How To Manage Sales Contracts | Blog

Content

What is a sales contract?
What should you include in a sales contract?
What are the benefits of having a sales contract?
What is the best way to handle sales agreements?
Conclusion

Contracts are crucial in converting potential leads into paying clients. The customer must sign on the dotted line to benefit the company's expansion and financial results. However, despite their significance, sales agreements frequently fall by the wayside in a company's sales cycle in terms of content and procedure. These issues can add up and lead to unsigned documents, drawn-out processes, and less-than-satisfactory customers.

Streamlining the sales contract process allows businesses to close deals more quickly and smoothly. It entails evaluating and improving your current procedures to manage, sign, negotiate, and draft sales agreements. It seems like a huge undertaking! But fear not—you will find the task easier with our comprehensive blog on managing sales contracts.

What is a sales contract?

A sales contract outlines the mutually agreed terms and conditions of the transaction between a buyer and a seller. These formal agreements provide information about the products, services, or cash exchanged, payment schedules, delivery guidelines, and other topics.

Sales contracts reduce the likelihood of future miscommunication or disputes by dictating each party's rights, obligations, and responsibilities. As a result, there is agreement between the parties and formal documentation of the terms for legal support for both buyers and sellers. Here’s a summary of what sales contracts do for the parties:

Outline the obligations and rights.
Describe goods or services.
Define the economic consequences of the arrangement.
Protect the interests of all parties.
Provide legal protection to both buyers and sellers.

What should you include in a sales contract?

A well-written sales contract is critical to ensuring that the commercial relationship runs smoothly. It helps businesses protect themselves from financial, reputational, and legal issues. As a result, when drafting, organizations must take special care to include all necessary elements. Sales contracts differ based on industry and purpose, but here’s the bare minimum you should add for a satisfactory transaction.

Parties

Sales contracts must list all the parties involved, including the sellers and buyers. It contains each party's full legal name, position, contact information, and physical address.

Description of goods and services

The contract should also clearly describe the goods or services part of the exchange. If the buyer is paying for goods, the agreement should include the following information: model number, type, size, weight, color, and quantity. Whereas, in the case of the exchange of services, the document should dictate the scope of work, deliverables, and duration.

Payment plans

In most sales, the buyer pays something of value in exchange for goods or services. It is the most negotiated part of the sales contract. As a result, it is best to get the agreed-upon price, acceptable payment methods, late fees, and payment timeline in writing. In the event of late payments, parties include promissory notes outlining repayment terms as part of the sales agreement.

Legal and sales collaboration

The sales contract dictates the delivery of the goods or services, including cost, time, place, and method. It serves as an official record in case of a failed delivery and aids in legal proceedings. Businesses also include provisions for protection against events beyond the parties’s control, such as natural disasters, war, or political instability that may affect timely delivery.

Legal Ramifications

When sales contracts lay down rights, duties, and responsibilities, they should also mention the consequences of failing to follow through. Organizations can make provisions for breach of contract like termination, damages, or litigation. It mainly depends on the state law governing the interpretation and enforcement of the sales contract.

Warranties

The quality of the goods or services is a determining factor in the sales contract. That is why most sellers usually provide legally enforceable warranties for the quality and reliability of the goods or services. These assurances can go a long way in increasing the allure of the sales contract.

Inspection period

Sales contracts usually include provisions for an inspection period, during which the buyers can examine whether the product meets their needs and standards. It boosts the buyer's confidence in the product and the seller. The contract also specifies the duration of the inspection period, usually dependent on the product type.

Conditions for termination

Like any legal agreement, the sales contract comes with an exit latch. The termination clause specifies who can end the contract and under what circumstances. They outline the cause for contract termination, the notice period, and any associated costs.

These clauses aren’t the be-all and end-all of sales contracts. Sales and legal teams are free to add and remove terms as they see fit based on the unique needs of their company. They can set terms for renewal, security, confidentiality, and copyrights, among other things.

What are the benefits of having a sales contract?

Organizations need a well-thought-out and documented sales agreement for any size transaction to guarantee smooth transitions in the future. The sales process includes a lot of variables, like the expectations, responsibilities, and rights of both parties. A mutual understanding of these crucial matters is necessary to guarantee a dispute-free and productive partnership. You can obtain that and much more with a sales contract.

Clarity and Understanding

A sales contract defines the terms and conditions of the sale, including the parties involved, the description of the product or service, quantity, price, payment terms, and deliverables. This clarity helps prevent misunderstandings and disputes. The contract specifies the delivery terms and performance obligations of buyers and sellers. It prevents disputes related to late deliveries, quality issues, or failure to meet contractual obligations.

