Tips to Help You Learn More About Business Contracts
Entering into any business agreement is extremely serious and must be done with great consideration.
A contract is not the same as a friendly alliance or an informal agreement, as it may be binding in a court of law.
People who do not hold up their end of the bargain in business contracts may be subject to financial penalties or other charges. There are many things you should know how to do before you sign any contract.
Not only must you ensure that every aspect of the contract is fully understood, but you must clarify any possible legal grey areas before signing the agreement.
Below are nine tips to help you learn more about business contracts and make the right decision before signing one.
1. Get It In Writing
Every aspect of an agreement between two parties in a commercial setting must be in writing. Even if you have known the other party for many years and trust them fully, you are making a huge mistake if you do not get everything down in writing.
A contract does not have to be a ten-page document that a lawyer creates. You can write up a contract yourselves, but you must add all the relevant details of the agreement. Writing out the arrangement protects both parties, not only you.
2. Payment Terms Are Important
Without a clear explanation within the contract of how much, when, and how you will be paid, you cannot be sure that you will be properly compensated for the work that you are doing for the other party. Ensure the contract clearly states the payment terms without any ambiguity.
3. Assess the Details
Look over every single detail within a contract to ensure that you understand all the relevant clauses. People often skip the fine print when they are visiting websites with terms and conditions. That may be acceptable, but you cannot have a similar attitude towards business contracts.
If there are any aspects of the contract you find confusing, you should talk to a lawyer before finalizing the agreement.
4. Identify Parties Properly
One of the ways that companies can get out of their obligations is through clever naming within contracts. Say you enter into a contract, but the other party is identified as Mike who owns a pizza shop. You may think that you are in a legally binding agreement with that pizza shop, but the contract only mentions Mike, not the shop itself.
You must have a clear idea about the identity of the other party, and their name must be on the deal. Only if that is the case do you have a legally binding agreement with the other party.
5. Consider Dispute Resolution
Contracts are entered into with the best of intentions, and no one thinks they will be the party to create a problem. You can never be sure, however, of how events will unfold in the coming months and years. Rather than hoping for the best, you should be preparing for the worst-case scenario.
Ensure there is a clause in the contract that stipulates how either party can go about resolving a dispute. Perhaps you can include a mandatory clause that any disputes will go through mediation. You can even choose the person who will mediate the disagreement if both parties can agree on that before signing the deal.
6. Negotiate With the Power Brokers
One of the biggest mistakes you can make when negotiating a contract is to have all your discussions with a person who has little power within the other entity. Say you are negotiating with a company, but you are talking to someone in their chain of command who is not a decision-maker. They may tell you that your concessions are agreeable, but that may not be the opinion of the power brokers within the company.
7. Consider Your Obligations
When you are entering into a contract, you have to consider your medium and long-term obligations. If you are a freelancer, you may have other clients, and you have to decide if you can also satisfy the demands of this client.
Even if you are entering into a business arrangement that is full-time, you have to assess the contract and decide if you will be able to hold up your end of the bargain. If you have any doubts, you may want to reconsider signing.
8. Keep It Simple
There is a tendency among people who are writing up business contracts to make everything very complicated. You do not need to include legal jargon that no one understands. The best contracts are the ones that write everything out in plain English, as the terms are understood by everyone, and there is no room for any misinterpretation or confusion.
Simplicity ensures that you clearly understand how business contracts can be upheld in court, and under what circumstances it can be terminated by either party.
9. Confidentiality Matters
Business contracts must include a confidentiality clause unless you are worried about the other party divulging your personal information. If you are the one requesting services from others, you must also consider that they may share the work they do for you with another party. Including a clause prohibiting them from having any rights to that work, once you have paid them, is extremely important.