The life of a sales manager is full of NDAs, MSAs, sales agreements, and other documents to handle. The absence of a legal background makes it a bit more difficult for them to deal with legal matters. Still, it’s important to know and understand contract clauses. If you don’t, you might not understand what’s in your contract. Knowing what you need to check before signing a contract helps avoid costly mistakes.
It doesn’t matter if you’re a client or a service provider. It’s important to read a contract, understand it, and carefully check the clauses. This will help make sure you and your counterparty completely comprehend your rights and responsibilities.
For a sales manager, it’s especially critical. Sales need to be successful and profitable. If you don’t check contract clauses, you could end up with unfavorable terms, such as more obligations than you should have or extreme financial risk.
We’ve prepared a checklist of clauses that you should always be on the lookout for. Save it and use it when you need it. Read on to learn more about each of them.
Name of parties
Typically, contracts start by listing the names of the parties involved. This usually refers to the name of the companies on both sides and their representative signatories. To avoid any potential ambiguity, check to see if the full names and personal information of each party are specified. If names are written incorrectly, a contract can be voided as it does not accurately identify the signing parties.
Signature authority
It’s important to confirm that signees have the authority to sign the contract. If they don’t, it might not be possible to enforce the terms stipulated in the agreement, which is why it’s a critical point to check. To prove their authority, the signee can provide a general resolution from the board of directors that empowers them to sign the deal.
Contract scope
This clause clarifies the subject of the agreement. The reason for entering into a contract is described, as are the goals you and the other party are planning to achieve by signing the deal. The contract scope defines the extent, range, coverage, area, or space in which the contract works. It should clearly state what is and isn’t being delivered, and on what terms.
To reach mutual success, parties need to understand what defines a “successful project”, what the expected outcome is, and what are the evaluation standards and metrics. The scope of work should also include instructions, work conditions, and the expected workflow.
To reach mutual success, parties need to understand what defines a “successful project”, what the expected outcome is, and what are the evaluation standards and metrics.
Double-check that delivery dates, milestones, goals, costs, and similar elements are indicated correctly. If something’s incorrectly stated, you risk overpromising and getting yourself into a contract where you have too many responsibilities, insufficient resources, held-up payments, wrong timelines, or a lack of funding for additional expenditures. The massive fallout makes double-checking well worth the time.
Exclusive rights
This clause forbids parties from ordering the same services or entering into the same agreement. In other words, one of the parties is granted exclusive marketing or other rights of any type or scope for a certain period of time. For instance, football teams are often restricted from wearing another company’s clothing in public.
Exclusive arrangements may limit your customer or vendor base. As previously mentioned, athletes with endorsement deals are usually limited to using a certain brand. Just like them, any other service or goods provider may be limited in cooperating with potential clients aside from the one they have the exclusive rights provision with.
That’s why it’s important to check if you’re the only party that has some limitations, and whether those limitations prevent you from completing your daily business.
Indemnity obligations
This clause stipulates who will be responsible for damages or losses caused to the other party. This provision creates an open-ended financial risk. To mitigate this risk, check which circumstances and reasons will make you liable to indemnify losses and discuss exceptions. Also, consider insurance that covers financial exposure.
Confidentiality
Confidentiality clauses typically apply not only to the terms and conditions stated in the contract, but also to any information you share with counterparties. Some info you provide for business purposes may include your commercial or technology secrets, which is why it’s important to prevent unauthorized disclosure.
Confidentiality obligations may have some period of duration. You’ll want to check the exact period mentioned, as well as to whom those obligations apply. Lastly, make sure that there are details regarding what happens after those obligations end and how information may be shared at that time.
Automatic renewals
Automatic renewals prolong contracts, locking parties into the previously agreed terms. This could prove to be either a good or bad thing because they dictate important provisions such as terms and prices. Not noticing when a contract rolls over for another year can benefit retention, yet it could cause the company to miss out on an opportunity to revisit prices. This could even end in giving the party an unnecessary discount.
Not noticing when a contract rolls over for another year can benefit retention, yet it could cause the company to miss out on an opportunity to revisit prices.
Nevertheless, renewals are good for sales managers because it’s easier to maintain existing business relationships than make new ones. Yet, renewals aren’t guaranteed. The company’s job is to deliver value and the best possible services for the customer after the deal is signed. But the renewal process really begins during the initial sales process.
That’s why it’s important to confirm if there are reasons for the customer to renew such as some value for continuing the relationship. It may be a discount for a long partnership or some special offer. It’s always cheaper to retain a client than to attract a new one. Plus, increasing the retention rate by 5% can increase profits by up to 95%.
Assignment-consent requirements
Agreements often limit a party’s ability to assign a contract and shift the obligations to another party without the partner’s agreement. It’s a standard clause, yet sometimes there may be circumstances that stop you from fulfilling all or part of your expected obligations.
In real life, it may look like this: You agree to produce some number of wood cabinets for a counterparty. But due to a mechanical breakdown, you can’t produce knobs for the time being. At that point, you need to involve a third party that wasn’t part of the initial agreement so that they can make those knobs for you.
When it comes to business, it’s always better to be safe than sorry. If there’s a chance you might not be able to satisfy your obligations, you might want to take a second look at whether your contract will allow you to seek temporary assistance. That way, you won’t find yourself limited in doing business.
Termination for convenience
This provision allows parties to terminate the contract at any time, so long as they give prior notice to the other party. On the one hand, it guarantees you the opportunity to exit the deal at any time. On the other hand, you won’t be able to do anything if the other party terminates the deal.
Make sure the contract includes conditions under which termination for convenience is possible and whether those conditions protect your interests. For example, you can set a particular period of time during which termination is impossible, or that a client must pay the entire amount if they terminate the contract early.
Non-compete, no-hires, and non-solicitation
This is also a standard clause that restricts you from hiring a counterparty’s employees or attracting their clients. To ensure this provision is not unreasonably restrictive, check if there are some exceptions, such as when a client needs services other than the ones currently provided.
Dotting the i’s and crossing the t’s
There are likely some minor points that shouldn’t be overlooked. It may be checking signatures, the date of signing, or some other details that are specific to your business activity. You might want to consult your legal department regarding company-specific clauses. They’re sure to know them, and they’ll tell you what else needs to be added.
Wrapping Up
It’s great to have a checklist, but it’s even better if you have clauses prepared beforehand. That way, you can always be sure that your rights are taken into account and protected.
With AXDRAFT, you won’t have to stress about sales agreements being compliant. Pre-approved agreement templates guarantee simple contract drafting in less than a minute without the need for additional legal review or approval. On top of that, sales reps can rest assured that all important clauses are included.
For complex agreements, AXDRAFT provides a clause library where clauses for all occasions can be stored. When it comes time for negotiations, your lawyers can quickly and smoothly swap out clauses without missing a beat (or overlooking something critical).
Book a demo with AXDRAFT so that our team can show you how we can level up your sales workflows.