5 Essential Elements of a Sales Contract

Closing a new deal is always exciting. Nevertheless, it’s just the beginning, and to set the terms of cooperation in stone, your first step is to sign a sales contract

Sales contracts specify a deal’s expectations, and delivering on those expectations can help you establish long and mutually beneficial business relationships. 

Yet if there’s ambiguity, issues may occur. For example, your customers might expect something you can’t deliver. To avoid such misunderstandings, it’s important to know how to write the five essential elements of sales contracts.

What Is a Sales Contract?

Before revealing the essential parts of a sales contract, let’s define what such a contract is. 

A sales contract is a legally binding agreement that lays out the terms of an exchange between a buyer and a seller. It outlines the rights and obligations of both parties. 

In theory, it sounds pretty easy, but if you miss something (i.e. mentioning you’re not responsible for that hurricane that blew away a truck containing purchased goods), there may be problems down the road that could ruin your day, as well as the customer’s impression of you. Moreover, poorly worded agreements may not offer you the protection you thought you had.

Knowing how to write such an agreement will ensure that your interests are safeguarded while making cooperation more amenable for both parties.

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Sales Agreement Challenges

A sales contract is a document that covers a lot of details. Discussing everything orally may be easier than putting everything on paper, making it no wonder that writing a sales contract may be quite a challenge. 

Besides, the devil’s not only in the details, but also in preparing them.

Easily overlooked details

Depending on what your goods are, you’ll need to describe them. Additionally, other aspects should be stipulated in the contract, such as:

  • delivery terms 
  • responsibilities of parties
  • payment details
  • quantity of goods
  • size, weight, and color
  • additional documents that should be provided
  • all actions to be taken to close the deal

Most likely, you’ll learn a lot of details by heart once you’ve closed many deals. But it’s not always possible to remember everything, creating the risk that something will slip your mind.

Negotiations

Negotiating is never easy when you use a manual approach to communication. It requires tons of back-and-forth emails, turning processes into a complete mess. 

Making matters worse, you can never be sure that you didn’t mix up versions along the way because you can’t track all redlines. In addition, you can easily miss some important provision or rewrite it in a way that can be interpreted differently.

Delays

Preparing a sales contract is full of bottlenecks. First, a sales manager waits for the template from legal. Then there are negotiations, which can take weeks if parties can’t collaborate on the document in real time. Though this can be somewhat alleviated by preparing clauses ahead of time to accelerate the change-making process while ensuring compliance.

Knowing essential elements of sales contracts will help you overcome certain challenges because you’ll always know what should be included. This enables you to prepare compliant templates and drive deals forward quickly and smoothly.

Integral parts of sales agreements

There are different types of sales contracts for different purposes. Each one may have its specifics, like clauses for special terms or situations in conditional sales agreements or international law provisions in international sales contracts. 

However, in all cases, there are five core elements that must be included.

Before we reveal the essentials, just remember that it’s important that all contracts must correctly identify the parties. If there’s a mistake, such as the signing individual doesn’t have the legal authority to do so, your contract can be voided.

This standard clause must indicate the legally registered name of your company along with your name and title, as well as the name and title of the representative from the customer’s side. But once all parties are properly mentioned, you can move on to the essentials of a sales agreement.

Description of goods

The description provides information about a product’s or service’s characteristics. This element requires most of the attention because there is a lot of potential for error. It explains in detail the product characteristics, the quantity of exchange, and what standards it сomplies with.

A mistake here may lead to incorrect customer expectations, delays in the pre-signing stage, or issues in the future.

Delivery instructions

Once the description is ready, it’s time to move on to the delivery details. There the terms of the time and date of delivery should be stipulated, as well as who’s responsible for the delivery. The delivery location should be mentioned too, and also who’s responsible for the risk of loss or damage of goods while they’re in transit.

It’s important to state that there are situations you’re not in control of, and that you can’t be held liable for delivery delays or damages caused during the delivery. This is called “Force Majeure”, and it can apply to car accidents, terrorist attacks, natural disasters, wars, etc.

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Inspection period

The inspection period allows the buyer to inspect goods after delivery and reject non-conforming goods. At first glance, it might seem like it doesn’t benefit the seller, but a deeper look reveals that both parties are helped. For a seller, it provides:

  • A possibility to react quickly and eliminate discrepancies
  • Attract more buyers as it gives them a kind of “trial period”, and a certainty that they won’t lose their money if something’s wrong
  • Greater trust in your organization

In turn, customers get:

  • A “trial period”, especially if they’re buying something new and unfamiliar
  • Confidence they aren’t buying a bad product because they see you’re ready to refund
  • Peace of mind because they know they can get their money back if they want

The length of the inspection period can vary depending on the goods involved, but including it in contracts can go a long way toward building loyalty that results in renewals and repeat purchases.

Warranties

In simple words, warranties are a commitment that assures the buyer that the purchased item (good or service) isn’t defective. If something doesn’t comply with the warranties, there are remedies that describe compensation for such situations. It may be a replacement of the item, a refund, or some special offer.

In some cases, unsatisfied customers can file a lawsuit against you, so it’s crucial to be clear about what they should expect from the services you provide. Having detailed information on paper will mitigate the risk of litigation.

Payment details

People aren’t likely to forget the price of an agreement, but it does happen at times. 

When creating a sales contract, it’s important to also add the terms and conditions of payment, such as if it’s a one-time lump sum payment or several payments with specific due dates and payment methods. 

There might even be other payment conditions, depending on your agreement with a customer. Long story short, everything related to payments should be stated in the contract.

Being thorough on this matter will help you avoid misunderstandings and potential losses in the future. And by avoiding such issues, you make it easier to build good relationships with your partners.

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Conclusion

Sales contracts help establish relationships between customers and service/product providers. Their purpose is to protect the interests of both parties, but to do that, they should be drafted perfectly. 

Everything should be clear, and nothing should be missing. Without the right tools, it may not be an easy task.

Fortunately, today you can use legal technology such as AXDRAFT CLM to make document creation easier and faster. With AXDRAFT, sales managers can process sales-related contracts on their own. It allows them to reduce time spent on client onboarding, as well as cut down on the risk of mistakes and missing clauses.

Book a demo with our team to see how your contract processes can be improved.

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