Why contract clauses become an accounting issue
Trade wars, supply chain disruptions, energy crises or natural events can radically alter the economics of a B2B contract. In Switzerland, where contractual freedom is broad and the Code of Obligations (CO) does not contain a general definition of force majeure, managing these events depends largely on what the parties have written — or not written — in the contract.
For a supplier or customer SME, the consequences are not only legal. A poorly drafted clause can block invoicing, require performance at a loss, generate disputes with strategic clients or distort revenue recognition in the financial statements. Conversely, well-structured hardship clauses allow prices and terms to be renegotiated before the situation becomes unsustainable.
This guide connects Swiss contract law applicable to B2B relationships with the accounting implications for SMEs, in the context of Swiss accounting standards (FER/Swiss GAAP FER) and ordinary tax deadlines.
Swiss legal framework: CO, contractual freedom and limits
In Swiss law governing contracts between businesses, the provisions agreed by the parties apply first. In the absence of specific clauses, the mandatory or supplementary rules of the CO apply:
Art. 119 CO (impossibility): if performance becomes impossible through no fault of a party, the obligation is extinguished. Temporary impossibility may suspend the obligation, but does not in itself justify a price adjustment.
Art. 373 para. 2 CO (fixed-price contract for work): in contracts for work with remuneration determined in advance, if extraordinary unforeseeable circumstances obstruct or make completion of the work excessively difficult, the court may authorise a price increase or termination of the contract. In ongoing supply contracts there is no analogous CO provision: price adjustment requires a contractual clause or, exceptionally, recourse to the clausula rebus sic stantibus.
Hardship clause and clausula rebus sic stantibus: unlike German law, the CO does not provide for a general clause on supervening excessive onerousness (Wegfall der Geschäftsgrundlage). In the absence of a contractual clause, the Federal Supreme Court exceptionally allows adjustment or termination of the contract under the doctrine of the clausula rebus sic stantibus, with very restrictive application. In B2B contracts, it is therefore decisive to expressly provide renegotiation mechanisms or automatic price adjustment.
Note for SMEs
Relying solely on impossibility (Art. 119 CO) or on the clausula rebus sic stantibus without a contractual clause exposes the company to evidential uncertainty and lengthy, costly litigation. Contractual prevention remains the most efficient approach, especially for high-value multi-year contracts.
Force majeure vs hardship clause
The two concepts are often confused, but produce different legal and accounting effects. Here is a concise comparison for B2B contracts in Switzerland:
| Criterion | Force majeure | Hardship clause |
|---|---|---|
| Legal basis | Contractual clause; failing that, Art. 119 CO (impossibility) | Contractual clause; failing that, doctrine of the clausula rebus sic stantibus; for fixed-price contracts for work, Art. 373 para. 2 CO |
| Typical event | Unforeseeable, unavoidable and external event (e.g. embargo, natural disaster, legal prohibition) | Severe economic change but performance still possible (e.g. +40% raw material costs, interest rates, wages) |
| Main effect | Suspension or release from the obligation to perform; extension of deadlines | Duty to renegotiate in good faith; price adjustment or termination |
| Risk allocation | The risk of the extracontractual event is excluded or limited | The risk of economic imbalance is redistributed between the parties |
| Impact on revenue | Suspension of invoicing; possible cancellation of orders | Reduced or deferred revenue until agreement; possible retroactivity |
| Accounting treatment | No revenue if performance not rendered; advance payments as liabilities | Contract modification: prospective or retrospective revenue adjustment |
| Typical duration | Time-limited event | Structural or medium-term imbalance |
Effective drafting of clauses in B2B contracts
A generic clause copied from an international template often does not hold up in Swiss litigation. Essential elements to define:
Force majeure clause
- Definition not excessively broad (avoid "circumstances beyond control" without a list)
- Duty to notify within a precise deadline (e.g. 5–10 business days)
- Duty to mitigate: reasonable measures to limit damage
- Effects: suspension, extension, termination after X months of interruption
- Exclusions: foreseeable events, payment delays, internal strikes
Hardship clause
- Quantified activation threshold (e.g. variation >15% of full cost or margin)
- Reference index (import price index, energy index, SNB rate)
- Procedure: notification, negotiation within 30–60 days, arbitration or unilateral adjustment
- Automatic adjustment formula for variations below the hardship threshold
- Severability clause and applicable law (Swiss law, cantonal forum)
For contracts with mixed performance (product + maintenance + software licence), it is advisable to provide separate clauses for each component, as costs and risks may evolve differently.
Price renegotiation: process and documentation
When a hardship clause, Art. 373 para. 2 CO (contracts for work) or the clausula rebus sic stantibus is triggered, renegotiation must be managed with the same rigour as a new commercial contract:
1. Economic impact analysis: calculate the variation in direct costs (raw materials, energy, transport, personnel) and the effect on the contract's gross and net margin. Document with invoices, supplier price lists and period calculations.
