Launching a SaaS business? Download this free cheatsheet to understand key contract essentials, including IP, data, and liability management.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n
A written contract can also help you comply with your legal obligations. For instance, it can include data processing clauses, which are mandatory under data protection laws in certain circumstances. <\/p>\n\n\n\n
Various things could go wrong during a trading relationship with customers. For instance, you could breach your obligations, and the customer could suffer losses as a result. This could escalate into them bringing a costly legal claim against you. Having a robust contract can help prevent and protect against such risks. <\/p>\n\n\n\n
What are the Risks of a Verbal Contract?<\/h2>\n\n\n\n
A contract does not always need to be documented in writing. Specific laws, such as consumer and data protection, require particular terms in writing. However, a business can generally enter into a verbal agreement unless specific regulations or rules require a written contract. For example, organisations can discuss and agree on the terms of an agreement by \u2018shaking hands\u2019. <\/p>\n\n\n\n
Despite a verbal customer agreement being possible, it is always best to have robust written contracts in place. <\/p>\n\n\n\n
Here are some of the risks you could face when entering verbal contracts:<\/p>\n\n\n\n
1. It is Difficult to Pursue Remedies Relying on a Verbal Contract<\/h3>\n\n\n\n
Written contractual terms will help clearly prove your agreement with your customers. For example, if a customer defaults on their obligations, written terms will offer you the best protection for late or non-payment. Likewise, a written contract will demonstrate their non-compliance if a customer is due to pay your invoices by a particular date. You can use this as leverage to remind your customers as to what they have signed up for contractually. <\/p>\n\n\n\n
Without a written agreement, the customer could dispute their late payment. For instance, they could deny you agreed to a particular payment date if there is no evidence of this in writing. If a non-payment dispute escalates into litigation in court, written terms will also help serve as vital evidence to help present your position. Your court claim against a defaulting customer could be unsuccessful without clear evidence showing what was agreed. <\/p>\n\n\n\n
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You can also use a written contract to enforce various other rights against your customers, for instance, by terminating the agreement if they have committed a \u2018material\u2019 breach under the contract. Without a written contract, your grounds for terminating the agreement may be more challenging to establish.<\/p>\n<\/div>\n\n\n\n
2. A Verbal Contract Could Expose You To Unlimited Liability<\/h3>\n\n\n\n
The key benefit of a written contract is its ability to limit a party\u2019s liability for breaching the terms. <\/p>\n\n\n\n
A limitation of liability clause is a contractual term that seeks to limit the losses and financial liability a business will incur for breaching its obligations under an agreement.<\/p>\n\n\n\n
Limiting liability<\/a> is vital for a supplier delivering products or services to customers. Otherwise, the supplier could face unlimited liability, which could mean paying damages far exceeding the contract value it charges its customers. <\/p>\n\n\n\n With a verbal contract, your liability will not be limited in any way, and you could face unlimited financial exposure. This could damage or, in the worst case, bring your business to a standstill. <\/p>\n\n\n\n A limitation of liability clause is one of the most critical forms of contractual protection for any business. As such, entering into a verbal contract is extremely risky, as your liability is uncapped. <\/p>\n\n\n\n A verbal contract can give rise to various risks, such as parties disagreeing about their contractual terms and obligations. <\/p>\n\n\n\n Significantly, the parties could forget or deny what they have agreed. For instance, you may have decided on specific delivery dates with your customer. If the customer cannot recollect the exact dates you agreed, they may claim you are in breach of the agreement<\/a>. This could lead to: <\/p>\n\n\n\n This is why a written contract is a vital chance to clearly document each party\u2019s respective obligations and clarify what you have agreed to deliver. If you can point out written delivery dates in a contract to your customer, this can quickly help clarify any misunderstanding and help maintain your working relationship. <\/p>\n\n\n\n Overall, operating without written contracts comes with significant risks. Whilst a verbal contract is possible, relying on one could significantly limit your remedies, increase your potential liabilities and result in disputes. If you need help with how to prepare a written contract, you can work with a commercial lawyer to support you. <\/p>\n\n\n 3. A Verbal Contract Can Lead to Disputes<\/h3>\n\n\n\n
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\n 6 Key UK SaaS Contract Essentials<\/div>\n \n