[vc_row][vc_column][dt_fancy_title title=”khsta.org” title_align=”left” title_size=”small”][vc_column_text]Contracts are the lifeblood of business from lease agreements and product purchases to service agreements. Contracts govern nearly all business-to-business transactions and a bad contract can cost you money and put your business at risk. A well-drafted contract, however, can be your saving grace in a dispute. Continue reading to learn about 5 specific contract terms you must know now.
“A verbal contract isn’t worth the paper it’s written on.” -Samuel Goldwyn
Naming the legal entity that is responsible for carrying out the contract is essential to enforcing the contract if something goes wrong. If the business is responsible for the contract, look to see that you signed the contract as a representative of the business instead of accidentally signing yourself up for personal liability. Of course, if you are a sole proprietor, you will be personally responsible for the company’s debts, so make sure your form an entity to give you an added layer of protection. Check to see how the other party signed the contract as well. You certainly don’t want any surprises later if you learn that the party you’re seeking to enforce the contract against is not obligated to perform.
Getting the contract terms right when you’re doing business is not only important when conducting business, but it can have lasting financial consequences if you don’t use them correctly. In the last post, we talked about naming the right parties; this week’s contract phrase is Payment Terms.
2. Payment Terms
For most business owners this is the most important term in every contract. When reviewing your payment terms pay close attention to when payment is due and any penalties associated with late payments as they may increase the amounts owed. Also take note of any conditions to receiving payment, such as special billing forms, waivers, or other documentation required to secure payment.
If you’re engaging the sale of goods, contracts are particularly important for your business. Not only do contracts hold the other party accountable, but they let you know what performance is expected of you as well. The contract term that sets the level of expectation for performance is up next.
The warranty provisions govern what level of performance you should expect from a certain service and what the protocol is if the product or service does not perform as it should or is defective. Know the length of your warranty; whether or not it is consistent with state law minimums; and the scope of the coverage the warranty provides.
Now that you know about Parties, Payment Terms, and Warranties, now is a good time to review some of your existing contracts with a new eye for the details. Stay tuned for our last two contract terms coming your way soon.
If your business uses contracts on a regular basis, understanding the terms and conditions of the contract is a must. You definitely don’t want any surprises! Over the past few weeks we’ve learned about Parties, Payment Terms, and Warranties and the important role they play in using contracts effectively.
4. Termination Clauses
Termination clauses may have very specific procedures for terminating a contract. For example, the business that is required to perform may have an opportunity to cure the problem, or may require written notice of the intent to terminate within a specific timeframe. By failing to follow the procedure detailed in the contract, you may find yourself in breach of the contract and subject to additional penalties, or worse, stuck in a contract longer than you desire.
Don’t forget to double-check your contracts for the termination clauses. Know and understand what your obligations are as well as your rights for terminating a contract.
The final term in our contract term series is here! We’ve covered Parties, Payment Terms, Warranties, and Termination Clauses and now that you know what they mean, it’s time to put that knowledge to use. We have one more term for you to round out the series and it is a good one!
This is the most loved and hated word in all of contracts, depending on which side of provision you are on. The indemnification provision is the clause that governs who you may have to defend or hold harmless in the event of a dispute or claim. Be mindful of how far your indemnification obligation extends, and to what type of claims, costs, fees, and expenses this obligation includes. Carefully note whether the indemnification obligation extends beyond your direct contractual relationship and whether or not the indemnification provision covers personal injury, products liability, property damage, or patent infringement. Additionally, confirm whether or not your indemnification obligation includes attorney’s fees and other litigation expenses.
It may be difficult to keep all of the contract terms clear at first, but if you only take away one thing, take this: all contracts are negotiable. The first step, however, is to understand the basic principles behind the provisions and to be knowledgeable regarding modifications and their effects on your business.[/vc_column_text][/vc_column][/vc_row]