(Note: This post was initially published on LinkedIn, and the following iteration is a syndicated version of the same.)
Small business owners often make sales agreements in person, by text or phone, over lunch or at sporting events, and fail to put the agreement in writing.
While exchanging emails may legally suffice to confirm an oral agreement, a sales contract ideally provides the parties with all the information describing their understanding.
A handshake can’t do that!
Components of a Comprehensive Sales Contract
A good sales contract sets forth the price, terms and conditions for the sale of goods and services.
While there are standard types of sales contracts, the best agreements – even for small businesses – are tailored to the particular kind of sale.
A small business owner may even want to use his or her own sales contract to ensure familiarity and consistency in price, payment, taxes, delivery, warranties, disclaimers, and liability, among other aspects of the agreement.
A sales contract memorializes even an informal understanding between businesses, or between a business and a customer.
Our small business customers tell us they may initially hesitate to use sales contracts, wanting to keep things informal … to which we say “are you out of your mind?” (though we say it politely).
A sales contract is a commitment between the parties legally obligating their understanding. Simply put, it protects the parties.
For example, a small business may hire additional labour or purchase special equipment to create the item to be sold. But the seller may go under if the buyer doesn’t pay.
Legal Protection and Commitment: Role of Sales Contracts
A written sales contract gives the court a roadmap for the parties’ obligations, the item to be purchased, and the consequences if a party fails to act in accordance with the agreement.
For a small business, even a “basic” sales contract lays out the fundamentals of the legal relationship between the parties and an understanding of what it means for the contract to be fulfilled.
Every sales contract generally sets forth the goods or services, the price, payment terms, warranties, disclaimers, and limitations on liability. Simple right? Think again.
Consider that even a “simple” sales contract may require some guidance and specialization. The goods or services may need to be modified due to market conditions. The price may also need to be adjusted over the contract term.
Payment could be reduced if made promptly or increased if delayed. Certain warranties and disclaimers may or may not be applicable. And liability cannot uniformly be limited.
Ensuring Clarity and Consistency in Sales Contracts
We suggest that small business owners turn to contract management service providers who can prepare a playbook and template for your company’s sales contracts.
A sales contract playbook provides clear guidance on terms and conditions and will be reflected in the sales contract template. That way, sales contracts will be straightforward, consistent, and meet expectations.
We’ll shake hands on that deal!
