Purchasing and Sales Agreements
What is important to consider when writing contracts with customers and suppliers
There are many things to consider when writing a good contract. The contract becomes important when you disagree on an issue. By making sure you both know what's involved, you can avoid conflicts that not only cost a lot of money but also risk ruining your relationship.
What does the agreement cover?
Explain as clearly as possible what is being bought or sold. Describe the quantity and quality. This is important so that you can then determine whether or not the product or service is correct.
Where, when, and how will it be delivered?
If it is a good that is being bought or sold, there are standard delivery regulations that are often referred to and published by the International Chamber of Commerce. The advantage of these is that they are well-known in the market. This makes it clear what applies. Delivery provisions are important to determine whether the delivery is late, for example.
How and when should it be paid?
A seller wants to be paid early (preferably in advance) and a buyer wants to pay as late as possible. If the goods or services are faulty or delayed, it is good for the buyer to at least not pay the full amount.
Who is responsible for defects or delays?
What does the buyer do if they think the goods or services are faulty or delayed - withholding payment, damages, penalties, etc? Should the seller's obligation to pay compensation be limited - for example to a certain part of the purchase price? This should be agreed and specified in a contract. Liquidated damages are a fixed amount to be paid, for example, every week a product is delayed. Damages are awarded by a court if, for example, the delay has had more and greater effects. As a seller, you should insure yourself against damages in the contract.
Should there be any exclusivity?
For example, a buyer may be obliged to buy the goods or services only from the seller. Sometimes the seller is prevented from selling the goods to others in an area.
If the other party proposes some form of exclusivity - think carefully about whether this really works for your business (now and in the future), and what you get in return.
What agreements do I need?
If you run a restaurant or shop where customers order and pay on the spot, you generally don't need a specific agreement with the customer, but you probably have important suppliers. Make written agreements with them.
For example, your restaurant or shop may have a customer club or offer customers the opportunity to buy in installments. In this case, you need to draw up an agreement that regulates how this works. Then it may also be relevant to review how you handle the rules of the GDPR.
If you run an online service, it is usually sufficient to have general terms and conditions that the customer accepts before using the service. General terms and conditions are generally described rules of conduct that apply equally to all customers and suppliers. They form a good basis for any contractual relationship.
Sometimes, the general terms and conditions must be supplemented by agreements adapted to the specific business (for example, if you have an online shop). Don't forget to refer to the general conditions so that it is clear to both parties that they apply.
Pay attention if both you and the other party have general conditions. Referring to two different general conditions can make it difficult to determine what actually applies, especially if the general conditions say different things in some parts.
Reviewing Sales Agreements
After the initial drafting and negotiation phases, it's essential to review your sales agreements. This ensures that they remain aligned with your business objectives and compliant with any new regulations or market conditions.
Key Elements to Review
Scope of Service or Product: Ensure that the agreement accurately reflects the goods or services currently being bought or sold. Amendments may be necessary if there have been changes.
Payment Terms: With the constant fluctuation in market conditions, reassess the payment terms to ensure they remain fair and relevant for both parties.
Liability Clauses: Review clauses related to defects, delays, or other disruptions to ensure that responsibilities and repercussions are clearly defined.
Exclusivity Agreements: Reconsider any exclusivity clauses to ensure they still align with your business strategy and offer a reciprocal benefit.
Termination Provisions: Understand the circumstances under which the contract can be terminated by either party and whether any changes are needed.
Reviewing Purchase Agreements
Review of your purchase agreements is equally vital as it is for sales agreements. This practice is foundational for maintaining an efficient, ethical, and legally compliant procurement process.
When reviewing a purchase agreement, carefully scrutinize the following topics:
Parties Involved: Ensure that the legal names of the entities involved are correct. This also includes any successors or assignees if applicable.
Jurisdiction and Governing Law: Confirm which jurisdiction's laws will govern the agreement and where legal disputes will be resolved.
Scope of Agreement: Check that the description of goods or services is precise, including quality, quantity, and specifications.
Payment Terms: Examine the conditions surrounding pricing, invoicing, and payment schedules. Look for any penalty clauses for late payments or non-payment.
Delivery Terms: Review the terms related to the delivery schedule, location, and logistics. Verify if it references any standardized trade terms (e.g., Incoterms).
Quality Assurance and Inspection: Determine what quality control measures are in place, how inspections are conducted, and who bears the cost of failed inspections.
Warranties and Guarantees: Analyze any warranties or guarantees provided by the supplier, including the process for claims and potential remedies.
Liability and Indemnification: Review clauses defining the liabilities of both parties and the extent to which each party agrees to indemnify the other for losses or damages.
Force Majeure: Examine the conditions under which contractual obligations can be excused in case of unforeseen events such as natural disasters, strikes, or governmental actions.
Termination Provisions: Identify the conditions under which the contract can be terminated by either party, and what penalties or obligations may be incurred as a result.
Confidentiality and Non-Disclosure: Review any confidentiality clauses to ensure they align with your requirements, especially if sensitive information is exchanged.
Intellectual Property: Ensure that any intellectual property generated or used during the agreement is clearly defined and appropriately protected.
Compliance with Laws and Regulations: Ensure that the contract includes clauses requiring compliance with applicable laws, including tax, safety, and environmental regulations.
Dispute Resolution: Understand the agreed-upon process for resolving disputes, whether it be through arbitration, mediation, or court proceedings.
Amendment Procedure: Identify how the agreement can be amended and who has the authority to do so.
Tools and Resources
Leverage contract review and analysis software to streamline this process. These platforms can flag key clauses, suggest best practices, and even automate the review process, freeing up your team to focus on strategic negotiations and relationship building.
By regularly reviewing your sales and purchase agreements, you not only protect your business but also take a proactive step in nurturing healthy, long-term relationships with your clients and suppliers.
Please note that this document is not legal advice. Legly, and its representatives, are not responsible for the content herein or the suitability for your company’s business. We recommend you use this in conjunction with legal advice and not as a substitute.