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Letting a Vendor Go: 3 Ways to Handle Contract Terminations

Running a small business is not without its hurdles. There will inevitably come a time when you will be forced to terminate a contract with one or more of the vendors you’re in partnership with, and that can be taxing on the body of the business.

If only running a business was as easy as signing up for professional liability insurance with CoverHound! Regrettably, that’s not the way business works. There will come a time when you’ll be faced with a choice: satisfy the business contract, or break it.

Here are three ways to handle vendor contract terminations without making prospective deals go sour.

Conduct an in-person meeting with the vendor. Before calling it quits with your vendor, have an in-person meeting to discuss how you would like the relationship to continue. If the vendor doesn’t know that you are unhappy with their work, they won’t know to change. So, before canceling your partnership, discuss what you would like to see happen differently. Your vendor may have some suggestions too. Having open communication will help foster the working relationship and hopefully make it better.

Review the vendor contract for an escape clause. The contract signed by you and the vendor should have a clause written into the text stipulating reasons why either of you can breach the contract without penalty.

If there is no such clause, you can still terminate the contract, but be forewarned: the vendor can slap you with a lawsuit for breach of contract. Small business liability insurance will cover the costs of a lawsuit, including financial claims you may need to pay as a direct result of the lawsuit. To avoid a lawsuit, set up a meeting with your vendor and discuss the reasons for your unhappiness with the relationship. The vendor may be willing to excuse you from the contract or may offer to work out a better deal with your business, especially if no changes were made after your in-person meetings. This could mean you won’t have to part ways with your vendor after all!

Write a termination letter. If you’re still unsatisfied with your vendor, it’s time to sever ties. The Small Business Chronicle advises small business owners to draft a letter to the vendor detailing “the reason for the correspondence, and the date of termination." Though you are unhappy with the vendor’s work, it’s important that the tone of the termination letter remains professional. Detail why your company no longer wishes to have a partnership with the vendor and what led up to the termination. Did you have multiple discussions with the vendor about areas that needed work, but nothing was changed? By documenting in the letter the disparities between the actual work and the vendor contract, you are demonstrating to the vendor that by their actions, they have made their contract null and void. For sample termination letters, click here.

Cultivating strong working relationships can be hard; a vendor could snap and sue your business for all that it’s worth. That’s where small business liability insurance comes in to save the day. Visit CoverHound to sign up for your personalized professional liability insurance package.

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