2. Formal notification: send a letter or email referencing the contractual clause, Art. 373 para. 2 CO or the clausula rebus sic stantibus, attaching proof of the change and the proposed adjustment. Retain proof of receipt.
3. Contract addendum: formalise every agreement with a written addendum stating the new price, effective date (prospective or retrospective), duration of the adjustment and review conditions. Avoid verbal agreements: in B2B they are valid, but insufficient for audit and accounting review.
4. Unilateral adjustment: if the contract provides for it (e.g. indexation formula), apply the adjustment according to the formula and communicate it to the client with the calculation details. Verify that the clause is not excessively unbalanced or invalid (Art. 2 CO; for general terms and conditions, Art. 100 CO).
Practical example
A Ticino-based SME supplies mechanical components under a three-year fixed-price contract. Aluminium costs increase by 28% over eight months. The clause provides for renegotiation if the variation exceeds 15% on an agreed LME index. The SME notifies the client, proposes a 12% increase on the unit price and, after three weeks of negotiation, signs an addendum effective from the first day of the following quarter. Until agreement is reached, it continues to invoice at the original price, recording the difference as a potential asset to be monitored.
Accounting for revenue and contract modifications
Under Swiss GAAP FER (framework for SMEs), revenue recognition follows the matching principle: revenue is recorded when performance has been rendered and the revenue is realisable. Contract modifications for hardship or force majeure affect several aspects:
| Scenario | Accounting treatment (FER) | Operational note |
|---|---|---|
| Performance suspended (force majeure) | No revenue until performance is rendered; advance payments received → liability (deferred revenue) | Check whether the contract provides for milestone billing |
| Prospective price adjustment | New price applied from effective date; future revenue at the new amount | Document the addendum for the audit |
| Agreed retrospective adjustment | Adjustment of prior-period revenue; possible debit/credit note | Impact on VAT already settled: credit/debit note or correction return in the correct tax period |
| Loss-making contract after failed renegotiation | Assessment of remaining obligation; possible provision for liabilities (FER 23) or adjustment of work-in-progress contract value (FER 22, if applicable) | Consult the auditor before closing |
| Contract termination | Cessation of future revenue; any penalties or indemnities as a separate component | Separate operating revenue from extraordinary income |
| Automatic indexation | Revenue calculated using the contractual formula; periodic update in invoicing | Automate in Accountex with price lists or pricing rules |
Tax and reporting implications
Price adjustment changes the VAT taxable base and, for services already invoiced, may require a credit or debit note in the correct tax period. For income tax purposes, retroactively adjusted revenue affects the financial year in which it is recorded in the accounts, unless particular accrual principles are agreed with the trustee.
In the financial statements and management report, significantly modified or at-risk contracts should be mentioned if they materially affect the financial position or results — especially for SMEs seeking bank financing or evaluating strategic partnerships.
Companies applying IFRS or US GAAP (typically larger groups) must also consider IFRS 15 for contract modifications: a modification may be treated as a separate contract or prospectively/retrospectively depending on whether additional performance is included and the price varies proportionally.
Operational integration: from contract to accounting
To avoid discrepancies between the sales department and accounting, SMEs should align contracts, ERP and the invoicing process:
Contract repository
Centralise contracts, addenda and indexation clauses in a repository accessible to sales, administration and the trustee.
Notification workflow
Define who monitors cost indices, who authorises clause activation and who informs accounting to update price lists and deferred revenue.
Periodic reconciliation
Compare contract margins with budget on a quarterly basis; flag variances above threshold before they become disputes.
Checklist for entrepreneurs and trustees
| Action | Responsible | Priority |
|---|---|---|
| Review FM/hardship clauses in active multi-year contracts | Management / legal | High |
| Map contracts without indexation but with variable costs | Controlling | High |
| Document every renegotiation with a written addendum | Sales + administration | High |
| Update price lists and deferred revenue in accounting software | Accounting | Medium |
| Verify VAT consistency on retrospective adjustments | Trustee | High |
| Assess provisions for contracts with latent losses | CFO / auditor | Medium |
| Include standard clauses in new B2B contracts | Legal / commercial | High |
Conclusion
In Swiss B2B contracts, force majeure and hardship are not mere "reserve" clauses to be ignored until an emergency arises. They define who bears the economic risk when circumstances change and determine how revenue, margins and tax position are reflected in the accounts.
An SME that integrates contract review into the budgeting cycle, links price adjustments to accounting software and documents every renegotiation reduces legal exposure and presents financial statements consistent with operational reality — a concrete advantage in relationships with banks, investors and commercial partners.