Congratulations – you’ve almost closed that deal after a long sales process. But don’t crack out the champagne quite yet, there’s still a few more steps to go before you can mark the opportunity closed-won.
Writing up a sales contract formalizes the agreement between your company and the buyer, and is a fully-fledged legal document that creates goodwill between parties.
While writing a sales agreement may seem like a daunting process, it can be much easier than you’d imagine. This in-depth guide will help you to create a simple and effective contract to gain legal’s approval and close your deal.
We cover:
- What a sales contract is
- Why it’s important
- When you need a written agreement
- Sales contract vs bill of sale
- Best practices for writing a contract
- Types of sales contracts
- Must-include details
- 5 steps to create a contract
What is a sales contract?
Simply put: a sales contract is a legal agreement between a buyer and a seller describing the details of their transaction. This will include details such as pricing, product or service description, and service terms.
Why is a sales contract important?
A sales contract sets clear expectations and can protect your business from disagreements with your customers down the line. The document will limit liability for all parties involved in the transaction.
If a buyer doesn’t pay for a good or a seller doesn’t deliver their service, a sales contract can be used as evidence to clarify what was agreed upon and resolve the conflict. A document detailing the agreement is much less risky than a deal based on a handshake alone.
The clarity gained from a sales contract relies on the document being clear and using simple language both parties can easily understand. This means there should be no need for a lawyer to translate the contract terms - but that doesn’t mean your legal team isn’t involved.
When do you need a sales contract?
It’s best practice to always use a contract to secure your deals as contracts create goodwill and trust between parties. Contracts can also preserve business relationships and ensure livelihoods in the case of a disagreement.
A general rule for basic agreements is anything above $500 should be sold via a contract.
Complex deals should only be sold via written agreements. For example, products with complex components, agreed-upon maintenance, and any services lead to more complexity, requiring a contract to reduce risk.
Most SaaS companies now also utilize contracts within their sales cycle to foster long-term business relationships with their clients.
Sales contract vs. bill of sale
While a sales contract and a bill of sale both describe the product, service, or property purchased, the purpose of these documents is different.
A sales contract will outline the details of the agreement such as warranty information, delivery arrangements, and terms and conditions of the purchase. This document is drafted and signed before the transaction occurs.
On the other hand, a bill of sale is similar to a receipt as it proves the transfer of ownership after the purchase takes place.
Daniel O’Dowd
Do's and don’ts of creating a sales contract
There are many best practices for creating a simple but effective (and legal-approved) sales contract, so we summarised the most important do’s and don’ts of contracting.
Do:
✅ Determine customer needs and expectations. Before drafting a sales contract, it’s important to understand what your customer requires from your product or service and ensure that your company can fulfill their needs.
Being unable to provide what you promised a client may cause issues down the line, so it’s best to clarify this before signing on the dotted line.
✅ Mention all parties involved. Include the names and addresses of the buyer and seller company and the names and contact details of the sales rep and purchasing client who sign the contract.
✅ Ask legal to review the contract before signing. When dealing with contracts, you should get your legal team to read through them to check for any errors or strange terms. If your company has a deal desk team, ask them for help to navigate this approval process.
Don’t:
❌ Miss out details. Sales agreements should be detailed to protect your business in the future. So, make sure to include all the relevant details about the purchase, including any warranties or guarantees.
❌ Ignore the possibility of a breach of contract. While we don’t typically sign deals to intentionally violate the terms, we shouldn’t rule this out as a possibility. That’s why it’s important to explain the penalties for non-payment or another policy violation.
Daniel O’Dowd
Types of sales contracts
There are many types of sales contracts with different use cases so it’s important to understand which contract type your deals will require.
Sales agreements
This is the standard and fundamental sales contract you think of when you imagine a sales contract. A sales agreement contains information about the buyer and seller, what’s being purchased, the terms of the sale, and any liabilities if the exchange doesn’t occur.
Order forms
An order form is a variant of the standard sales agreement. A template of this form is given to the buyer to fill in with their specific needs and return to the seller. Once a seller accepts the order form it becomes a legally binding agreement.
Order forms can simplify the contracting process by asking all buyers the same questions and using the same templated agreement.
Change order forms
This isn’t a standalone form type, instead a change order form is an addition or update to a previous agreement. Allowing adjustments to a current long-term agreement without needing to negotiate from scratch.
This type of agreement can allow an organization to honor new customer requests part-way through a project without the legal headache of undocumented changes.
Master service agreements
A master service agreement (MSA) covers a long-term business relationship. It acts as an overarching contract that breaks down the terms and conditions of future agreements between two parties.
MSAs create good business relationships by clearing up basic terms and speeding up the approval process for new agreements. These contracts are common within the SaaS industry and other long-term technology purchasing agreements.
