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If you own or manage a business, you likely have come across a business-to-business contract, commonly called a B2B. B2B contracts differ from business-to-consumer contracts (“B2C”). In particular, the law treats B2B contracts quite differently from B2C contracts. This article will define B2B contracts and consider the key differences between B2B and B2C contracts.
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Defining B2B Contracts
Business-to-business (B2B) contracts are agreements between two parties where each party is engaged in some sort of business. These contracts may be for the exchange of goods or services. They may also be for partnership or joint venture arrangements, loans, or other transactions.
Differences Between B2B and B2C Contracts
Absence of Consumer Protection Laws
Parties in a B2B contract do not enjoy the same protection as B2C contracts. This is because the law presumes that parties entering B2B contracts have greater commercial knowledge and can better understand the risks of contracting.
For instance, there are certain terms in B2C contracts that the law automatically considers unfair. This is not the case in B2B contracts. An example is a clause that seeks to restrict liability. In many B2C contracts, the business cannot limit its liability for certain breaches. However, B2B contracts often contain extensive limited liability clauses. As long as these terms are not unreasonable, they are often enforceable.
Negotiation Power
Consumers rarely have much negotiating power when it comes to contracts, unlike in B2B negotiations. Depending on each party’s industry and negotiating power, parties may spend significant time negotiating the specifics of the contract. This can complicate the nature of the contract. For instance, the law may incorporate terms that are not written in the contract under certain circumstances, which may not be the intention of one or more parties.
Complexity
Similarly, B2B contracts are typically more complex when compared to B2C contracts. This reflects that the extent of each party’s liability and rights is often more heavily negotiated than in consumer contracts. Accordingly, this requires more detailed drafting. In turn, B2B contracts can be lengthier and more complex to understand.
For illustration, there may be clauses that deal with the following:
- intellectual property;
- indemnification;
- liability limitations; and
- other measures that do not feature prominently in consumer contracts.
On the other hand, B2C contracts are often easier to negotiate. They follow a standardised template almost always on the business’ terms.
A lawyer can advise you on the layout and effect of a complex B2B contract.
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Key Terms of a B2B Contract
Extent of Services or Goods Provided
The contract needs to specify the exact nature of the goods or services one of the parties provides the other in exchange for payment. Such clarity removes uncertainty and strengthens each party’s obligations to the other.
For instance, in a supply of goods contract, the contract should ideally specify:
- the exact kind of goods supplied;
- the nature of any defects present;
- the volume or quantity of goods; and
- any other relevant information about the goods themselves.
Payment Terms
The contract should specify the nature of how the other party should render payment.
The contract may refer to payment as “consideration”. Payment may be in cash. More often, the contract will specify a telegraphic bank transfer or a letter of credit from a merchant bank (particularly for international contracts).
Payment terms should also describe if payments are to be made in instalments or after one party completes a specific task.
Length of Contract
Both parties should understand how long their obligations to each other last. The contract should accordingly state this. For instance, the contract may specify that the contract ends after 12 months or when one or both parties discharge a particular obligation.
Key Takeaways
B2B contracts are agreements between two businesses. They are fundamentally different from B2C contracts as they do not benefit from the same consumer protection laws. This is because businesses are expected to have greater commercial knowledge and understanding of contractual risks. Consequently, B2B contracts often include complex and heavily negotiated terms, such as:
- limited liability clauses;
- intellectual property provisions; and
- indemnification.
It is crucial for businesses to draft thorough contracts that clearly outline:
- the extent of services or goods provided;
- payment terms; and
- the duration of the contract.
Seeking legal advice is essential when drafting or negotiating these contracts to ensure all parties fully understand their obligations and rights.
If you need help understanding what terms you should insert into your agreements, 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 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What are standard business contract terms?
Standard business contract terms usually include a definition of the goods or services parties provide. They will also include a term for the duration that the contract will last. Additionally, they will include a term for what payment the parties will exchange for those services.
What is a business contract?
A business contract is an agreement typically made between one or more organisations and establishes an obligation to provide goods and services in exchange for payment.
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