Mistake 1: Skipping written agreements

Relying solely on verbal agreements or informal emails might seem convenient, but it's risky. These types of agreements are difficult to enforce and can lead to significant misunderstandings about who promised what. Memories can fade, and informal emails might not capture the full scope or the specific details of an agreement.

Always insist on getting agreements in writing. A formal written contract not only provides a clear record of what was agreed upon but also ensures that all parties have a thorough understanding of their responsibilities and the terms of the agreement.

Assuming they’ve been crafted correctly, written contracts are legally binding, which means they can be enforced in court if one party doesn't hold up their end of the deal. Include all relevant details, such as the scope of work, payment terms, deadlines, and any other critical elements, to minimize any chance of confusion or dispute. When everything is laid out on paper, it's easier for everyone involved to stay aligned and accountable.

Read: How can I amend a contract after signing?

Mistake 2: Not defining terms clearly

When contract terms are vague or too broad, they can be understood in different ways by each party involved. This lack of clarity can lead to disputes or misunderstandings about what was actually agreed upon.

Make it a priority to spell out what key terms mean directly in the contract. For instance, if your agreement uses technical terms or industry-specific jargon that could be interpreted in various ways, include a definitions section right at the start of the document.

This section should clearly explain what each important term means. If a term like "delivery" could mean different things, specify whether it refers to the date the product leaves the warehouse or the date it's supposed to arrive at its destination.

Clarifying these details upfront will help ensure everyone is on the same page from the start, reducing the likelihood of conflicts down the line.

Mistake 3: Ignoring the boilerplate clauses

It’s easy to skim over the 'boilerplate' terms that often appear at the end of contracts. These sections might seem filled with standard legal language that doesn't vary much from one contract to another. However, glossing over these parts can lead to unexpected commitments and legal vulnerabilities. These clauses, while seemingly routine, can dictate how disputes are resolved, what laws govern the contract, and more.

Make it a point to read and understand every part of the contract. Boilerplate clauses play important roles in protecting your business. By thoroughly reviewing these section, you can avoid agreeing to terms that might not be in your favor or misunderstandings that could lead to legal issues later on. If there’s anything you don’t understand, consult with a legal professional before signing to ensure you fully grasp the implications of every clause.

Read: What are boilerplate clauses?

Mistake 4: Failing to specify payment terms

Keeping payment terms vague is like telling your teenager to be home "at a reasonable hour"—the interpretation can vary wildly. If you're not specific about how much is to be paid, when it's due, or how it should be paid, you might end up in a financial tug-of-war. Unclear payment terms can lead to delayed payments, disagreements, and even financial shortfalls that could have been easily avoided.

To keep the cash flowing smoothly and everyone on the same page, spell out the payment details with the precision of a baking recipe. Specify the exact amounts, due dates, and acceptable payment methods. For example, state whether payments should be made via check, bank transfer, or if you accept credit cards, and consider including penalties for late payments to encourage on-time compliance. By setting clear expectations right from the start, you'll minimize the risk of disputes and ensure that the financial aspects of your agreements are as clear as your grandma's windows after spring cleaning. This level of clarity not only helps maintain a healthy business relationship but also keeps your cash flow predictable and your blood pressure in check.

Mistake 5: Neglecting confidentiality clauses

Without proper confidentiality clauses, any juicy details about your business strategies or secret recipes are fair game for gossip, or worse, for your competitors to snatch up. If you’re sharing any kind of sensitive information, leaving it unprotected is a risk you don’t want to take.

Make sure to button up those secrets with a strong confidentiality clause. This clause tells everyone involved exactly what data or information is considered confidential and what happens if they decide to spill the beans.

Be clear about what can't be shared, with whom, and the consequences of leaking information. This keeps all parties aware of their boundaries and responsibilities, ensuring your valuable insights stay under wraps, safe from the prying eyes of the competition. It's like putting a lock on your diary, but maybe a little less dramatic.

Mistake 6: Overlooking termination clauses

If you don't spell out when and how a contract can come to an end, you're setting yourself up for potential confusion or conflict down the road. Without these details, ending a contract might get messy, with both sides unsure about the right steps or the timing involved.

Always include clear termination provisions in your contracts. These should outline the conditions under which the contract can be terminated, the process for termination, and any obligations or penalties that come into play after the contract ends.

This helps everyone involved understand how to wrap things up smoothly, minimizing misunderstandings and ensuring a clean break. It's a straightforward way to manage expectations and responsibilities from the start, making sure the end of a business relationship is as clear and structured as its beginning.

Read: When should I hie a lawyer for my contract?

Mistake 7: Standard clauses will cover everything

Relying solely on generic, one-size-fits-all clauses can leave gaps in your contracts. These standard clauses might not address the unique aspects of your specific situation, leaving room for misunderstandings or legal loopholes.

Customize your contract clauses to suit the particular needs and circumstances of each agreement. Tailoring these clauses ensures that all relevant issues are covered comprehensively, reducing the risk of oversights and closing any loopholes that could be exploited later. This approach helps safeguard your interests by ensuring that the contract fully reflects the specifics of your business arrangement.

Conclusion

Contracts are essential for any business, and it's crucial to get them right from the start. Steering clear of these common mistakes can not only save you money but also spare you a lot of stress in the future. To make sure your contracts are robust, current, and truly safeguard your interests, it's wise to work with a legal expert. A bit of careful attention to detail now can prevent major issues down the line, keeping your business on solid ground.

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. That’s where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and you’ll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.