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Accept Cookies Manage Preferences Announcing the Formation of SpotDraft’s Advisory Board Find out more Contracts 101Understand what the 7 most commonly used sales contract types are, along with the key clauses and information they must contain.
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You’re juggling a thousand things, and the last thing you need is a sales contract gone wrong. You’ve seen how a poorly drafted contract can derail deals, create headaches, and invite unwanted risks. You need contracts that are airtight, clear, and executed without a hitch. Your contract management process needs to be efficient and foolproof.
In this post, we’re cutting through the noise to focus on what really matters. We’ll break down the seven key types of sales contracts you deal with regularly and share best practices to streamline your workflow.
A sales contract, or sale of goods contract, outlines the rights and obligations of buyers and sellers, legally protecting both parties and binding them to their responsibilities upon signing.
In addition to including specially negotiated conditions, such as price, value, and quantity, sales contracts are essential to accruing revenue and achieving mutually beneficial outcomes.
In short, sales contracts:
Note: In exchange for the agreed-upon fixed price from the buyer, the seller promises to provide or sell something. In sales contracts, ownership transfers only after the buyer pays and the seller delivers.
Usually, the nature of the product or service exchanged often dictates the specifics, but some core elements remain crucial. Here’s a look at the key components:
You may also find other provisions like governing law, breach of contract, confidentiality, amendments, and notices in sales contracts. Check out the six key clauses used in sales agreements.
Also read: 6 essential types of contract clauses you need to know
Also read: The Ultimate Guide to Enterprise Contract Management
Usually, the nature of the product or service exchanged often dictates the specifics, but some core elements remain crucial. Here’s a look at the key components:
What Exactly Do Sales Contracts Contain?" />
You may also find other provisions like governing law, breach of contract, confidentiality, amendments, and notices in sales contracts. Check out the six key clauses used in sales agreements.
Also read: 6 essential types of contract clauses you need to know
Sales contracts state each party's rights, obligations, and responsibilities. So, they can quash confusion and be on the same page. These contracts serve as a cheat sheet calling out the accepted terms precisely when things don't pan out as planned.
Here are some more benefits of sales contracts:
Sales contracts serve as binding agreements that can be enforced in court if necessary, safeguarding both parties from breaches of terms.
If a buyer fails to make a payment on time, the seller can refer to the contract to enforce late payment penalties or take legal action to recover the owed amount.
Sales contracts help in building and maintaining positive business relationships by clearly defining the terms and conditions of the transaction. This mutual understanding fosters trust and cooperation between parties.
A long-term supplier and retailer relationship benefits from a sales contract that outlines not just the immediate transaction but also terms for future dealings, returns, and quality assurance. This builds a stable, trusting partnership.
While verbal agreements can be useful, they often lack the formal structure and legal enforceability of written contracts. Sales contracts give weight to otherwise oral pronouncements, ensuring that all terms are documented and agreed upon.
During a negotiation, a verbal agreement on payment terms might be reached. By including these terms in the sales contract, both parties have a written record that can be referred to, preventing future disputes.
Sales contracts ensure that payment and delivery terms are clearly defined and adhered to. This reduces the risk of delayed payments or deliveries, helping businesses manage their operations more effectively.
For instance, if a contract stipulates that payment must be made within 30 days of delivery and the buyer misses this deadline, the contract might specify an interest rate on overdue payments, incentivizing timely payment.
In case of any disagreements or issues, sales contracts provide a reference point for resolving disputes. They outline the agreed terms and can include specific clauses on how disputes should be handled.
If a delivered product does not meet the agreed quality standards, the contract can specify the process for returns or refunds, ensuring a fair resolution for both parties.
Understanding the different types of sales contracts is crucial for ensuring that each transaction is handled appropriately and efficiently.
A sales agreement is a written contract between a buyer and a seller detailing the goods purchased and the terms of the transaction. These agreements enhance predictability in business transactions, earnings, and revenue margins.
When are they used?
Sales agreements are commonly used in high-value transactions such as real estate and auto sales.
Buyers use order forms to request specific items from a seller, including shipping details and payment terms. Once filled and signed, they initiate a legally binding engagement between the buyer and seller.
When are they used?
Order forms are used for large business orders or high-value transactions, ensuring clear communication and record-keeping.
An MSA is an initial agreement that outlines the general terms and conditions for ongoing business interactions. It serves as a framework for future dealings, enabling quick and efficient negotiation and execution of new agreements.
When are they used?
MSAs are prevalent in industries offering open-ended services, such as technology, manufacturing, and government sectors.
Also read: Checklist to a Good Master Service Agreement [+Sample MSA Template]
Definition: A Statement of Work outlines the project's objectives, deliverables, timeline, liabilities, obligations, and work agreements between two parties, typically a client and an agency, contractor, or service provider.
When are they used?
SOWs are extensively used by professionals in project management to ensure clear expectations and deliverables.
