A working senior lawyer's read on the language that quietly transfers risk — indemnity caps, IP ownership, termination, governing law, and three more.
Supply agreements are where risk gets buried. Most small business owners sign them without reading past the first page. This guide walks you through the seven clauses that actually decide what happens when things go wrong.
Each of these clauses can transfer thousands of dollars in unexpected liability from the supplier to your business. Reading them takes 30 minutes. Not reading them costs you weeks.
Indemnity is a promise to cover the other party's legal costs if something goes wrong. By default, it's uncapped. That means you could owe thousands — or tens of thousands — in legal fees that aren't even your fault.
What to do: Cap it. A reasonable cap is usually tied to what you're paying them annually — if you're paying $50,000 a year, your indemnity exposure shouldn't exceed that.
This clause limits how much the supplier owes you if they breach the contract. It's often the most negotiable line in the whole agreement.
The remaining five clauses follow the same pattern: they're written to favor the supplier, and they're all negotiable. The key is knowing which ones matter most to your business.
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