Sales Contracts: How to Create, Negotiate and Manage

As your business grows, you’re going to find yourself dealing with an ever-growing volume of sales contracts. Your agreements with vendors, for example, are sales contracts. Your commercial lease for office space is one, too. And your license agreements for software? You guessed it – also sales contracts.

While sales contracts might not be the most exciting documents on earth, a clear understanding of how they work will help prevent a lot of problems. By practicing smart contract management, you can close deals faster. And by following best practices for contract renewal, you can capture more value and avoid surprise fees.

So let’s talk about what goes into a sales contract, and discover some hacks for streamlining negotiation and renewals.

What is a sales contract?

A sales contract is a legally binding agreement that outlines the terms and conditions of a transaction between parties involved in the sale of goods or services. These parties could be individuals, companies, or organizations.

What sets sales contracts apart is their central role in documenting the specifics of transactions. In this way, they ensure clear expectations, and provide legal protection for both buyers and sellers.

What are the parts of a sales contract?

The main parts of a sales contract are as follows:

• Description of goods or services
• Payment details
• Delivery terms and details
• Legal jurisdiction
• Risk of loss stipulations
• Buyer and seller details

Description of goods or services

This section provides a detailed account of the products or services involved in the transaction. Precise descriptions help prevent misunderstandings and ensure both parties are on the same page regarding what is being exchanged.

Payment details

Clearly outlining the price, payment schedule, and accepted methods of payment prevents confusion and disputes later on. This transparency ensures that financial obligations are met as agreed upon.

Delivery terms and details

This section defines when and how the goods or services will be delivered, including delivery dates and locations. It helps avoid any last-minute confusion and sets the stage for a smooth process.

Legal jurisdiction

In international transactions, it’s necessary to specify which jurisdiction’s laws apply. This ensures that both parties understand the legal jurisdiction under which the contract will be interpreted and enforced.

Risk of loss stipulations

A contract has to specify who bears the risk in case of loss or damage during delivery or before the transaction’s completion. This helps avoid disputes and clarifies responsibilities.

Buyer and seller details

The contract needs to clearly identify the parties involved, including their legal names and contact information. This safeguards both parties’ rights and obligations.

Why are sales contracts important?

Sales contracts are important because they protect your business financially while minimizing the risk of legal disputes.

Benefits of managing sales contracts properly

• Legally binding framework: Sales contracts provide a clear and legally binding framework for transactions. This ensures that all parties have to follow the same clear rules.
• Legal protection: By establishing expectations and responsibilities, sales contracts protect both buyers and sellers. They help parties avoid misunderstandings and disputes.
• Clarity in terms and conditions: Laying out terms and conditions clearly can minimize the likelihood of disputes. This can help you avoid legal costs.

Risks of improper sales contract management

• Disputes due to lack of clarity: Vague or unclear contract terms can lead to disputes and delays in transaction completion.
• Financial risks from breaches: Failure to adhere to contract terms can result in financial penalties and even damage business relationships.
• Legal action and reputation damage: Contracts that are not managed correctly could lead to legal actions and harm your business’s reputation.

4 types of sales contracts

Sales contracts come in a wide variety of forms, catering to different kinds of transactions. Here are four of the most common types:

Purchase agreement

This contract type specifies the terms of sale for property or large assets. It’s especially prevalent in real estate deals and other high-value purchases.

Sale of goods agreement

Focused on tangible products, this contract type provides specifics about  product delivery, quality, and other aspects of the goods being sold.

Bill of Sale

Legally transfers ownership from the seller to the buyer. This type of contract is common in personal property transactions, like selling a used car. You can download our free bill of sale template here.

Sales invoice

Serves as a record of goods or services provided and the associated costs. Essential in business-to-business (B2B) transactions. You can download our free sales invoice template here.

Creating and managing a sales agreement

Creating and managing a sales contract involves four key steps:

Step 1: Drafting a sales contract

The first step is to draft the contract, either from scratch, or based on a pre-approved template. Make sure to have a legal expert review it, to ensure that all necessary clauses and key terms are included. Check out our walkthrough on how to draft a contract for more tips.

Step 2: The negotiation process

Contract negotiation often involves a lot of back-and-forth. You can save time by negotiating in a live document in real time, rather than sending changes back and forth via email. Once all parties agree to the terms, it’s time to collect electronic signatures that are legally binding.

Step 3: Monitoring and management

Contract lifecycle management (CLM) software can help you handle lots of contracts at the same time without missing any details. With this software, you can set reminders for payment dates and delivery deadlines, so you hit all your key milestones.

Step 4: Contract modifications and renewals

When a contract comes up for cancellation or renewal, that’s the perfect time to renegotiate for better terms, and request amendments as needed. Alternatively, you may want to proactively terminate the contract. Either way, deadline notifications will help you stay ahead.

Streamlining the sales contract process

Managing sales contracts manually poses a wide range of challenges. The good news, though, is that solutions are ready at hand. Here are two quick tips:

Use standardized templates

Standardized templates help ensure compliance and consistency, while reducing the chance of errors. They’ll also save you a lot of time. You can download a wide variety of templates for free from Concord’s template center.

Leverage CLM software

Use contract lifecycle management software to centralize all your agreements in one secure, searchable contract database. It includes built-in features like automated e-signature and approval workflows, as well as deadline notifications and reporting functionality.

By understanding the elements of a sales contract, navigating different contract types, and adopting a CLM strategy, you’re already on the path to mastery. Follow the tips outlined above, and you’ll streamline your contract negotiation process while avoiding many common risks. Soon you’ll be capturing greater value from your sales contracts, by managing them like a pro.

Streamline your contract processes today.
Concord CLM makes agreements effortless.

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