Most Favoured Customer Clause

A large buyer wants assurance that a supplier will not give a competitor a lower price for the same product, and a most favoured customer, or MFC, clause can provide that protection for a defined period and category. The phrase 'best price' is not enough, because a sale of a thousand units with immediate payment differs from a ten-unit order on long credit, so define the comparable goods, volume, geography, service level, term and payment conditions.

State whether the promise applies to price alone or also to rebates, delivery, support and other commercial terms, since without a comparison rule both sides can disagree about what matching means. Choose the trigger: another buyer's signed contract may count, or only an actual invoiced sale, and the clause may be forward-looking or may require a refund for earlier purchases.

Include reasonable exclusions where appropriate, because pilot customers, clearance stock, affiliates or promotional bundles may differ materially from ordinary orders. The supplier should model the effect of one discount across all protected buyers, since if five major customers have a matching right, a small concession to a new client may trigger a much larger obligation.

A clause can help a buyer avoid overpaying under a long contract, but it can also discourage the supplier from discounting to anyone, reducing price competition. The US Federal Trade Commission has described both potential efficiency and competition concerns for these clauses.

Market power and coverage matter: a narrow promise to one buyer in a competitive market may differ from widespread parity commitments that block new entrants, and the UK Competition and Markets Authority has found an infringement involving certain retail MFN clauses used by a price-comparison site in home insurance. Check local competition law before signing, because a template used in another country may not fit the product, market or jurisdiction, and legal review should consider who benefits, who is excluded and whether the clause makes discounts less likely.

Keep confidential pricing secure: a buyer may need evidence that the seller honoured the promise, but it should not automatically receive competitors' contracts or personal data. Define how a buyer raises a claim, with a time period, required evidence and a way to calculate an adjustment.

Distinguish a most favoured customer clause from a simple volume discount: the first links one customer's terms to deals offered to others, while the second sets a price based on its own quantities. Online platforms may use parity terms that cover a seller's own website, rival platforms or both, and a 'wide' clause reaching rivals can have different competition effects from a narrower direct-channel rule.

Do not treat every parity term as identical. The buyer should also assess the bargain it is making in return, and both sides should monitor the clause during its life, since supplier pricing systems can flag qualifying lower offers before they go live.

For a business owner, an MFC clause is a comparison promise, not a magic guarantee. Define comparable deals, model adjustments and check competition effects.