What is a Sales Contract?
A sales contract creates an outline between the buyer and seller regarding the transaction of products or services. It is known by different names, such as a sales agreement, a sale of goods contract, a purchase agreement, etc, knows it. Different types of sales contracts are available, which can vary according to the purpose of the use.
A sale contract is a formal agreement used for the transaction purpose of goods or services in terms of exchange of payment. In a sales contract, the mode of payment can be kept in terms of the promise of future payment. In short, we can say it is a kind of document that can be kept for records of transaction purposes. It is helpful for the parties in the event of a controversy between them. The parties can make transactions safely and legally through the contract of sale.
Commonly, a good sale contract specifies some details, such as the name of the seller and buyer, details of goods and services, payment modes, and other clauses according to the terms and conditions of the contract. It helps buyers and sellers make a stress-free transaction because there are specific mentions of the rights and duties of the parties.
Where to use a sales contract?
Using a sales contract for any transaction, big or small, ensures smoothness for both parties. The best sales contracts are simple, with no hidden clauses. However, before entering a contract, you should take legal advice.
Benefits of a Sales Contract
When we talk about the benefits of a sales contract, we can say that it is more valuable than an oral agreement. It specifies all the terms, conditions, and obligations related to the contracting parties. It also defines the economic outcome of a contract.
A sale contract ensures a mutually agreeable transaction, protecting both parties’ interests. A sales contract provides the legal protections provided to buyer and seller in the event of a failure to deliver on promises.
It provides some more benefits, such as:
- It creates a transparent communication channel between the parties involved.
- The sale contract allows both parties to fulfill their obligations and meet their expectations.
- A sales contract ensures that the buyer and seller adhere to their agreed obligations throughout the sales process.
- The contract can be legally enforced if the party fails to fulfill their obligation.
Essential things that should be included in an effective sales contract
For making a good and effective sales contract, there are some details that you need to include. This information may vary depending on the goods or services. Some of the clauses are given below:
(1) Details of contracting parties
In this clause, you should specify the names of the parties involved in the sales contract. In most cases, the buyer and seller of the goods or services are included. But if you make a direct deal with the company, you should need to include details of a contact person of the company. Otherwise, in this clause, you should mention the name, address, and contact details of the buyer and seller involved in the contract.
(2) Identification of the contracting parties
This is a crucial part of every sales contract. Before making a sales contract, the contracting parties must be identified. In most cases, it belongs to a buyer and a seller. In the contract, the information of the parties needs to be described.
(3) Description Of The Services and goods
A description of the services and goods is also the most crucial part of the sales contract. Because that exactly shows what kind of services or goods are purchased. Some basic descriptions should be mentioned, like color, quantity, etc.
If any services will be exchanged, it includes details such as what kind of delivery is provided.
For example, suppose you create a sales contract for selling air conditioning for the home. You should describe the delivery details, model number, terms and charges of installation, warranty period, and what kind of other services will be provided after the sale.
Also, mention what services will be provided during the warranty period, and after the warranty period, and what is the charge for that, etc.
(4) Payment terms
The payment terms are the most significant part of every sales contract. That’s why it is advisable to put it in writing form in the contract, because it may negotiated in each contract.
You should mention all details, such as if the customer pays some sum as a deposit or in advance while entering the contract. How do payments be made, and what are the terms for that? All details need to be described in writing form in the invoice of the sales agreement.
Some of the basic outlines that need to be included in this clause are given below;
- How the invoice be sent to the buyer?
- Terms and conditions of the payment.
- Details of acceptable payment modes, like cash payment, cheque, bank transfer, etc. Please mention if the payment mode is related to installment or full payment at a time.
- Terms of repayment if a buyer will not complete the installment within a time, and what is the interest rate for that?
(5) Delivery of goods or services
It should also describe the details of delivery items, such as goods or services, in the sales contract. Some other things that you need to include related to the delivery, such as delivery charges, method of delivery, place and time of delivery, and one more important thing is what the liabilities if such delivery fails or damage occurs in the delivery.
The one more common thing that needs to be included while you prepare a sale contract is the force majeure clause. This clause says that, due to acts of the god, if the goods are not delivered, such as riots, floods, or any other events. Then, in this situation, what kind of actions be taken by both the contracting parties? It will be required to be mentioned in the contract.
(6) Inspection period of goods or services
This period does not need to be included in all types of contracts. However, you should add the inspection period to the sales contract. It provides surety and confidence to the buyer that they examine the goods that meet all the terms and conditions of the contract.
That inspection time may vary between different goods as the inspection time will be too short if the goods are perishable. In contrast, it takes more time if the goods belong to heavy machinery or technical products, then it will take a long time for the inspection.
(7) Warranties of goods or services
These are the crucial terms that should be included in a sales contract. A warranty is a type of guarantee provided by the seller to the buyer that the goods or services they buy meet all the expectations of reliability and quality as specified in the contract. A warranty may be either express or implied. In terms of express warranty, a positive statement is given by the seller related to the quality of the goods. While an implied warranty will automatically apply when a customer purchases the goods, it is not required to be provided in written form. If an implied warranty is not included in the sales contract, it will be necessary to specify it in written terms.
(8) Governing law
This clause is also known as a choice of law. This clause defines which state law will apply for the enforcement of the contract or making an interpretation of the contract. Through this clause, the contracting parties can mutually agree and choose their legal jurisdiction to resolve their legal disputes.
(9) Confidentiality clause
If any transaction is needed to share confidential information, then through this clause, the contracting parties can expressly outline the terms that protect the private details not to be shared with a third party.
(10) Amendment of contract
In this clause, the contracting parties need to mention that the terms and conditions of the contract can be altered if due to event required.
(11) Breach of contract
If the contracting parties do not fulfill their obligation towards the contract might be breached. This clause specifies when the party can terminate the contract. And what type of action can be taken to recover the losses if the contract is breached by the party.
(12) Notice
It is a significant clause for the contracting parties. Through this, the contracting parties can specify how and where the communications can take place between them, what the mode of communications is, etc.
Advantages of a Sales Contract
After all the above discussion, there are some advantages of sales contracts that we should know, such as;
- Minimizes Risks to the Contracting Parties:
By making a sales contract, the contracting parties reduce their risks related to disputes and litigations. All sales-related terms and conditions are specified in writing and signed by the parties. It helps them understand the conflict that can be resolved outside the court. If any party breaches the contract, the other party can protect their right by reaching to court.
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Creates more transparency:
The sales contract provides more clarity between the buyer and seller in the sale transaction. All sales details are mentioned in the contract. That is accepted and signed by the parties. That creates more transparency between them.
Disadvantages of Sales Contract
We above see some advantages of a sales contract, but it has some disadvantages, which are given below;
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It takes more time and money:
Lots of time can be taken to prepare a fully detailed sales contract. Commonly, the parties do not know how to prepare an effective sales contract; they must hire a lawyer to draft a contract, which may result in paying lots of costs.
Also Read:
Understanding A Sales And Purchase Agreement (SPA)
Contracts And Sales Agreements
