Top 5 tips for founders to craft watertight business contracts
Crafting a business contract either when starting work with a new client, re-establishing an existing relationship, or even proposing one with a third party, is a crucial process to ensure that all parties understand the parameters of the goods or services that will be provided. In addition, a contract can act as a safeguard in the event of a dispute - clearly detailing the expectations set at the beginning of a work agreement, and protecting your business from legal proceedings.
For new business owners, creating accurate and watertight contracts can be extremely daunting, as well as cost consuming if legal fees are taken into consideration. As a business owner myself, I’ve learnt the hard way of the importance of these complicated yet essential documents, which also means I’ve gained some invaluable insight into how to get them right.
Our Relationship Managers have been working firsthand with business owners in the UK and with this knowledge, I have put together five tips on how to be set up for success when creating a contract.
Ensure you know your soon-to-be partners
At the outset of working with a new client and crafting a new contract, it is important to first identify who you are negotiating with; for example, is the right signature holder you will need in the negotiations process? Depending on the size of the company you are working with, you may need multiple if not all company directors as signatories on the agreement.
It is also important to ensure that your client’s company registration number is accurate so that the company you are conducting work for, and sending invoices to is the correct business. This will be especially important when in the future you are looking to take out your own credit insurance policies.
The devil is in the detail
A contract must also have a clear and reasonable timeline that all parties agree and adhere to. This should include the length of the contract, goods or services delivered, due dates, payment terms, as well as any caveats in the event of cancelled orders, late delivery or late payments. Timelines help to create clear boundaries and expectations of work and will protect you should a disruption cause a lag in the timeline. As contract disputes often arise over unclear terms or provisions, making sure the provisions don’t leave any room for ambiguity is also very important.
Leave a paper trail
In such turbulent times as these, keeping track of a paper trail of evidence should always be accounted for. In the event that your client goes bust and you are forced to recover the debt, this ensures you have sufficient evidence of the work that has been completed, so any outstanding invoices can be paid.
A paper trail can be as simple as an email chain, a timesheet with your agreed and signed off time, or even a delivery note if you supplied physical goods. If you are ever looking to use an invoice finance facility in the future, having this process in place will also allow you to factor your invoices.
Agree on how to disagree
Disputes relating to work that has already been completed, late payments or missed items can be both frustrating and time consuming for all parties involved.
From my own experience, setting up a dispute process in advance to handle these situations when they occur can save significant amounts of time and headaches. Having a team member to identify and act upon disputes before they occur should also be top of mind, so that work can be completed quickly and smoothly, without any disruption.
When enough is enough
Seeing around corners is half the challenge in business, therefore writing in termination clauses, should the contract no longer suit your needs, is a must. This will provide both parties with comfort and assurance when going into business together.
When reviewing these clauses, it is important to also discuss them with your client to make sure they are both fair, yet enforceable should any concerns arise later down the line. These will act as your terms and conditions of the work, and outline any associated penalties if the clause is broken.
Lessons to be learnt
Contracts are known to get complicated and confusing fast, but given the importance of security that these agreements can provide, it is important to seek the right professional and legal advice before signing any contract. This will ensure your best interests and those of the businesses you are working with are protected. In any case, ensuring you are dotting your i’s and crossing your t’s, while being entirely transparent with your clients, will only help to set your business partnership up for success and ensure that expectations are met.
