Often our 3PL customers ask us for general advice on running a 3PL business given our experience—a lot of times about things beyond the WMS we provide. Having built and run a 3PL ourselves, we’re always happy to share insights. One of the top questions we get is about SLAs, terms and contract agreements. We’ll dive into SLAs in another post, but here, we'll talk contracts agreements with customers—what’s essential and why.
In a perfect world, you’d shake hands, deliver great service, get paid on time, and everyone would walk away happy. But reality is rarely that simple, and solid terms are essential to protect you if things go off track. We found that having a strong contract helped us grow with confidence, knowing we were covered.
Here are ten key clauses you should consider including in your customer terms of service. This comprehensive checklist will help keep expectations clear and protect your business.
- Contract Term Length and Auto Renewal
- What does this mean: This clause sets an initial term (say, 2 years) for your contract with customers, with an automatic renewal at the end. Customers have a 30-day window before the term ends to leave if they want; otherwise, the contract rolls over for another term, applying any new terms and pricing you’ve specified.
- Why it’s important: This setup locks in your pricing and terms, giving you reliable revenue and helping you plan resources. Specifying what the price will become in the auto-renewal protects you from unexpected renegotiations while letting customers know what to expect. It keeps customers onboard unless they’re ready to move on—supporting both stability and long-term relationships.
- What could go wrong without it: Without a clear renewal structure, you could face gaps in revenue if customers leave unexpectedly, or be forced into last-minute renegotiations, leading to unpredictable pricing and commitments.
- Unexpected Order Volume Increases
- What does this mean: If a customer’s order volume suddenly spikes—say, by 25% or more above their usual average—without prior notice (for example, three business days), your standard service level agreement (SLA) won’t apply while the volume stays elevated. Deciding on the “average” can be tricky; you might use a trailing average over the past three months or, if they’ve been with you long enough, compare to this time last year (though we don’t recommend this).
- Why it’s important: This clause protects you from being held to SLAs during unexpected demand surges. It lets you flexibly manage big spikes without penalties, keeping operations steady while supporting customer growth.
- What could go wrong without it: Without this, unexpected order surges could overwhelm your resources, delay shipments, or even result in SLA penalties, impacting your reputation and straining customer relationships.
- Contents and Goods Insurance Responsibility
- What does this mean: The customer is fully responsible for arranging and maintaining insurance for their goods—whether stored at your facility, in transit to you, or on their way to the end destination. You’ll make reasonable efforts to assist, like providing details about your facility if their insurer requires it, but ultimate responsibility lies with the customer.
- Why it’s important: This clause clarifies that while you support the insurance process, the customer is fully responsible for insuring their goods. This protects you from liability related to damages or losses during storage and transit, making it clear that customers need to arrange their own coverage.
- What could go wrong without it: Without this clause, you could be held responsible for losses or damages during storage and transit, potentially resulting in significant liability if goods are uninsured or underinsured.
- Goods Removal on Termination
- What does this mean: If the contract ends, the customer has a set period (for example, 30 days, or longer if you allow) to remove their goods from your facility. You’ll coordinate with the customer to set specific removal dates within that time frame. If the goods aren’t removed on time, you can either store them and charge for storage costs or issue a final written notice. If the goods still aren’t collected within a final deadline (for example, 14 days, or 3 days for perishables), you have the right to sell or dispose of them on their behalf, covering your costs with any proceeds.
- Why it’s important: This clause gives you a clear process for handling unclaimed goods when a contract ends, protecting you from being stuck with abandoned inventory. It also ensures you can recoup any expenses for storage or disposal, and makes it clear that any remaining risk or loss from a low sale price lies with the customer.
- What could go wrong without it: Without this, you could end up with unwanted goods taking up valuable storage space, or face costs associated with storage or disposal, impacting your resources and bottom line.
- Stock Counting and Verification
- What does this mean: This clause sets out how you’ll verify the stock that customers send to your facility. You’ll specify whether you count all incoming stock, check a sample or percentage, or inspect one carton or case to approve the rest. Alternatively, you might choose not to count at all, instead processing the shipment based on the customer’s stated quantities.
- Why it’s important: This clause clarifies your approach to stock verification, setting realistic expectations for customers about how accurately their stock will be counted and logged. It helps avoid misunderstandings or disputes later, ensuring both parties agree on the method used to track inventory on arrival.
- What could go wrong without it: Without clear stock counting guidelines, you risk disputes over inventory counts, potential miscounts, or discrepancies that can damage customer relationships and lead to financial losses.
