Supplier and customer disputes are common for SMEs, especially when payments are late, goods are delayed, or agreed services are not delivered. A breach of contract can disrupt cash flow, delay projects, and damage business relationships. Acting quickly matters, but so does understanding your position before taking action.
If you think a contract has been breached, the first step is to check the contract, gather evidence, and decide whether the issue can be resolved informally or needs legal support.
What counts as a breach of contract?
A breach of contract happens when one party fails to meet an obligation under an agreement.
Common examples include:
- A supplier failing to deliver goods or services
- Late or defective deliveries
- Poor quality work
- A customer refusing to pay
- Missed deadlines
- Unauthorised contract termination
Not every disagreement is a breach of contract. The answer often depends on what the contract says and the circumstances surrounding the issue.
What should I do if a dispute arises?
Before taking action, take a step back and review the situation.
Ask yourself:
- What has actually happened?
- What does the contract require?
- Has either party failed to meet their obligations?
- What impact has the issue had on the business?
Avoid reacting emotionally or making threats before understanding your legal and commercial position.
What evidence should I keep?
Good records can make a significant difference in any contract dispute.
Keep copies of:
- The contract and terms and conditions
- Purchase orders and invoices
- Emails and correspondence
- Delivery records
- Notes of meetings and calls
- Evidence of delays, defects, or losses
Creating a simple timeline of events can also help clarify what happened and when.
What should I check in the contract?
Before deciding on next steps, review key clauses including:
- Payment terms
- Delivery obligations
- Scope of work
- Termination rights
- Notice requirements
- Liability limits
- Dispute resolution provisions
Some contracts require certain steps, such as written notice or mediation, before formal legal action can be taken.
Example: a supplier fails to deliver
A retailer orders seasonal stock due by 1 October. The goods arrive several weeks late, after the main sales period has passed.
Before taking action, the retailer should check:
- Whether the delivery date was contractually binding
- Whether the supplier provided a valid explanation
- Whether the contract allows cancellation for late delivery
- What losses resulted from the delay
The issue may amount to a breach of contract, but a commercial solution such as a discount, replacement goods, or settlement may still be the most practical outcome.
Can I terminate the contract?
Possibly, but termination should be approached carefully.
Whether you can end the contract depends on factors such as:
- The contract wording
- The seriousness of the breach
- Any notice requirements
- Whether the other party has an opportunity to fix the problem
Terminating incorrectly can create further disputes, so legal advice is often sensible before taking this step.
Is mediation better than court?
In many cases, yes.
Court proceedings can be costly, time-consuming, and disruptive. Mediation and other forms of contract dispute resolution can often help businesses reach a practical outcome more quickly.
Options may include:
- Direct negotiation
- Mediation
- Settlement discussions
- Formal letters before action
- Litigation where necessary
The right approach depends on the value of the dispute, the available evidence, and the wider commercial relationship.
Do I need to send a letter before action?
If informal discussions have not resolved the issue, a letter before action may be appropriate.
This typically explains:
- The nature of the dispute
- The alleged breach
- What outcome is being sought
- A deadline for response
Because these letters may be relied upon later, they should be drafted carefully and accurately.
When should I speak to a solicitor?
It may be time to seek legal advice if:
- A customer refuses to pay a significant invoice
- A supplier failure is causing serious disruption
- The other party has threatened legal action
- You are considering terminating the contract
- The contract terms are unclear
- The dispute is affecting cash flow
Early advice can often help resolve issues before they become more expensive and time-consuming.
Quick checklist for SMEs
If you are dealing with a contract dispute:
✓ Find and review the contract
✓ Gather key evidence and correspondence
✓ Create a timeline of events
✓ Check notice and termination clauses
✓ Keep communications professional
✓ Consider commercial settlement options
✓ Take advice before terminating a contract
✓ Escalate formally if informal discussions fail
How Hybrid Legal can help
We help SMEs deal with supplier disputes, customer disputes, debt recovery issues, and wider commercial contract disputes.
Our team can help you understand your options, protect your position, and work towards a practical resolution that supports your business objectives.
Need help with a contract dispute? Speak to our team for practical advice on your options.
FAQs
What counts as a breach of contract?
A breach of contract occurs when one party fails to meet an obligation under the agreement, such as failing to deliver goods, provide services, or make payment.
What should I do if a supplier does not deliver?
Check the contract, gather evidence, and review any rights relating to delays, cancellation, or compensation before taking action.
What should I do if a customer refuses to pay?
Review the payment terms, keep records of all communication, and consider formal recovery steps if informal discussions do not resolve the issue.
Can I terminate the contract?
Possibly. Whether you can terminate depends on the contract terms and the nature of the breach.
Do I need to send a letter before action?
Not always, but it is often an important step before formal legal proceedings are considered.
Is mediation better than court?
Mediation can often be quicker, less expensive, and less disruptive than court proceedings, although it will not be suitable for every dispute.
When should I speak to a solicitor?
Seek advice if the dispute is significant, urgent, affecting cash flow, or if legal action has been threatened.
