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Your business contract with your customers is one of the most critical documents to protect your business. Not only will it lay out the basis on which you will do business, it will help you prevent disputes from arising. This article will explore some key reasons why a written contract is vital to avoid disputes.
Why is a Written Contract So Important?
The presence of a written agreement can have enormous implications for every business. Where you are a trading business, one of your key priorities should be to ensure you have a robust customer contract (or set of terms and conditions) to govern the sale of your products and services.
Disputes can occur for several reasons in business. For example, a customer may be unhappy because the supplier:
- has not delivered products or services on time;
- there are defects or problems with the products or services; or
- the supplier has misused information or breached data protection laws.
A business contract is one of your business’s most important legal documents. It sets out legal terms designed to help protect you when things go wrong. You should carefully draft yours to cover your specific products and services and regularly update them as your business changes.
If you don’t use a written contract, you expose your business to high risk and various problems. For example, your customer may misunderstand what you have promised to provide or complain about the delivery of your products and services.
Download this free Commercial Contracts Checklist to ensure your contracts will meet your business’ needs.
Always invest in getting an experienced lawyer to draft a contract tailored to your business and to prevent what could go wrong – this investment is small compared to the cost if things go wrong.
How Written Contracts Prevent Disputes
A written contract can prevent disputes in several ways, as we will explore below.
1. Written Contracts Create Certainty and Avoid Misunderstandings
By documenting precisely what products and services you are delivering, you can easily reference and remember the terms of your legally binding agreement. Where contracts are agreed orally but not documented in writing, the parties could forget what they originally agreed to. Over time, this could lead to misunderstandings and disputes.
Agreeing on things verbally could result in convoluted arguments with your customer. For example, imagine you promised to deliver 100 units of products to a customer on the phone and did so. However, a few weeks later, the customer forgets your conversation and calls you up, saying they thought you would deliver 150 units. If you had a clear written contract, you could send it to the customer and direct them to the clause stating how many units you agreed to deliver.
By having a written contract, you can clearly and precisely scope out your services and the level of service you will be providing. Mismatched customer expectations can be extremely difficult in practice – so you should use your contract to expressly lay out what you promise to do.
For example, imagine you are agreeing to write website pages for your customer’s new website. How many pages will you draft? How many redrafts will you work on once the customer has approved the first draft? What happens if the customer tells you what they want initially but then changes their mind later? Can you charge for the extra work, and how long will it take?
2. Written Contracts Can Help Resolve Problems Before They Escalate
Often, a well-drafted written contract will include specific clauses to help you minimise the chance of disputes escalating and going to court.
For example, a written contract can help prevent disputes by:
- allowing specific periods for you to fix breaches of contract. For example, if you can’t deliver a particular obligation on time, you can include a clause giving you a grace period to remedy your breach of that obligation;
- you can include a process to resolve customer complaints and an informal dispute resolution procedure, avoiding litigation. For example, many well-drafted contracts specify that the parties should first discuss disputes informally (e.g., through discussion and negotiation). The parties may need to follow the procedure set out in the contract before they can take more formal legal action. Therefore, disputes will be less likely to escalate and more likely to be resolved informally; and
- you can limit your liability under a written contract. For example, you can stipulate that you won’t be liable to the customer if particular things go wrong. If your contract excludes liability for specific losses, you can point to them when a customer raises a problem. If the customer has agreed that you will not be liable for specific issues and signed a written contract agreeing to this, mentioning it to them may deter them from further action against your business.
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Key Takeaways
A written contract is a vital document to protect your business. Written terms can help prevent disputes in various ways. For example, it can include a method for resolving customer complaints and include important clauses to limit your liability for breaching the contract. All businesses should have a robust, professionally drafted written contract.
If you need help with a written contract, LegalVision’s 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.
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