When businesses contract for goods or services, most of those business relationships pay off. However, it is important to note that many contracts have language that can be detrimental to businesses if there is a problem between the parties.
Consequently, it is important for businesses that before entering into a contract, they take the time to review the terms of the contract and take into account the risks those terms present.
Many problems can be avoided if the following 5 things are considered before signing a business contract.
1. Do your homework - do a simple person inquiry:
Knowledge is power and it can only help you in knowing the party you are doing business with. Talk to others who have done business with your potential partner. Ask if the partner is reasonable in doing business and if the experience of dealing with them was negative or positive during and after the contractual relationship. If something negative comes up, don't rush to judge, but take time to dive into the issue and see if it's something really serious and how that could affect you.
You can also learn a lot of general information about that person by doing a general internet search. Run their name through Nuwber or Leadar. See if they have any information they lied about or tried to hide. If you have heard that the person has legal problems with his clients or creditors, it is recommended that you verify this information about the legal cases (if any) that exist. And ask the liable person for the explanation and see what they have to say.
2. Do not think that any of the financial terms, or any other material terms, are non-negotiable:
For people who are not used to negotiations, it is common to accept initial offers from parties. They assume that these offers are non-negotiable, that they are "take it or leave it" propositions.
However, most businessmen are flexible regarding prices and other terms. If there is something that bothers you or you disagree with - don't shy away and be upfront. Finding a compromise will benefit both parties.
3. Put all significant agreements in writing:
This should be general knowledge, but very often the parties agree on important contract terms and do not put it in writing. Although those might be agreements between "friendly" parties, things must be set out in writing. At the very least, this should be done to have accurate documents of important obligations.
Furthermore, it is important that the parties have a written document because it is an unfortunate reality that things can take a negative course between parties that were initially on friendly terms.
So, it is important that any contract and document is in writing. Also, very often contracts are poorly prepared, and important terms are not clearly stated. For example, the payment clauses do not specify important details such as the date of payment, the method of payment, what kind of payment problems are considered as default, etc. If the clause of a contract is important, make sure it describes the most important details and covers all the important scenarios, that the parties can think of.
It is inadvisable to hire a lawyer who will go through all the necessary papers and make changes that are needed.
4. Consult with an attorney - at least on important contracts:
Having legal representation is recommended for any contract, although some businesses are concerned about the time and cost of legal representation. If a business considers the above recommendations, it can dramatically reduce the risk of business failure. Also, if a contract refers to minor payments and/or obligations, there may not be a big financial risk in not reviewing it legally. If you feel that when there is a breach of contract and the worst happens, you can move on without a problem, then you probably shouldn't bother.
However, if you are contemplating an important contract, and there is no room for mistakes or taking chances, it is advisable to obtain legal advice to prepare and/or review the terms of the contract.
With legal representation comes a cost, but the legal cost of assistance in preparing and/or reviewing a contract is much less than the cost of legal representation if the matter is to be litigated later.
If you are considering an important contract, an attorney can help you ensure that you are in the best possible position, before, during, and after the contractual relationship.
5. Pay attention to the termination clauses of the contract:
Before you sign the contract, it is important to know the clauses that terminate or cancel it. Make sure you understand and familiarize yourself with the following clauses regarding the termination of the contract:
- When the term of the contract ends.
- Whether the contract is renewed automatically.
- What you have to do to end the contract.
For example, to terminate the contract, you may be required to submit the termination in writing 90 days before the anniversary date of the contract. Review the terms required for termination, make sure it is not too difficult or harmful to terminate the contract the way you want it to end.
Check if there are any penalties for terminating the contract. This is especially important, as occasionally contracts have severe penalties for their cancellation. See if the termination circumstances influence the sum of money asked for as a penalty. Check if there are any penalties in case one party doesn't fulfill its contractual obligations.
Remain mindful and focused throughout every step of signing a business agreement. And before you put your signature on the contract, consider all the above-mentioned points.
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