Legal Protection

A well-written sales contract can provide legal protection for both the buyer and the seller. They outline each party’s rights, responsibilities, and obligations, making it easier to resolve misunderstandings or disagreements. A sales agreement creates a legally binding agreement, making it easier for parties to enforce the terms of the deal in case of a breach. It provides a legal basis for pursuing damages or specific performance.

Dispute Resolution

A sales contract may include provisions for resolving disputes, such as through negotiation, mediation, or arbitration. It helps parties avoid costly and time-consuming litigation and encourages amicable resolution. The sales contract also serves as a written record of the agreement, providing a reference point for both parties. They’re helpful for documentation, record-keeping, and for reference in case of future disputes.

Payment Terms

The sales contract outlines the agreed-upon payment terms, including the amount, due date, and any applicable penalties for late payment. It helps ensure that both parties are on the same page regarding the financial aspects of the transaction. Thus, the parties can seamlessly carry out payments and forge productive business relationships.

Risk mitigations

Risks are an inherent part of business relationships. Buyers and sellers can recognize and reduce these risks before they become more severe by drafting a sales contract. The agreement can include clauses that address potential risks, such as force majeure, warranties, and indemnification. It helps mitigate the risks associated with the transaction and provides clarifications for handling unforeseen events.

What is the best way to handle sales agreements?

Drafting, negotiating, executing, and managing sales contracts effectively is crucial for the success of any business. From ensuring the language used in the agreement is clear and concise to reviewing the terms regularly, a lot goes into maintaining a mutually beneficial sales agreement. Here’s how you can achieve that:

Allocate risk among the parties

Risk allocation in sales agreements involves identifying and distributing potential risks and liabilities between the buyer and the seller. Before drafting a sales agreement, both parties should identify potential risks associated with the transaction. The agreement should clearly outline the responsibilities of each party concerning various aspects of the transaction. It could include responsibilities for shipping, insurance, and liability for damaged or defective goods. For example, sales agreements must define the point at which the risk of loss or damage to the goods transfers, i.e., establish which party bears the risk during transportation.

They can add indemnification clauses to specify who will bear the financial consequences if a specified event occurs. Or both parties can add a limitation of liability under certain conditions. It can involve setting a maximum cap on damages that one party can claim against the other, helping to manage financial risk.

Self-service requests for standard sales agreements

Sale contracts are usually the prerogative of the legal team, with some input from the salespeople. It helps to ensure the contracts are competent and legally valid. All is well and good, but in the case of high-volume sales agreements, businesses may find that waiting too long between contract requests and the legal team drafting them does more harm than good.

In such cases, contract automation tools like pre-approved templates, workflows, and clause libraries can enable salespeople to self-serve sales agreements without legal intervention at every point. Thus, the legal department doesn’t have to carry the weight of every contract and focus on high-value tasks.

Pulling data from CRM to create contracts

In most organizations, the sales contract lifecycle functions without the involvement of the salespeople. The sales and legal teams exist in different spheres of the companies without scope for collaboration or sharing intelligence. It can negatively affect the sales process, which requires contributions from both sides. Businesses can overcome these shortcomings by connecting their contract management software with their customer relationship management platform.

It allows for an integrated system for carrying out the sales contract lifecycle. Users can pull data from CRM and insert it automatically into contracts to reduce any errors associated with manual data entry. During any stage of the contract lifecycle, the sales and legal teams can work together on a sales agreement within either platform.

E-signature solutions for execution

Using an e-signature solution for signing sales agreements offers several advantages compared to traditional paper-based methods. E-signature solutions like DocuSign, Adobe Sign, and Sertifi streamline the signing process, reducing the time it takes to complete a transaction. It can be especially crucial in sales, where swift agreements can lead to quicker deal closures.

They can sign sales agreements from anywhere, at any time, eliminating the need for in-person meetings or physical presence. It is particularly beneficial for businesses with a global or remote workforce. E-signature solutions often come with robust security features, including encryption and authentication measures, to ensure the integrity and confidentiality of the signed documents. Audit trails and detailed logs provide a transparent record of the signing process, making it easier to track and verify the authenticity of signatures.

Conclusion

A sales contract, also known as a sales agreement, is a legally binding document that outlines the terms and conditions of a transaction between a buyer and a seller. A comprehensive sales contract offers several benefits for both parties involved in the commercial transaction. It provides a structured and legally enforceable framework for buyers and sellers.

They can have the utmost clarity and a means of resolving disputes fairly and efficiently. Hence, businesses must do their due diligence while crafting and managing sales agreements. They can integrate their CRM platforms, like Salesforce and Dynamics CRM, with Dock contract management software to streamline the sales contract lifecycle. It enables users to utilize customer data to create error-free sales agreements without manual data entry. As we have already covered, connecting your disparate systems has more advantages.

Schedule a live demo with Dock 365 for more insights into advanced contract management solutions.

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