Dealing with contracts

Contracts are often perceived as long-winded documents, so it can be all too easy not to pay them enough attention.


Contracts are often perceived as long-winded documents, so it can be all too easy not to pay them enough attention.

Contracts are often perceived as long-winded documents, so it can be all too easy not to pay them enough attention. But failing to do so can expose your business to many risks.

“In the enthusiasm to do a deal, the terms of the agreement don’t always get the attention they deserve. So it’s important to understand what contracts are and why they’re worth bothering with,” says Jon Rush, solicitor and author of Understanding and Negotiating Business Contracts (How to Books 2002).

Put it in writing

Not all contracts need to be in writing, but not having an agreement written down can increase the problems your business might face.

“If you are the seller, it may be difficult to enforce payment from the customer, as it will be your word against theirs. If you are the buyer, it may be difficult to obtain compensation from your supplier if things go wrong, meaning you could end up footing the bill,” explains Rush.

He adds that if there is no requirement to give advance notice of termination, there will be nothing to stop the other side from pulling out without warning. This could be very damaging if you have been investing heavily in order to cope with an expected increase in orders, for example.

Peace of mind

As Rush outlines, a written contract can give you peace of mind and can help to avoid unnecessary disputes.

“A well-drafted contract will set out clearly the rights and obligations of both sides. This cuts down on the scope for arguing about who is responsible for what, what they have to pay for and when they have to pay for it. These are among the most common causes of disputes between businesses,” affirms Rush.

Similarly, if it is important that work is done on time, it can be beneficial to add the words ‘time is of the essence’. If you are a supplier, make it clear in the contract that you are entitled to stop work if the buyer fails to pay on time. Similarly, if you are a buyer, and the supplier fails to deliver on time, be clear about the time frame.

Top tips

Put it in writing It may seem like common sense, but ensure that all your business deals and agreements are confirmed in writing. A written record will prevent people from trying to change their minds or giving you a different story at a later stage.

DonÂ’t leave discussions until the last minute This may result in important issues, such as termination rights, being overlooked.

Describe clearly what the contract is for If you are referring to ‘products’, ensure you define exactly what these are. Similarly, areas such as delivery dates should be clear.

Check that the contract gives you what you want Promises contained in a contract can be often be very far removed from what may have been promised in marketing material, but remember that it is the contract that counts.

Think about what will happen if things go wrong If things don’t go according to plan – for example, goods or services are not up to standard, or are not delivered on time – you should consider areas such as what would be the maximum amount that one side should pay the other in compensation.

(11/9/03)

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