Your business success relies on your interaction with clients/customers and other businesses. Your profit is directly proportional to the behaviour of these external role-players. Dealing with individual clients/customers does come with some risk – especially if you offer a line of credit. However, your agreements with other businesses, in which greater risk and sums are applicable, you cannot afford to take a wrong step and jeopardise your own position and growth.
For this reason, the way you approach your agreements with other businesses should be done with much forethought and consideration. These are some of the things to consider in your business-to-business agreements:
When does the agreement start and end?
It may sound obvious, but having a clear understanding of when a contract starts and ends is extremely important. The world changes and the economy goes through volatility, and as a result, your scope might change. There are too many variables in the world of business to have a contract that goes on indefinitely. Also, make sure that if there are certain conditions that may trigger the commencement of the contract, that it is clearly stipulated. Should you want to leave the door open to continue the agreement in the future, be sure to include a renewal clause in the contract along with the process to be followed.
How can the contract be terminated?
You may enter into an agreement and discover at a later stage that it no longer suits you or your business’s needs. So be sure to include terms that explain the process and/or penalties applicable when one or both parties are intent on terminating the contract.
How will disputes be resolved?
As much as we would love to live in a world where everyone does their part and there is no conflict, it is practically impossible to escape the odd bad egg. Inserting a clause that explains how disputes will be resolved can go a long way to avoiding unnecessary legal fees and time spent in court trying to set things right. Most contracts prefer to do so by insisting that the first course of action is arbitration, and not litigation.
How can you protect yourself from risk?
There may be instances where there isn’t just a dispute but rather a blatant breach of contract. If another business causes you damages because of their action (or inaction) in contradiction of your agreement, there must be a way to take appropriate action. Including a breach clause and damages clause in a contract ensures that in such an unwanted event you at least have a clear plan for legal recourse.
How confidential is the agreement?
How you conduct business should be a private matter. Protecting your trade secrets are often vital for the sustainability of your business in a competitive environment. For this reason, there must be a confidentiality clause inserted in your commercial contracts.
How will you protect yourself from the worst-case scenario?
As was made clear by the Coronavirus pandemic, there is always the possibility of an unforeseen event that can derail your ability to satisfy the terms of your agreement with another commercial entity. For this reason, no commercial contract should be drafted in which there is not a force majeure clause that stipulates the large-scale external conditions that could void the contract.
Who will I approach to draft my commercial contracts?
Drafting a commercial contract is not for the faint-hearted. In fact, there are professionals who devote their entire lives to the drafting of watertight commercial agreements that are valued in millions of Rands. It is always advisable to speak to a reputable Commercial Law Attorney who will be able to help you navigate the world of commercial contracts and ensure that your best interests are protected.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)