Contracts are getting more complex and it’s hard to get a handle on all the contract terms in documents that can stretch into the tens of pages. But that doesn’t mean you can slack off. Law firm DMSHB says many small business owners “treat contracts like consumers,” failing to review them carefully and failing to consider the huge impact a contract breach could have on their business [PDF]. 43 percent of small businesses said fulfilling contracts with big partner companies was a huge challenge, according to an American Express survey. As a business owner, you need to understand the basics of your contracts if you are to protect your company and make good decisions.
Contract Terms You Should Know
- Offer and acceptance: This is where the contracting cycle starts. One company will make an offer of a good or service and the other will say they want that. In simple contracts, this is all there is to it. But when was the last time you saw a simple contract?
- Boilerplate: These are clauses that are used in multiple contracts. Perhaps your company has a certain set of clauses signed off by the legal team or clauses that articulate how you do business. This is boilerplate language.
- Conditions: These are stipulations about how one or both parties will perform their part. There will often be conditions on how and when a party should be paid or how goods will be delivered.
- Force majeure: This is a common clause that refers to something external that stops a party from being able to fulfill their end of the bargain. Known as “acts of God” clauses, they have a much more narrow scope than conventional wisdom would have you believe.
- Redlining: This is the process of reviewing and making required changes to a contract. This can frequently become a long, drawn-out, and confusing process without a contract lifecycle management platform.
- Approval: Once all parties are on the same page, there is approval of a contract by all, usually by signing in an eSignature tool.
- Execution and fulfillment: At this point, the party producing the product or service gets to work. Tracking fulfillment in the same tool you use for contract management is a great way to make sure your company is delivering everything it promised.
- Breach: This one you probably know. This is where one party doesn’t uphold its end of the bargain without legal excuse.
- Excuse: These are allowable reasons for not fulfilling a contract. They don’t mean the breach has not occurred, just that some of the penalties might not apply.
- Damages and remedies: Many contracts will have provisions for what happens if one or more parties breaches the contract. They often include monetary damages.
- Arbitration: This is an alternative to expensive and time-consuming litigation. It is usually stipulated in the contract and is helpful in situations where one party has fewer resources than the other. For example, if your small company is delivering goods to an enterprise customer, a lawsuit could tie up your entire operation but not make a big difference to the bigger company.
- Renewal: This is the phase at the end of the contract lifecycle when you consider and renegotiate your contracts. If you have a contract lifecycle management platform, your team can see at a glance which contracts are up for renewal and when.
How to Keep Tabs on Your Contract Terms
The easiest way to stay organized is to implement a contract lifecycle management (CLM) strategy at your company. Best practices dictate your contract lifecycle should be one-way and have clear steps. Using a CLM tool like Anapact will make contract management much easier as it guides you through the steps and helps you stay organized. In a complex business world, Anapact means contract terms are one less thing you need to think about. So you can get your nose out of the legal dictionary and back to running your company. Get a demo today.