Your relationships with contractors and suppliers may be critical to your success and to prevent business failures. It may be in both party’s interests to have rights and obligations spelled out in a written contract that, depending on what’s at stake and the amount of money at issue, need not be complex.
You may sell products, services, or both. Unless you make your products, you get them from suppliers, making them critical to your business. Contractors could be any non-employee or business performing work for you. They may pave your driveway, maintain your IT system, or be part of your workforce. Dependence on them varies on the business while the importance of a contract depends on how much you have to lose if the relationship goes sour. Our friends at Focus Law LA discuss why entering into a written contract can be wise, below.
Reasons To Enter Into A Written Contract With A Supplier Or Contractor
Some of the reasons are the following:
- Both sides’ rights and obligations are in writing
A written contract should be a reliable record of the parties’ obligations and rights. The fact that the parties formalized it is a sign that they’re taken seriously. Signatures show the parties intend to honor the agreement and that they can be held accountable. Since it’s written, either party can refer back to it when questions or concerns arise.
- Necessary details and expectations are highlighted
How will relationships be maintained, and for how long will they be written down? How duties will be performed and tracked should be included. There should also be contingencies when things don’t go according to plan, like when accomplishing something becomes unreasonable due to severe weather.
- Increased cash flow
A contract should list the number of payments owed when they should be made, and what happens if they are late or stopped. Contractual language should encourage prompt, full payments that otherwise may not be made.
- Confidentiality
Confidentiality clauses and non-disclosure agreements are common parts of business contracts. They can involve critical data or information a party can access that, if released, could severely damage your company.
- Reduced risks of disputes
Details are negotiated between the parties, and both should be able to raise concerns before agreement. Both sides should be at least happy enough to sign the deal. Contracts should also propose dispute resolution methods to get the parties back together, and penalties may be so high violating the agreement may be prohibitively expensive.
- Improved efficiency
There’s less confusion and doubt about what must be done and when. If it happens, the contract should cover the means of communication to keep operations on track.
- Cooperation and interaction
The collaborative process of contract negotiation benefits internal and external relationships. Teams and departments in your company work with those from the other company to complete the contract. This allows both companies to learn about how each other works and their culture, and the people involved learn about each other as individuals.
- Mutual trust
For this to work, trust and goodwill must exist between the parties. A business may decide, despite the consequences, that it’s more in its interest to violate a contract than comply with it. Ideally, that can be avoided through reasoning and contract changes as necessary.
If you have questions about forming a contract with a supplier or contractor, you think breaching the one you have is an option, or the other party broke the agreement, talk to your corporate transaction lawyer.
