What are business contracts?
When it comes to small business contracts, there are different types of agreements and in those agreements avoiding common mistakes is crucial for a smooth and successful operation. From clearly defining terms to seeking legal review, attention to detail can save you from future disputes and protect your business interests.
Despite how strong their legal teams are, organisations of all sizes frequently make contract management errors. Mistakes in contract management persist throughout the contract lifecycle, ranging from unclear language to little visibility. Once these errors become routine, it is challenging to undo them, especially for a growing company.
These errors can impede the growth of sales if they are not corrected. Because contracts are essential to acknowledging income, any hitches in your contract procedure could have a significant negative impact on your bottom line.
- USING UNCERTAIN LANGUAGE AND TERMS WITHIN CONTRACTS
Consistency in contract drafting is one of the most typical contract management errors seen in firms. This typically refers to the inconsistent usage of specific language, which can lead to the introduction of unauthorised language and words into commercial contracts, creating doubt and confusion. It can also manifest as commercial teams adding new contract clauses that increase risk unnecessarily and produce inconsistency among legal agreements.
- INCOMPLETE AND VAGUE TERMS
Contracts should clearly outline the rights, obligations, and expectations of both parties. Incomplete and vague terms in a business contract refer to clauses or provisions that lack specificity or fail to adequately address key aspects of the agreement. These terms can create confusion, ambiguity, and potential disagreements between the parties involved. Examples include using ambiguous language, omitting essential details, or leaving out important obligations and responsibilities. It is important to ensure that all terms in a contract are clear, specific, and comprehensive to avoid misunderstandings and promote a clear understanding of each party’s rights and obligations.
- LACK OF LEGAL REVIEWS
It’s important to have contracts reviewed by a qualified attorney to ensure compliance with applicable laws and regulations. Failing to seek legal advice could result in unenforceable clauses or potential legal issues down the line.
- FAILING TO UPDATE THE CONTRACTS
As business conditions change, it’s important to review and update contracts accordingly. Ignoring contract updates can result in outdated terms that no longer reflect the current needs or realities of the business.
- NEGLECTING PAYMENT TERMS AND CONDITIONS
Clearly Indicate in writing the amounts, dates, and modes of payment that have been agreed upon. It can be beneficial to include late payment fines or interest rates for past due payments to encourage prompt payments and safeguard your company’s financial interests.
- DEPENDING ON VERBAL AGREEMENTS
Depending on verbal agreements in business contracts can be risky, as it leaves room for misinterpretation and disputes. It is essential to put important terms and conditions in writing to provide clarity, ensure enforceability, and establish a documented record of the agreed-upon terms for future reference.
- POOR FORMATTING AND NOT DOING PROOFREADING
Poor formatting and neglecting proofreading in small business contracts can undermine professionalism and lead to misunderstandings or even legal issues. Take the time to format the contract properly, use clear headings, and ensure consistent font styles and sizes. Additionally, thoroughly proofread the contract to catch any errors, ambiguities, or inconsistencies before finalizing it, as these can impact the clarity and enforceability of the agreement.
- NEGLECTING SIGNIFICANT OBLIGATIONS AND MISSING DEADLINES
Neglecting significant obligations and missing deadlines in small business contracts can result in breached agreements, strained relationships, and potential financial or legal consequences. It is crucial to carefully identify and clearly define all key obligations and deadlines in the contract, ensuring that both parties are aware of their responsibilities and have a clear timeline for fulfilling them. Regularly reviewing and tracking deadlines can help avoid oversights and ensure timely completion of contractual obligations. Without a strong contract monitoring system in place across your entire organisation, crucial commitments are missed, teams fail to meet essential contract deadlines, and contract compliance becomes a true nightmare.
- THE LACK OF CLARITY IN THE DEFINITION CLAUSE
The lack of clarity in the definition clause of a business contract can create confusion and ambiguity regarding the meanings of key terms used throughout the agreement. It is important to ensure that the definition clause clearly and precisely defines all relevant terms, avoiding vague or overly broad language. By providing explicit definitions, both parties can have a shared understanding of the terminology used, minimizing the risk of misunderstandings and disputes.
- FAILURE TO SPECIFY DELIVERABLES AND TIMELINES
A business contract’s lack of clear deliverables and deadlines can result in misunderstandings, delays, and even non-performance. The precise goods, services, or deliverables that must be provided by each party must be spelt out in detail. Furthermore, adding clearly stated completion or delivery timeframes makes sure that both parties are aware of the anticipated timescale and may make plans appropriately. You can create clear expectations, lessen uncertainty, and encourage accountability for timely and adequate performance by laying out deliverables and deadlines in the contract.
- IGNORING TERMINATION AND DISPUTE RESOLUTION CLAUSES
Ignoring termination and dispute resolution clauses in a business contract can leave both parties vulnerable to difficulties and legal complications if conflicts arise or if the contract needs to be terminated. It is essential to include provisions that clearly outline the process for terminating the contract and provide mechanisms for resolving disputes. By taking care of these aspects upfront, you can create a framework for cooperative resolution and reduce the likelihood of strained relationship in the future.
- FAILURE TO INCLUDE NON-DISCLOSURE OR CONFIDENTIALITY CLAUSE
If the contract involves sensitive information or trade secrets, it’s crucial to include provisions that protect confidential information from being shared or used without consent.
Failure to include non-disclosure or confidentiality clauses in a business contract can expose sensitive information and trade secrets to unauthorized disclosure or misuse. It is crucial to identify the confidential information that needs protection and include provisions that outline how it should be handled, shared, and safeguarded. By incorporating non-disclosure or confidentiality clauses, you can establish legal safeguards to prevent the unauthorized disclosure or use of confidential information, protecting your business’s intellectual property and maintaining trust with business partners or clients.
- USING ONE-SIDED OR UNFAIR TERMS
Using one sided or unfair terms and conditions can create an imbalance of rights and obligations between parties, potentially leading to disputes or strained relationships. It is important to strive for fair and balanced contract terms that consider the interests of both parties. Avoid overly restrictive or unreasonable clauses that unfairly favor one party over the other.
- NOT KEEPING COPIES OF CONTRACTS
Not maintaining copies of contracts might make it difficult to refer to crucial clauses, enforce rights, or settle disputes. All signed contracts must be kept in secure copies that are arranged and readily available. By doing this, you may protect your company’s interests and preserve accurate records of the agreements so that you have a trustworthy record of them and can easily access them in the future for legal or reference purposes.
Also See : Article on commercial lease agreement.