the same industry.

Frequently asked questions

Is a supplier agreement the same as a distributor agreement?

No. In a supplier agreement, your business is the buyer of goods or services. In a distributor agreement, it's your business that delivers, and another party that resells.

Do all our supplier agreements need to be in writing?

It's not a legal requirement, but it's strongly recommended — particularly for the suppliers the business depends on most. Verbal agreements are hard to document and hard to transfer the value of in a sale.

What happens if our most important supplier agreement can't be transferred to a buyer?

At worst, it can mean the buyer needs to find a new supplier after the takeover, which will often be priced in as a risk or require a warranty from the seller. The earlier it's clarified, the less of a surprise it becomes for both parties.

Want to enter into a supplier agreement yourself — or are you preparing a sale and want to know how vulnerable your business is to its suppliers? Download our free template as PDF or Word (currently in Danish), or book a no-obligation call.