Signing a contract often coincides with an exciting time for your business. It might mean you have won some new business or found a new provider to help you grow your company. In any case, there is often a temptation to sign the contract as quickly as possible. However, if you do not undergo the correct processes, you could face legal issues down the line. This article will explain five key things to do before signing a contract.
1. Check Your Contact Details
While it seems obvious, ensuring that your written contract contains the correct details is a step many often miss. Having the correct name and address is crucial, especially if you need to issue a notice for breach of contract or a notice of termination in the future.
Similarly, making sure you have the correct business names will assist in ensuring that the contract is properly signed and executed. If the right party has not signed the contract, you may not be able to use it later. You should also confirm that the execution blocks are appropriate for each party.
2. Review Parties’ Obligations
Before signing a contract, it is essential to check both your and the other party’s obligations. The contract should clearly and carefully reflect each party’s obligations. You also want to ensure the contract does not include extra commitments you did not agree to when negotiating it.
For example, suppose you operate a cleaning business and enter into a client agreement with a retail store. In negotiations, you might agree to a fixed fee in exchange for your monthly services. However, the contract might mistakenly record your obligations as being fortnightly. To avoid contractual disputes, carefully review all your contracts before signing them and that your obligations match your understanding of the agreement.
Similarly, if your business receives services, check that your contract reflects all the services the other party has promised.
Continue reading this article below the form3. Check the Price
It is critical to be clear on the price you will be paying (or receiving) under the contract. Also, double-check the conditions for you paying (or receiving) this price. This is particularly important if your contract involves either party providing ongoing obligations over time.
Some key things to confirm are:
- what the payment terms are (e.g. 30, 60 or 90 days);
- if you have to pay the price annually, monthly or once-off; and
- if the price can increase and what processes must be followed (e.g. annually or from time to time upon notice).
Additionally, the contract should address what will happen if a party misses payment or their payment method does not comply with the contract. For example, can your business begin to charge interest on late invoices? You must first negotiate all these details and then record them in your final contract.
Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.
This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.
4. Know How to End the Contract
A crucial aspect of every contract is knowing how and when you can end it, if necessary. It is particularly important to check whether the contract will automatically renew and how to terminate the agreement if you do not wish to renew.
When reviewing your contract, confirm the circumstances under which you or the other party can terminate it. For instance, will the contract automatically end after a breach? Likewise, what rights does the non-breaching party have? Typically, commercial contracts give the breaching party an opportunity to fix any breach before the contract terminates. Here, it may be important to specify what breaches would justify termination of the contract.
5. Talk to a Lawyer
While looking over a contract yourself will help you to identify any potential issues, sometimes you will need the expertise of a lawyer. You should engage a lawyer to review your contract before signing or agreeing to the contract, including before you perform any work. A lawyer can identify any key commercial and legal risks and explain any clauses you may not understand. This is particularly important if you are negotiating with a big business that has its own team of in-house lawyers. A lawyer can also confirm you have a legally binding agreement and that the document is free from unfair terms.
Importantly, while using standard form contracts you find online might be tempting, they may not be sufficiently detailed. Working with a lawyer is best practice as they can draft a legal document that is tailored to your business and the specific agreement. They can also turn any verbal agreement you might have with the other side into a written document. Written agreements remove ambiguity and can potentially reduce disputes.
Further, it can be challenging to recognise the risk associated with some clauses. This is especially true if the other party uses legalistic and confusing language to draft the contract. Seeking legal advice ensures you are on a level playing field with the other side. This will allow you to understand your risks and how to better protect your rights and interests before entering into the contract.
Key Takeaways
Whether big or small, your business will constantly deal with agreements with customers, suppliers, employees and other business partners. Before jumping straight into work, you should always carefully review your contract to know precisely what you are signing and agreeing to do. Amongst other key terms, you must understand and confirm the contract’s:
- details;
- obligations;
- price; and
- termination.
Your business can manage risks by engaging a lawyer to review, explain and negotiate your contracts. For more information, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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