Also read: Master Services Agreement vs Statement of Work Contract
Definition: ToS agreements are legally binding contracts between customers and service providers. They include clauses on responsibility, liability, opt-out options, privacy regulations, and appropriate usage. These contracts help users review and accept terms before using a service.
When are they used?
ToS agreements are typically found within e-commerce platforms and small businesses to establish clear usage policies.
Definition: Renewal agreements are used to extend an existing contract. They usually resemble the original contract and are often renewed through amendments if there are no changes in the terms and conditions.
When are they used?
These agreements are employed to prolong the term of an existing contract without altering the initial terms significantly.
Definition: Upsell agreements include new products and services in addition to the original contract. If the agreement is active, this is typically done through an amendment.
When are they used?
Companies use upsell agreements to foster long-term, positive relationships with clients and customers by offering additional value.
Executing sales contracts efficiently is crucial for building strong business relationships and ensuring smooth transactions. Here are seven best practices to help you navigate this process effectively.
Before you even start drafting a sales contract, ensure you have standardized clauses in place. Look for key provisions like warranty, limitation of liability, indemnity, publicity, scope of work, intellectual property, and termination. If something doesn’t align with your standards, modify it to incorporate practical terms. This helps maintain consistency and clarity across all your contracts.
Example: If your standard clause for limitation of liability caps damages at a certain amount, make sure this is included in every contract. This way, you avoid unexpected liabilities and protect your business interests.
When negotiating, you might encounter terms that don’t align with your company’s standards. A clause library within your Contract Lifecycle Management (CLM) system can be a game-changer. It allows you to quickly add pre-approved fallback positions, ensuring compliance and speeding up the signing process.
Example: If a client requests changes to the indemnity clause, you can swiftly select an alternative clause from your library that meets both legal requirements and the client’s needs.
Also read: What Is an AI Clause Library?
“Sales agreements are the bloodline of every successful partnership. A reliable and agile tool that helps salespeople close contracts faster in a risk-free convenient way not only helps meet targets but also fosters trust and communication between parties.”
~ Punit Batra
Strategic Accounts Executive, SpotDraft
Modern CLM systems often come with robust Customer Relationship Management (CRM) integrations. This means deal properties can automatically sync and populate into sales contracts, reducing errors and saving time. Once the information is pulled from the CRM, the CLM platform can fetch prospect details through smart forms, ensuring consistency across systems.
When a new deal is closed, the CRM can automatically update the CLM with all relevant details, generating a draft contract in minutes. This draft is then reviewed and finalized, streamlining the entire contracting process.
Also read: 5 Reasons to integrate your CLM with HubSpot
Use Google Forms to gather all necessary information from your counterparties. This ensures you have accurate and complete data, reducing the back-and-forth that often delays contract execution.
Before finalizing a contract, send a form to the buyer to collect details like their legal entity name, contact information, and any specific requirements. This data populates directly into the contract template, ensuring accuracy.
Set up an approval workflow within your CLM system to streamline the review and approval process. This ensures that all relevant stakeholders can review and approve the contract promptly.
Example: Once a contract is drafted, it’s automatically sent to the legal team for review, then to the finance department for approval, and finally to the executive team for the green light. This structured workflow prevents delays and ensures thorough scrutiny.
Leverage electronic signatures to speed up the sales contract signing process. Electronic signatures are legally binding and can significantly reduce the time it takes to execute a contract.
Once all parties agree to the terms, send the contract for electronic signature. Parties can sign from anywhere, using any device, making the process quick and convenient.
Also read: A Quick Introduction to eSignatures
Use your CLM’s centralized repository to track important dates like contract expiration and renewal. Set up contract reminders to ensure you never miss a deadline, keeping your contracts up to date and preventing lapses.
Set a reminder for 60 days before a contract’s renewal date. This gives you ample time to review the terms, renegotiate if necessary, and ensure continuous service without interruptions.
Also read: Contract Renewal Process: Strategy + Best Practices
Switching from manual to automated sales contract management isn’t just about upgrading your tech; it’s about making your work life easier and your business more efficient. SpotDraft takes away these headaches and helps you manage contracts smoothly and quickly.
With SpotDraft, you can standardize your terms, use pre-approved clauses from the clause library, and sync with your CRM to generate contracts in no time. SpotDraft makes gathering information from your counterparts a breeze, streamlines approvals, and lets you sign contracts electronically, speeding up the entire process. Plus, SpotDraft helps you keep track of important dates like renewals, so you never miss a deadline.
Moving to SpotDraft not only saves you time and reduces mistakes but also frees you up to focus on more important tasks, like strategic planning and building strong client relationships. It makes your contract management process more organized, transparent, and efficient—key factors for staying competitive in today’s fast-paced business world.
And if you need to review sales contracts, there’s VerifAI. It’s an MS Word plugin that helps you review contracts quickly and accurately, identifying key points and potential issues so you can address them promptly. This further enhances your ability to manage contracts efficiently and effectively.
