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Posted: May 04, 2012

How NOT to handle vendor disputes

Five mistakes you don't want to make

Cindy Wolf

It happens. Your Internet, payroll, shipping, [fill in the blank] vendor has dropped the ball. Or, you’re getting collection calls on that loan, lease or service plan you thought you had paid off. By the time someone calls me, the lawyer, my client has often made a few mistakes too. What should you avoid in these situations?

Ignoring the Problem – The excuses vary. The collection letter goes in the trash (‘I’ve paid them already’ or ‘Their service stinks’). That late shipment was just an aberration. That service works most of the time. If the vendor doesn’t know you’re disagreeing with them or dissatisfied, they will continue doing what they are currently doing – or in a collection situation, they will ramp it up. Dealing with issues up front can often take care of the problem quickly. Or let you know you have a situation that needs attention - now.

Failing to Put It in Writing – You were on top of it. As soon as your vendor blew it, you called them and blew your top. When that collector called, you told them you’d paid everything you owed. OK, many times working through a customer service issue on the phone can take care of it. But if you’re getting nowhere on the phone (a new collection letter arrives in a few weeks or the service continues to be lousy), it’s time to ramp up your paper trail. Send specific, considered (not raging) written complaints to the right person/department in the vendor organization. Tell them exactly what you expect them to do to remedy the problem and when you want it to happen. Find the base contract or lease and read it first. If you failed to notify the lessor in writing that you wanted to buy out a lease at the end of the term, that collector may be right. But make sure the paper story tells your side as well as the vendor’s.

A note about email: In most cases an email is as good as a letter, but only if it gets to an actual person. Request an acknowledgement of receipt. If you don’t get one, revert to snail mail. Letters sent into the ozone will get returned to you which is not always true with email. Letters sent to a good corporate address that are ignored look bad for the recipient (see Ignoring the Problem above). But always send official notices of termination, etc. to the addresses listed in the contract by certified mail or with a service that provides a delivery receipt.

Withholding Payment – Yes, this is the fastest way to get a vendor’s attention. But, it can also lead to total cessation of service. Can your business withstand that? It’s rare that your contract will allow you to do this (even service level credits, if available, don’t usually cover the entire payment amount) and the contract typically allows the vendor to terminate services as a consequence of nonpayment – or at least charge late payment penalties and interest. Really, never do this with the IRS. Waiting until you have a substitute vendor in place may not solve your problem either – see Cancelling the Contract below.

If your problem is that the vendor overcharges you, or you can’t figure out what they are charging you, pay what you believe your contract says is due and send a letter explaining why you withheld the difference. This should also get the vendor’s attention, but it’s done in a respectful and professional way that should keep your service on while you work on it.

Cancelling the Contract – Unless the contract gives you the right to terminate for breach or convenience – and you’ve followed the notice and resolution requirements – by law you generally do not have the right to terminate a contract for poor performance and the vendor has the right to continue to collect on the contract. But don’t panic - you may have other legal rights and also be able to negotiate a compromise. Read your contract before cancelling. If you can’t negotiate from a position of strength, at least negotiate from a position of knowledge.

Refusing to Compromise – It’s easy to get emotionally invested in a dispute. You may be right, but the amount in dispute or value of the service may not warrant a war. Lawsuits aren’t cheap and neither is your time spent arguing and building case files. If you see that the principle of the thing is getting in the way of making a sound business decision, have a new person evaluate the situation. This is part of the principle behind escalating complaints. As a wise boss once told me, people get more reasonable in an organization the higher you get. They also have more authority to make a deal.

Managing vendors is a job. Just because you outsourced a task or function doesn’t mean you can now ignore it. Management involves maintaining contracts and documentation, paying the right amount on time, fulfilling your end of the bargain, addressing issues and escalating disputes, as well as enjoying the free Avalanche and Rockies tickets.

 Cindy Wolf is a Colorado lawyer with more than 25 years experience representing large and small domestic and multinational companies. Her expertise is in corporate law and commercial contracting, with an emphasis on international issues, technology licensing and the Internet. She can be reached at cindy@cindywolf.com  or visit her blog at www.cindywolf.com

This publication is provided for informational purposes only. It does not constitute legal advice. There is no implicit guarantee that this information is correct, complete, or up to date. This publication is not intended to and does not create an attorney-client relationship between you and the author.

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Readers Respond

Business owners need to understand this because their relationship with their vendors can help or hurt their business. With a good relationship, vendors are more likely to be flexible or go out of their way to help. By Rob Oskins on 2012 05 09
This ought to be required reading for any business owner. The author hit the nail on the head. Now, if only those service contracts were in plain English! By D G Raymond on 2012 05 07
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