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A business contract is one of the most critical legal documents to protect any business, regardless of size or industry. There are several benefits to having a business contract, and this can protect your business in different ways. This article will explore some of the key reasons why you need a business contract.
Why Is a Business Contract Important?
A business contract is a commercial agreement that records the terms under which parties will do business.
As a trading organisation, a robust contract to govern the sale of your products or services should be a top priority. A business contract is designed to protect an organisation when things go wrong. Therefore, it must be carefully drafted to cover your specific products or services and the potential issues you could face when trading.
Trading without a binding agreement in place means you are exposing your business to high risk and many possible problems. For example, customers could complain if there are mismatched expectations around the products or services they have requested from you. A clear written contract could help avoid these issues.
How Can a Business Contract Protect Me?
There are a variety of ways in which a business contract can protect you. Here are a few of the key ways that a legally binding business agreement can help protect you and your business:
1) A Business Contract Can Prevent Problems and Potential Disputes
Disputes often occur in business and can be the result of various problems. For example, a customer may raise a dispute because the supplier has not delivered products or services on time.
A robust business written contract can include specific legal clauses to help you minimise the chance of disputes arising and escalating in commercial relationships.
By way of example, a binding commercial agreement can prevent disputes by:
- Giving you, as a supplier, specific grace periods for you to fix breaches of contract. For example, if you can’t deliver a product on time, you can include a clause giving you an extended time period to notify the customer and rearrange delivery before the customer can take action against you.
- Including a process to resolve customer complaints informally. For example, a commercial agreement can stipulate that the parties should first discuss disputes informally before taking formal action. The parties will need to follow the procedure set out in the contract. Therefore, disputes may be far less likely to escalate and result in court claims.
- Limiting liability for breaches of contract. As a supplier, you can state that you will not be liable to the customer if certain things go wrong. For example, your commercial agreement could exclude liability for specific types of losses (such as loss of profit suffered by the customer if you breach the contract). This can give you great comfort when trading and help you control and limit how much you may have to pay out to a customer in damages in case of a breach of contract claim.
2) A Business Contract Can Help You Comply With Your Legal Obligations
Certain business contracts need to have specific, mandatory terms in them to comply with legal requirements.
By way of example:
- Consumer and e-commerce laws require businesses to provide various information to customers in writing before a contract is entered into. Often, this information is set out in a contract (such as online terms and conditions, which customers must read before proceeding with their purchase).
- UK data protection laws require mandatory ‘data processing terms’ in contracts where a data controller uses a data processor. So, if your business contract involves processing personal data on behalf of a customer, then you are likely to need several mandatory data protection law clauses in your agreement. If you fail to have these terms in your contract, this will mean you and the counterparty are each breaching data protection laws.
It is vital that businesses comply with all legal obligations applicable to them. A commercial agreement can help evidence compliance with such laws. Failing to meet the necessary legal requirements in business contracts can lead to various problems and risks.
3) A Business Contract Can Protect Your Business From Risk
There are several ways in which a binding commercial agreement can protect your business from risk.
For example:
- A business contract creates certainty on what the parties have agreed, meaning there is evidence and clarity on the contractual obligations.
- A business contract can help enforce your rights – for example, if your customer fails to pay on time as per the agreed contract terms, you could take them to court for non-payment.
- A business contract can protect you from risks and legal issues you may not have thought about or expected. For example, you can include clauses limiting your liability if there are unexpected events outside of your control that delay the delivery of your products or services.
Overall, having a robust contract in place will give you, as a business owner, comfort that you have contractual protection in place to help you in various problematic scenarios.
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Key Takeaways
A business contract is a vital document to protect your business. It can help you in various ways. For example, it can protect your business from risk and help prevent disputes. All businesses should have a robust contract that is tailored to their business and the risks they may face when trading.
If you need help with a business contract, contact our experienced contract lawyers 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.
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