Vendor Agreement for E-Commerce: Everything You Need to Know
A vendor agreement for e-commerce is made between an online store owner and his supplier for sale or purchase of goods or services, usually on an ongoing basis.3 min read updated on February 01, 2023
Updated June 25, 2020:
A vendor agreement for e-commerce is a contract made between an online store owner and his supplier for sale or purchase of goods or services, usually on an ongoing basis.
E-Commerce Vendors: Overview
E-commerce vendors enable online stores to offer a wide variety of inventory required to compete with brick and mortar stores. Although e-commerce vendors also supply software and services needed to set up and operate an online store, they are better known for supplying goods for resale.
Since more people are starting their own online retail stores, demand for e-commerce vendors is increasing in the retail industry. As an e-commerce store owner, you should look for agile and flexible vendors that focus on quality. Otherwise, you may risk your very existence in the industry since most of your competitors will have leaner and more reliable suppliers.
Types of E-Commerce Vendors
Dropshipping is an exciting way to get your online store up and running in a very short period of time with a huge variety of products. In the dropshipping model of e-commerce, online retailers, after having taken an order from their customer, place an order with their dropshipping vendor who directly delivers the ordered product to the customer.
Although it sounds easy, dropshipping comes with its own share of drawbacks. The online retailer has no other way than to rely on the dropshipping vendor for making timely delivery of products to its customers. Since drop shippers have a large number of customers, the deliveries are more prone to mistakes. Hence, you must be always ready to handle customer complaints.
Also, your profit margin will be lower since the dropshipper takes care of the inventory, logistics, and storage.
Purchasing from wholesalers is another option available to online retailers. You can either purchase from domestic wholesalers or from overseas suppliers. Purchasing from overseas vendors usually involves higher shipping costs, but it also gives a higher profit margin. However, you must be careful about product quality since overseas suppliers often try to beat the competition by using cheap material and labor.
Online retailers dealing in specialty goods often choose manufacturers as their e-commerce vendors since this option offers lower prices and higher profits.
Characteristics of a Reliable E-Commerce Vendor
Most of the reliable e-commerce vendors have an established quality control system to ensure proper delivery of products without any damage. The easiest way to get an idea about the quality control procedures your potential vendors have in place is to take help of a vendor pre-screening service.
Reliable e-commerce vendors work hand in hand with their retailers to resolve any issues rather than leaving the retailers on their own to handle the customer care woes. One way to get indications on the quality of services a vendor provides is to find out whether he supplies to your competitors or other market leaders. If the vendor has been supplying them for a long period of time, you can assume that he has a good track record.
Maintaining a Good Relationship With Your Vendors
Just like any other relationship, developing a good relationship with your e-commerce vendors also takes some work. Following are some of the proactive steps you can take to build trust and relationship with your vendors:
- Maintain a good payment history.
- Always stick to your vendors' ordering system. It will help them process your orders in an efficient manner.
- Make friends with your vendors.
Vendor contracts form the basis for ongoing dealings as compared to a one-time transaction. In the context of e-commerce, vendor contracts facilitate the sale and purchase of goods and services over the internet.
Common Elements of a Vendor Contract
- Accurate description of goods and services.
- Agreed prices or the method of pricing for goods or services to be provided by the vendor. You can either have fixed or variable prices.
- Terms of delivery, including time and frequency at which deliveries will be made.
- Terms of payment, including mode of payment and interests and penalties for late payment.
- Indemnity clause to address the issues of damaged or defective goods, improper deliveries, and delayed or deferred payments, among others.
- An exit or termination clause that describes a unilateral or bilateral exit option.
- Ownership clause to explicitly describe a predetermined work product ownership concept.
- Confidentiality clause to prevent important information from passing on to third parties and non-stakeholders.
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