October 25, 2017

When can Your Customer Cancel an Order?

By: Tom Oliveri

I received a phone call the other day from a shipper wanting to know if it is permissible for his buyer to cancel an order that was in transit since the load had not yet arrived at contract destination. After I climbed back into my chair, I explained that whether the truck has arrived, or not, is a non-issue, your buyer can not unilaterally cancel a confirmed order at any time without your consent.

As a shipper, when a buyer negotiates and confirms a sales contract for shipment and has provided P.O. numbers, or emailed terms and conditions, it demonstrates a clear meeting of the minds. That being said, when the shipment is still in-transit, the buyer attempts to cancel the order, what are your rights and remedies in such a situation?

As the seller, you have every right to accept the request from the buyer to cancel the confirmed order, but if you do so, the order is cancelled without recourse back to the buyer.  The contract is simply voided. On the other hand, should you wish to enforce your contract on a confirmed and documented sales contract, and the contract is cancelled for any reason, you need to properly protect your sales contract rights against potential losses.   To protect the confirmed contract, immediately place the buyer “on notice” in writing that you are not in agreement with the cancellation, and they will be responsible for any resulting loss by cancelling their order. 

In your written notice, the buyer must be advised that you will mitigate against any potential loss by selling the product for the account of whom it may concern, and that you will be holding them (your buyer) responsible for all losses incurred due to their cancelling of the contract.  When putting your customer on notice, make sure to reflect the number of cartons that were contracted, the agreed upon price, and any other relevant reference number(s) that connects to the sales contract. It is important to maintain the integrity of each individual sales contract as you mitigate losses, so the cancelled orders connect to the original contracted product.

Next, secure a detailed accounting from the company that actually sells your product or make sure to document the new sales contract with the new buyer.  Damages are established by deducting the net proceeds (or new sales contract price) from the negotiated price with the original buyer. Any resulting difference is your loss/damages.  When your loss is finalized, fully document and communicate that amount to the buyer and submit the invoice reflecting your aggregated loss with supporting documentation for payment immediately to the buyer. 

Finally, remember that damages from a contract cancellation is a two way street.  As the seller, you can also be responsible for damages if you need to cancel your contract for any reason, so be prudent with your buyer when negotiating and committing to volume and fully understand the consequences of failure to perform.  Please contact me with any questions at 949 885-2269 or email me at TommyO@wga.com.