When buying or selling anything, it’s a good idea to understand sales contracts. Of course, when you make a purchase at a local store, you don’t necessarily need a sales contract because the terms of sale are clear. It’s a one-off transaction that doesn’t need any further clarification. But for larger transactions, particularly in the B2B space, sales contracts are common.
From general sales contracts to more complex contracts used in international transactions, there are many occasions that you may find yourself in need of a contract. It protects both parties in the event of something going wrong, which is why they’re so valuable in today’s business world. In this article we’ll explore the benefits of sales contracts, the different types you may use and also what to include in a contract.
What is a sales contract?
A sales contract is a legally binding document between a buyer and seller. The document includes the details of the exchange, the terms of sale, clear product or service descriptions and more. A good sales contract should leave no doubt in either party’s mind about their rights and obligations during a transaction.
Before signing any contract, you should always seek legal advice, however, the best sales contracts are straightforward, easy to understand, with no small print or surprises.
Benefits of using a sales contract
There are several reasons to use a sales contract in your business dealings, including:
Transparency between parties
Clear expectations of obligations
A contract is enforceable by law
Basically, a sales contract protects both the buyer and seller against anyone deviating from what’s been agreed during a sale.
What to include in a sales contract
What defines a contract? Is it each party’s signature, or the details included in the contract? Well, in a sales contract, it’s both. Below are the most common elements of a sales or business contract.
1. Details of parties involved
Usually, this section won’t need to be extensive, but you should include the names, addresses and contact details for all parties concerned. Usually, this is just a buyer and seller. When dealing with a company, it’s a good idea to have the relevant contact person’s details included.
2. Description of goods or service
The description of the goods or services offered needs to be accurate on every sales contract. Depending on the product, you should include important details such as the name, model, size, weight, colour and any other key identifying details. The quantity should also be clearly shown in this section.
If you’re selling services rather than goods, this section may be longer and more detailed, such as the scope of work to be performed and the length of time the service will take.
3. Prices and payment terms
The price is always a key component of a sales contract. Remember to include applicable taxes, such as GST. Along with pricing, you should also outline the payment terms. This will include the due date of payment and how payment is to be made (cash, bank transfer etc). It will also state the date at which the buyer should receive an invoice.
A good tip is to also include any information related to non-payment or late payment, such as interest or late payment penalty details.
4. Delivery or supply instructions
The delivery section should outline where the product is to be delivered, by what date, and through which delivery service. You can also include the cost of delivery and details about which party is responsible for paying the cost.
It’s always a good idea to include a clause that discusses what should occur if delivery is impossible due to causes outside of either parties’ control.
5. Warranty information
The warranty for all goods and services is important and may be provided in more detail using an additional warranty document. However, basic details should still be included in the sales contract. It’s important to know the difference between express and implied warranties. An express warranty is a detailed statement from the seller regarding the quality of the goods. An implied warranty is an unwritten guarantee that the goods will meet certain quality standards.
This is why warranty information is important because it clearly outlines the conditions without relying on implied warranties.
6. Inspection period
The inspection period may also be known as a refund or return policy. Basically, it allows a certain amount of time for the buyer to inspect the goods and ensure they meet the expected quality. By including an inspection period, you can protect yourself against customers wanting to return goods after an unreasonable amount of time.
7. Confidentiality clauses
If the transaction includes the transfer of sensitive or confidential information, it’s always a good idea to include a confidentiality clause. This protects against the unwanted release of sensitive information gained during, or as a result of the transaction.
8. Breach of contract terms
Finally, you may want to include some details regarding what should happen if one party breaches the terms of the sales contract. It also outlines when a contract can be terminated, and any actions that a party may take to recover their losses.
This section may also mention severability, which is a clause stating that all other provisions of the contract are still valid even if part of the contract is unenforceable or invalid.
When to use a sales contract
Sales contracts should be used in significant business transactions. In the retail environment, however, there is less need for sales contracts. If a transaction takes place on the spot, such as in a retail store, a sales contract is usually not necessary unless the item being purchased is of significant value, or is to be delivered at a later date.
If your sale is detailed and includes specific instructions for payment and delivery of goods and services, you should consider using a contract. This protects both the buyer and seller.
Sales contracts are also used for ongoing services, such as a company delivering technical support services, or lengthy projects like software creation.
Types of contracts in sales
There are several different types of sales contracts, and each business will likely have a different template they use. However, some of the most common types are listed below.
1. General sales contract
A general sales contract is most commonly used because it includes all of the necessary information without being specific to any type of transaction. You would use this type of sales contract for most business transactions, such as selling your products as part of everyday business. You would also use this type of contract if selling services, such as marketing consultancy, for example.
2. Conditional sales agreement
A conditional sales agreement is much like a general sales contract, however, there are some additional stipulations. You would use these when a buyer takes possession of something, yet does not hold the rights to that product until payment is made. So, a conditional sales agreement explicitly outlines that the seller retains all rights to the asset until the buyer has paid in full.
This type of contract could be used when selling a more expensive product that the customer agrees to pay for in instalments.
3. Sale of business contract
A business sale agreement outlines all of the terms and conditions associated with the sale of a business. While it still includes all of the features of a general sales contract, it also has additional detail regarding the business. Unlike selling a general product where you’ll include warranty information, business sale contracts are more likely to have clauses protecting the seller against a buyer changing their mind and accurate details about the financial condition of the business will also be included, as well as stipulations regarding what will happen if the business isn’t as described by the seller.
4. International sales contracts
An international sales contract falls under the United Nations Convention on Contracts for the International Sale of Goods (CISG). Again, a lot of details are similar to a general sales contract. However, there are complexities around international trade that may be referenced differently. Many local sales contracts won’t mention the governing laws that the sale takes place under, because Australian law is generally applicable. With international sales, however, you may see a section specifically relating to governing laws in the country of trade.
5. Agreement for sale
An agreement for sale is most commonly found in the real estate industry. It’s a contract or agreement to buy or sell something at a future date. Agreements for sale include the date at which a purchase is to be made, and whether the contract is conditional upon something else occurring (for example, the sale of the buyer’s existing property, or approval of finances).