Service level agreements (SLAs) are agreements or contracts with suppliers that define the service they must provide and the level of service to be delivered, and which also set out responsibilities and priorities.

SLAs themselves are contractual obligations and are often built into a contract in the form of one or more clauses or as an entire section. SLAs can be used in any supplier contract where a service is being provided.

Typical SLAs set out:

  • the service being provided
  • the standards of service
  • the timetable for delivery
  • respective responsibilities of supplier and customer
  • provisions for legal and regulatory compliance
  • service monitoring and reporting mechanisms
  • payment terms
  • how disputes will be resolved
  • confidentiality and non-disclosure provisions
  • termination conditions

If suppliers fail to meet agreed levels of service, SLAs usually provide for compensation, commonly in the form of rebates on service charges.

When drawing up your SLA with your supplier, highlight the most critical components of the deal so you can apply the strictest penalties to these.

In some cases, you may need to accept a supplier’s standard SLA. If the SLA does not guarantee the service quality you require, you may need to look for alternative suppliers or make contingency plans to deal with any problems.

Build periodic performance reviews into the SLA. You’ll also need to review your own performance. For example, failing to pay your suppliers on time won’t encourage them to keep their standards high.

You may want to sign up to the Prompt Payment Code (PPC), a joint initiative of the Institute of Credit Management (ICM) and the Department of Business, Innovation & Skills (BIS) to help tackle late payment. Businesses that sign up to the code commit to paying their suppliers on time and to providing clear guidance on payment procedures.

The code is endorsed by several major banks and business organisations. Businesses that have signed up to the code are allowed to display the PPC logo.

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