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Accept Cookies Manage Preferences Announcing the Formation of SpotDraft’s Advisory Board Find out more Contracts 101Writing business contract agreements can get complicated sometimes, but with our tips and free template, the entire process will become a cakewalk for you.
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Business contract agreements come in different forms and varying degrees of complexity, requiring a delicate balance between legal precision and clear communication. But in the face of constantly evolving regulations, time constraints, and shifting business dynamics, the burden of consistently writing effective business contracts can sometimes be overwhelming for legal professionals.
This becomes even more apparent when you consider the ramifications of writing contracts without properly capturing the interests and obligations of all parties while maintaining compliance with existing regulations. You risk landing your organization in contractual disputes, breaches, non-compliance, and financial losses.
In this guide, we delve into the concept of business contract agreements, exploring pro tips and strategies for consistently writing safe and effective contracts for your organization. We’ll also provide a free template you can utilize to expedite the drafting process and get more productive.
Business contract agreements are legally binding documents containing details of the rights and obligations of two or more parties building a business relationship.
These contracts typically contain details like the nature of the business engagement, the expected deliverables, the timelines for each deliverable, penalties for violations, dispute resolution mechanisms, and more.
Contracts are designed to provide legal protection and clarity, minimizing the risks of misunderstandings and potential disputes that may arise in the course of a business relationship.
Furthermore, the terms outlined in business contract agreements are enforceable in courts as long as they’re written in accordance with relevant industry and jurisdictional regulations.
At the granular level, the different types of business contract agreements are just too many. However, they can be broadly categorized into three groups:
A sales contract outlines the terms and conditions for the sale of goods or services. They describe the nature of the goods or services in question, the payment terms, and the method of delivery, among other things. Common types of sales contracts include purchase agreements, bills of sale, installment sales contracts, etc.
Also read: 7 Types of Sales Contracts and Best Practices for Executing Them
A vendor agreement, also called a supplier agreement or procurement contract, is a form of business contract agreement between a business and its vendors.
In this case, a vendor could be supplying raw materials, finished goods, or various services essential for the operations of the business. Examples include distribution agreements, OEM (Original Equipment Manufacturer) agreements, maintenance and support contracts, and outsourcing agreements, among others.
Also read: Decoding Vendor Agreements: Everything You Need to Know [+Free Template]
Employment contracts exist between employees and the organizations they work for. These contracts regulate different aspects of the relationship between the employees and their employers, from work hours and responsibilities to compensation and benefits. Examples include non-compete agreements, part-time employment agreements, non-disclosure agreements, etc.
Also read: Mastering HR Contract Management: The Key Lies in CLM Software
The specific details included in a business contract agreement can vary depending on the involved stakeholders, the nature of the business relationship, and the overarching industry and jurisdictional regulations.
But at its core, a business contract agreement must contain certain elements to remain compliant, enforceable, and mutually beneficial. Some of these critical elements are:
A business contract agreement can shape the entire dynamic of your transactional relationship with a business partner. Thus, writing it with great care is crucial, as any missteps could birth loopholes that might prove detrimental to your organization.
To ensure that your business contract agreements consistently fulfill their objectives, ensure you put the following steps into consideration:
Accurately identifying the relevant stakeholders is crucial because it ensures that the contract is legally enforceable and helps prevent potential confusion or disputes regarding who is obligated to execute the terms of the agreement.
Ensure you cover the following:
You must include a section that clearly defines why both parties are entering the business contract agreement. This description should be specific, concise, and easy to understand. This is important because it sets the foundation for the entire agreement and helps all parties understand their roles and responsibilities.
Describe the nature of the goods or services, duration, milestones, and any applicable exclusions.
Including crucial terms and conditions in your contract helps ensure that all parties understand their responsibilities, rights, and obligations. The terms should be written in unambiguous language, and any technical terms should be defined to prevent misunderstandings.
Here are some essential aspects to consider including:
Here, you'll need to clearly state the specific roles, tasks, and obligations each party must fulfill. Include timelines, modes of communication, collaboration plans, quality control measures, and any plans for outsourcing or subcontracting.
You should also outline KPIs for quantifying performances as well as timelines for the delivery of reports and other relevant documentation.
After drafting your business contract agreement, ensure you run it through a thorough review and editing process. The goal is to make sure that the contract accurately reflects the intentions of both parties and that it is clear, concise, and free from errors.
Look out for spelling accuracy, language clarity, consistency of terms, legal accuracy, and readability, among others.
Also read: The Perfect Contract Review Checklist for Commercial Contracts
You should make ample space for signatures and dates at the very end of the contract, following all the terms and conditions. This makes it easy for both parties to locate and sign.
Ensure that enough white spaces surround the signature and date lines so they don't look crowded when parties insert the signatures and titles.
Also, to avoid confusion, label each signature line with the name of the party signing. For example, "Party A's Signature" and "Party B's Signature."
Different jurisdictions might have specific requirements for contract signatures and dates. Ensure you’re aware of these standards and conventions and adhere to them.
Business contract agreements can be quite complex sometimes, requiring in-depth knowledge and awareness of your industry’s ever-evolving legal landscape and best practices.
In this guide, we explored the various components of a business contract agreement along with steps you should follow to effectively draft one for your organization.
That said, do you know that you can generate robust contracts for all your business agreements in minutes, regardless of their size and complexity? This is possible, thanks to SpotDraft—the industry’s leading Contract Lifecycle Management (CLM) platform.
“I have seen a demo of SpotDraft’s CLM technology and they should be on your short list of vendors to talk to about a contract management system. In particular, I like their new templates feature and how they can help you create contract playbooks.”
SpotDraft offers everything you need to streamline every aspect of your contracting process, from drafting and negotiation to execution and tracking. It comes with a robust template system that allows you to quickly generate comprehensive contracts with crucial legal guardrails in minutes.
In addition to its robust template builder, SpotDraft offers a collaborative environment to help contracting parties draft contacts, handle negotiations, track modifications, and safely execute contracts in one place.
It is impossible to describe all the various ways SpotDraft can help you revolutionize your contracting processes in one section. But if you'd like a close-up view of what you stand to gain, click here to request a personalized demo from our team.
“The absence of contract templates leads to non-standardization and makes contracts prone to errors. The legal team, therefore, is required to delve deep into contracts and proofread all clauses with a fine-tooth comb to identify and rectify the simplest of human errors.”
Because business contract agreements come in a vast variety of formats, it is impossible to create a one-size-fits-all template that safely caters to every single business contract you'll ever need to make.
Instead, the template we have created for you contains the crucial elements commonly found across all business contract agreements.
All you need to do is add specific details relevant to your business and tailor it to your unique needs. This significantly cuts down your workload and helps you draft a fully-fledged contract faster.
