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Ahead of the Curve Auto Supplier Blog

May 10, 2012

Should You Ship Parts When Your Buyer is Past Due?

So, your buyer is past due on payments for parts that it accepted without objection. Yet, it continues to order parts. Your natural reaction is to refuse to ship any more parts until you receive payment in full. You may also demand payment up front before any further shipments. Seems appropriate. And reasonable, right? Well, depending on the terms of your supply contract with that buyer, you may or may not have a right to refuse to supply. There are many reasons for this, but I want to highlight only three here. First, a buyer's failure to pay invoices in a timely manner does not always constitute a substantial enough violation of one's supply contract to alleviate your obligation to supply parts. Second, your contract may be such that each request for parts by the buyer forms a separate contract to supply parts and any refusal to pay under one contract may not affect your obligations to supply under subsequent contracts. And, third, your contract may not allow you to alter or accelerate the buyer's terms of payment or terminate it because of a buyer's past due payments. (That being said, it is worth noting here that open-ended supply contracts with no stated duration often are terminable by a supplier at any time upon reasonable notice.) A supplier has several options in these situations in dealing with a buyer that is past due. That includes ways to preserve one’s legal rights against such a buyer when it is unclear whether a demand for an up front payment and/or a refusal to ship are permitted. But many of these options are best implemented at the time your buyer becomes past due and not after you refuse (perhaps improperly) to supply parts under your particular supply contract.

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