I find it quite interesting that when I asked the question “do you read terms and conditions”, the general answer was no. When I asked the question “would you sign a business to business contract before reading it”, the answer was very different. The point here is that terms and conditions are still a legally binding contract, so why the different view?
It is very important to read any contract prior to entering into the agreement, especially as a business because the law is not there to protect you like it is as a consumer. You could find your self in lengthy contracts, unable to leave and the other party has limited all their liability so far as allowed to by law and you are just pretty stuck. Reading it is one thing but making sure you understand it is another, terms are also always always worth negotiating. I have seen small business stuck with an overly expensive coffee machine for 5 years, and of course the common one of very unfair payment terms like 90 days. Lesson here is, always always read and if you need some guidance or support, we can help.
I have done a number of reviews this week, some being worse than others but pretty bad all the same. The point of having your own terms/contract in place is to protect you, it needs to be bespoke to your business. Copying someone else’s and adapting as you see fit will not be sufficient, loads of legal jargon and unclear clauses will not do this either.
Making sure there is no room for ambiguity and having terms that are clear and easy to read will encourage others to do business with you too. Think, who would you rather do business with? The company that has a 20 page contract that makes little sense where they probably don’t even understand it themselves or a company who has a clear set of terms that are easy to understand and in plain English? .. Exactly.
So what makes a good business to business contract?
- Clarity – Be clear on what each party expects to get out of the contract. Clearly explain what it is you are going to do for the price you have quoted for, of course things can be added and amended as the relationship develops, so be clear on what happens in this instance and how it is priced up.
- Obligations – Clearly state what each parties obligations are, this protects you as there is bound to be certain things you require your customers to do in order for you to fulfill your side of the contract.
- Payment – Quite an important one, how do you want to be paid? When? What are the consequences of failure to pay? If it is a lengthy contract you may want to be able to increase prices and this needs to be done lawfully. Is it a monthly payment? Are deposits due? When will the installments be invoiced? By just stating payment is due on 14 days of invoice is not enough!
- Limiting liability – Each party will want to ensure that not only is their own liability limited, but also that any limit of liability placed on the other party is adequate. There are restrictions on liability for death or personal injury, which cannot be excluded or limited under any circumstances. However, liability for breach of contract can be excluded or limited. You should always exclude your liability for indirect and consequential loss and make sure that if you are the customer your liability is limited to this too. Both parties are going to want to exclude liability to the extent it can and to place a financial cap where it can’t. Often business contracts can be very bias here and will want indemnifying for a breach with as much financial value as they can, make sure this is limited before you sign! Placing the financial cap at the contract value is fair and clear. Consider the direct losses too, if the goods are not delivered on time? If you cannot conduct you business due to a breach, how will this be handled? This is a massive area and this is only touching the surface.
- Cancellation/Termination – How is this handled? Do you allow a cancellation period once your services have been ordered? What is the procedure should your customers want to end the current term? Do you auto-renew, want rolling contracts? There are lots of different contract types which in turn means many different ways to cancel or terminate. Your contracts need to be clear on how this is dealt with. Oh and please make sure you understand your own terms! I had a client recently who had been disputing an invoice from a company he had entered into a 24 month auto renew contract with. Emails were going between them, and the company had even instructed a debt management company to chase the invoice. I had managed to get the 24 month invoice reduced to 3 months just by reading their own terms and conditions. I can imagine a little embarrassing on a company who clearly doesn’t read or understand their own terms. Don’t let that be you!
I hope you now have a better idea of what makes a good contract. There are of course other areas to consider too, such as protecting your intellectual property, confidentiality, data protection, how complaints or discrepancies are dealt with and what happens once the term ends.
It is highly recommended that you get your contracts drafted by a professional and if you are not sure how good your current terms are then drop me an email. email@example.com