- Goods Prepared for Transit
- What does this mean: This clause requires that all goods sent to or from your facility are prepared for safe transit. For example, lids and caps on liquid containers should be properly secured to prevent leaks. The customer is responsible for ensuring goods are transit-ready, and you are not liable for any damage that occurs during transport. Be as specific as you need to protect yourself.
- Why it’s important: This clause protects you from liability for damages that happen while goods are in transit, making it clear that the responsibility for secure packaging rests with the customer. It ensures that both parties understand their roles in preventing transit-related damage, reducing the risk of disputes.
- What could go wrong without it: Without this clause, you could be liable for transit damage due to inadequate packaging, potentially leading to costly claims and a strain on customer relationships.
- Right to Relocate Goods
- What does this mean: This clause allows you to move the customer’s goods from one facility to another if needed. You should be prepared to notify the customer well in advance and provide a justification for the move to ensure transparency and fairness.
- Why it’s important: This gives you flexibility to manage storage and logistics efficiently across multiple facilities, helping you optimise space and resources. Sharing your plans with the customer builds trust and shows you’re prioritising their goods’ security and handling, even when adjustments are necessary.
- What could go wrong without it: Without this flexibility, you may face logistical challenges, limited storage options, or potential service interruptions that affect your ability to operate smoothly.
- Loss Tolerance
- What does this mean: This clause allows you a loss tolerance of, for example, 1% of the total value of goods stored in your facility, calculated at the end of each month. This means that up to this percentage, any loss won’t require reimbursement. You’ll still make reasonable efforts to minimise loss, and any compensation beyond this threshold would be discretionary.
- Why it’s important: This clause provides you with a buffer for unavoidable losses, recognising that minor discrepancies can occur in warehousing. By setting a clear loss tolerance, you protect yourself from financial impact while committing to reasonable care for the goods. This transparency also gives the customer a realistic expectation of how losses are handled.
- What could go wrong without it: Without a loss tolerance, you could face claims for minor discrepancies that are common in warehousing, resulting in frequent disputes or financial liabilities that impact profitability.
- Wrong Goods Dispatch
- What does this mean: If you accidentally send the wrong goods to an end recipient due to your own mistake, you’ll make reasonable efforts to arrange the return of those goods at your own expense. However, you won’t be liable if the recipient doesn’t return them or has already opened, used, or damaged the items. If you decide to reimburse the customer, it will be based on the customer’s original purchase cost, not the retail sale price, and the customer must provide proof of this cost.
- Why it’s important: This clause limits your liability in cases of dispatch errors, covering the cost of retrieval attempts but not holding you responsible if goods are unrecoverable or devalued. It also clarifies that any reimbursement will be based on actual purchase costs, protecting you from higher resale value claims while ensuring fair compensation for the customer.
- What could go wrong without it: Without this clause, you may be liable for the full retail value of any wrongly dispatched goods, exposing you to potentially high costs and frequent disputes over shipping errors.
- Your Rights Over Goods on Non-Payment or Late Payment
- What does this mean: If the customer doesn’t pay on time, you have the right to hold onto their goods as security until payment is received. Charges will keep accruing on goods held under lien. If payment remains unpaid, you can notify the customer that you intend to sell or dispose of their goods if they don’t settle within a set period (for example, 30 days). After that period, you’re allowed to sell or dispose of the goods, deduct what’s owed to you, and pass any remaining funds to the customer. For perishable goods, you’re entitled to sell them immediately once payment is overdue, provided you make all reasonable efforts to notify the customer first.
- Why it’s important: This clause protects your right to secure payment by holding or selling goods when a customer’s account is overdue. It ensures you can recover costs from the proceeds of the sale if needed, helping to mitigate potential losses. This also makes clear to customers that timely payment is crucial to avoid losing possession of their goods.
- What could go wrong without it: Without this clause, you could end up with unpaid invoices and no recourse to recover funds, leaving you vulnerable to financial loss and holding unclaimed goods without compensation.
These are just a fraction of the clauses we've included—there are many more in the full contract. While these could come across as one-sided, that’s not the intention. In this business, you need to protect yourself, as even one mistake can be costly and spell the end for your business. As I mentioned, these terms shouldn’t govern your day-to-day dealings with customers; they’re only in place to protect both sides if things get really bad, which they rarely do. We always encourage leading with kindness, customer obsession, and great service.
If you'd like full insight, please feel free to give me a shout, and I’d be happy to share the details in full over a call or something similar.