Statements of work
This form of contract is typically used by contractors and freelancers to describe the services they’ll be providing – including deliverables, communication, and deadlines for completion.
Statements of work are best practice when customized products or services are being offered, or in a contracting business agreement. For example, a RevOps consultant may use a statement of work to clarify their services to a client.
Terms of service
The terms of service (or terms and conditions) is a document defining how clients interact with your products and services. These are most often used in digital environments and don’t directly impact sales. However, if prospects refuse the terms of service many businesses will withhold from selling to them.
Terms and conditions should limit your firm’s liability, protect your intellectual property, and clarify dispute resolution.
Renewal and upsell agreements
Similar to change order forms, renewal and upsell agreements reference previous agreements. In contrast, these contracts replace any previous agreements.
A renewal agreement is an order form where a client renews a previous agreement, usually with slightly different terms (for example, a price increase). Whereas an upsell contract is a renewal, but with additional goods and services included.
These contracts are priceless when it comes to nurturing long-term client relationships.
Daniel O’Dowd
Details to include in a sales contract
As we mentioned, it’s crucial to include all the necessary details in a contract to ensure all your bases are covered legally. Here’s a checklist of the key details your sales contracts should include. ⬇️
☑️ Confidentiality. If your product or service includes the transfer of sensitive information, it’s best practice to add a confidentiality clause.
☑️ Penalties for non-payment. What happens if the client doesn’t pay on time?
☑️ Any included services. What other services are included (eg. maintenance, installation, customer support)?
☑️ Pricing and payment terms. State what the client is responsible for paying and the expected amount. Also, ensure to include the payment schedule.
☑️ Contract duration and timelines. How long will this agreement last? When will the contract be fulfilled?
☑️ All rights, guarantees, and restrictions. These should be outlined in a terms and conditions section.
☑️ Delivery arrangements. Where is the delivery going? When will you deliver the goods? Who’s paying the delivery cost?
☑️ Detailed description of the goods or services. For products: model number, size, weight. For services: scope of work and time to complete.
☑️ All parties involved. Including names, addresses, and contact details.
Daniel O’Dowd
5 steps to create a sales contract
Now that we’ve discussed the key information you need to know before you start creating a sales agreement – let’s take a look at the five steps to craft the perfect agreement.
1. Use a template or tool
The easiest way to create perfect contracts every time is to utilize a standardized template across your sales organization. This will have spaces to input the client's information, the product description, and pricing information. Once these blanks are filled in, you’ll have a finalized contract.
This can save your sales reps time writing contracts from scratch and gaining approval for every deal. But it’s still important to double-check you’re using the right contract type, and most up-to-date template before signing.
There are also contracting tools you can add to your sales tech stack to help your sales team manage contract creation.
2. Ensure all details are correct
It may seem obvious, but it’s crucial to read through all contracts closely and make sure all the details are correct - even if you’re using a template. A typo in an email address, purchase price, or delivery date may cause issues down the line if they aren’t caught before the dotted line is signed.
3. Prepare for negotiations and carefully consider customizations
Sales contracts can involve a back-and-forth discussion between buyer and seller to negotiate terms that work for both parties. To make the most of this process, it’s important to be prepared with relevant information and policies.
Likely, you've already dealt with most of their objections by this point, but more may arise during contract negotiations. Use clear communication, listen to your prospect, and stay calm to reassure your buyer.
Many companies offer custom packages or deals for specific clients, these should always be considered carefully and discussed cross-functionally. Checking custom deals with sales, product, and finance leadership can avoid conflicts or losses.
If in doubt, send the contract over to your deal desk team to check over and gain the right approvals. It’s better to check early to avoid getting caught out down the line.
4. Use clear language
While writing a legal document, you may be tempted to break out your thesaurus and discover elaborate legal jargon to pad out your contract, but that won’t be necessary.
In reality, it’s best practice to use clear and precise language so your sales agreement can be understood by anyone who may need to read it – no legal degree required.
Using complex wording causes confusion and may lead to lengthy legal discussions if a disagreement arises in the future. This risks your company’s bottom line as your legal team will have to work double-time to resolve the conflict, or your business may even be found liable for the dispute.
5. Sign after approval
Once your contract has been proofread and approved internally you can send it to your client to sign. Then it’s finally time to sign on the dotted line yourself and close the deal.
But don’t forget to add the contract and details of the closed deal into your CRM system! Keeping an up-to-date contract in your sales database allows internal teams such as customer success or RevOps to check over the details of the deal to manage their account.
Final thoughts
While you may want to rush into closing a deal after a grueling sales cycle – it’s crucial to keep your eye on the ball until the paperwork is approved and signed to avoid a last-minute mistake.
At the end of the day, sales contracts are important legal documents that protect your organization from disputes, so it’s best practice to take your time to create accurate and legal-approved agreements.
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