What you need to know about customer-supplier relations

Companies have three main types of relationship. Firstly, the customer or consumer relationship. This type of relationship is very well known, because it is so often put forward. Indeed, for many companies, the customer comes first. This is understandable, given that they are the end-users of all companies’ activities. The second type of relationship that companies maintain concerns investors, and to a greater extent, their relationship with the institutions or individuals who finance the company’s activity. This type of relationship receives special attention, particularly from the company’s management. Companies very often need liquidity in the form of loans or equity investments to carry out or expand their activities.

This is why people, both natural and legal, who can provide the company with the liquidity it needs are almost always given special treatment. But it is not these two types of relationship that interest us in this article: there is a third type of relationship that links the company to its suppliers. For a long time, this relationship has been neglected, or relegated to second place.

However, this type of relationship also deserves special attention. Many companies, deprived of the services of their suppliers, have ended up closing their doors. This underlines the importance of cultivating a healthy relationship with suppliers. To facilitate communication and effectively manage supplier relations, specialized software called SRM is now available on the market. However, whatever the approach used, it is not uncommon for entrepreneurs to lose sight of the regulations governing this type of relationship.

Regulations governing the supplier relationship

Just as the law has laid down a series of provisions to ensure that relations between companies and consumers run smoothly, there are also a number of rules designed to ensure good collaboration between companies and their suppliers. Companies must therefore keep a number of elements in mind to maintain a relationship of trust and durability.

Order regulations

Relationships between suppliers and companies generally begin with an order. To ensure that things run smoothly, several articles of both the French Commercial Code and the French Civil Code govern this phase. These are:

• Article L. 441-6-I of the French Commercial Code. This article stipulates that there must be conciliation between the supplier’s “general sales conditions” (GSC) and the lessee’s “general purchasing conditions” (GPC). It should be noted that it is from the GCS that the GPCs will be identified. That’s why it’s important for the supplier to communicate all “general terms and conditions of sale” to partner companies, to avoid any malfunctions.
• Article 1134 of the French Civil Code. According to this article, the contract concluded between the company and its supplier becomes a rule of law, and these rules must be respected and applied in good faith. These rules can only be annulled by mutual agreement or if authorized by law.
• Article L. 442-6-I-4 of the French Commercial Code. This article prohibits deceptive practices on the part of a supplier who might wish to force his customer to transfer all or part of his activities abroad, as a condition for maintaining or renewing commercial relations.

Contractual regulations

Relations between suppliers and companies take place within a contractual framework, which is governed by a number of legal provisions. Article L. 442-6-I-2 of the French Commercial Code prohibits the conclusion of commercial contracts where only one party, the supplier or the company, is responsible for all ancillary expenses. The obligations and rights of the partners must be at the same level. Article L. 442-6-I-5 of the same code states that the sudden demobilization of the company, the abrupt interruption of the partnership to internalize production, the revocation of commercial relations without notice or the renunciation of an order without compensation are prohibited and engage the responsibility of the company. In addition, article L. 420-2 paragraph 1 of the French Commercial Code formally prohibits a supplier or company from abusing its dominant position. Refusal to sell and tied or conditional sales are illegal maneuvers which may result in the offending party being penalized.

Price regulations

In relations between suppliers and companies, orders are always conditional on payment of a certain amount. To avoid abuses on either side, certain rules must be accepted. This is why article L. 442-6 -II- of the French Commercial Code prohibits kickbacks, price reductions without consideration, and non-revisable contracts lasting more than one year. This provision obliges suppliers and companies to think about mechanisms that will enable prices to be corrected in line with the market. Price cuts must not be unilateral.

Invoicing and acceptance regulations

Once delivery has been made, suppliers generally send invoices to companies. This stage is of fundamental importance. In fact, it is at this stage that the majority of problems can arise, leading the parties to take legal action, and sometimes even to terminate the contract. Articles L. 441-3 and L. 442-6-I-8 of the French Commercial Code impose the following measures:

1. A ban on self-billing: This is practised by the company to the detriment of the supplier. In general, this type of practice enables client companies to grant themselves unjustified discounts, or to modify the price so that it is very low.
2. The composition of the invoice: The invoice must include certain compulsory information. These include the names of the parties, their respective addresses, the date of the transaction, the quantity and the unit price. Discounts must also be indicated on the invoice, and the whole document must be drawn up in duplicate and delivered to the company by its supplier.
3. The prohibition on companies wishing to charge repair costs that may be related to the design defect on the invoice.
4. Packaging for the return of goods: The undue return of goods after delivery, or the justified return of goods outside the recommended time limits, is not permitted.

Payment regulations

Payment of the price indicated on the invoice is a decisive factor in relations between companies and their suppliers. Here too, a number of provisions govern the situation. Article L. 441-6 of the French Commercial Code and the rules set out in the Law on the Modernization of the Economy stipulate that companies must pay within thirty days. This period itself is limited to forty-five days from the end of the month or sixty days from the invoice date. It should be noted that payment terms of 60 or 90 days are prohibited by law. The law also stipulates that there must be no discrepancy between the invoice and purchase order dates.

To sum up, relations between suppliers and companies are regulated by numerous provisions that are important to know and apply. These regulations aim to protect both parties and ensure that each can fulfill its obligations under the best possible conditions. To facilitate compliance with these regulations, the implementation of an SRM can be useful. It offers total visibility over all data, and provides a better framework for supplier relations.

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Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.