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A Supply Agreement

December 6 2010

The establishment of a supply agreement between two businesses is for some considered a loose business arrangement or partnership. In nearly every instances of this type of arrangement, both businesses make a profit on the transaction. This loose arrangement is generally forged because one of the companies know how to get a raw material at a below average cost while the other knows of a buyer that is looking for a deal.

In many cases the supply agreement is just a temporary partnership to making money. In many cases the agreement is just verbal so there is no paper trail and little evidence that the transaction has actually occurred. The purpose behind using this form of agreement can be for tax evasion or to artificially boast the revenue streams on the books.

The use of a supply agreement has been reduced over the years with all the legal complications that are involved with running a business. With more government intervention in business and business practices, the supply contract is more widely used today.

The leading difference between a supply agreement and a supply contract is the legal implications between the two. A contract is a formal form that is created by one of the business involved which is then approved by both businesses as a legally binding contract. If either side breaks this contract then they would be financially responsible for any loss to the other business.

Another difference between a supply agreement and a supply contract is that without a formal document needing to be created, the transaction can occur faster and take advantage of an opportunity when it arises.  This occurs when a business has financial troubles and makes an offer to another company on their product at a cut rate to raise needed capital to pay expenses that are due. In this instance, timing and speed is everything.

While not every supply agreement is under the board, many of them are. Just remember if you participate in one, you have no legal recourse is the other side does not abide by what was agreed to.