Essential Contract Review Questions for Businesses
In the world of business, it's imperative to ensure that your contracts are meticulously crafted to protect your interests. To help you gauge the strength and reliability of your contracts, here are ten crucial questions that every business should ask itself. If you find yourself answering "No" to at least four of these questions, it might be time to reassess your processes. For expert guidance and support, reach out to Contract Checking LLP..
- Do you have a signed contract for all agreements where you are providing products or services in exchange for payment?
- Do all your contracts specify a clear timeframe within which payments must be made?
- Do your contracts incorporate a late payment clause that outlines the interest rate applicable for delayed payments, including in B2C agreements?
- Do your contracts include a clause allowing you to suspend or terminate the agreement in the event of late payment?
- Are your contracts equipped with a robust dispute resolution clause that promotes problem-solving through dialogue before resorting to legal action?
- Do you regularly perform credit checks or obtain trade references and credit agency reports for all your customers?
- Do you thoroughly examine registers like Companies House, the Register of Judgments, or Insolvency Registers before commencing business with new customers?
- Have you established a straightforward credit control and debt collection process in case payment is not made on time?
- Do you possess insurance, such as credit risk insurance, to mitigate the risk of late payments?
- Are you utilizing processes like invoice factoring or invoice discounting to expedite payments?
The Significance of Reviewing Business and Commercial ContractsWhen contemplating the importance of terms and conditions, contractual obligations, and contract reviews, consider this: even the world's wealthiest individuals, like Jeff Bezos, require adherence to Amazon's terms and conditions before transacting business. Therefore, it should be a priority for businesses of all sizes. Commercial contracts serve as the foundation for business partnerships, and they are not merely important; they are essential. These written agreements establish a clear framework for how commercial relationships function. Contracts that lack specificity can lead to ambiguity and, subsequently, costly disputes and legal battles. A well-structured commercial contract seeks to balance the risks involved and clarify the responsibilities of all parties involved. While minimizing risk is prudent, it's also essential to recognize that in contract law, all parties are striving to protect their interests. Even in the best of circumstances, minor breaches can occur, especially in long-term contracts. This is why we emphasize the inclusion of dispute resolution procedures as a standard practice. Most disputes can be resolved through simple discussions, but having a documented procedure, like a waterfall dispute resolution, in place is a prudent approach. Extraordinary events, such as the COVID-19 pandemic, can lead to breaches of contract that are beyond anyone's control. Therefore, having your contracts reviewed by a reputable company is a critical step to safeguard your business's interests. Many small businesses assume they are too insignificant to need contract reviews or fall into the "we've never had any problems" mindset. However, unexpected events like COVID-19 can disrupt business and contractual agreements. Contract review is an indispensable tool for your business, and it can begin for as little as £99.00.
Effective Communication in Debt CollectionIn today's post-COVID business environment, communication plays a pivotal role in debt collection before resorting to legal action. Have you tried engaging with debtors through phone calls or by offering to meet with them? While sending credit control letters and emails can be effective, a personal phone call often leads to more amicable solutions. Sometimes, written correspondence may not receive attention, especially if key personnel have changed or if remote work affects efficiency. The debtor might not even be aware of the outstanding balance. Did you ensure that you invoiced the correct person or department within the specified timeframe? Invoices are often directed to the individual who placed the order rather than the finance department, leading to confusion. Regular communication with your customer helps ensure that you are consistently in touch with the right contact. Legal action may become necessary in some cases, but before taking that step, ensure that you have exhausted all reasonable avenues. It's common for debtors to respond once they receive a legal letter or a claim form, often claiming ignorance of the situation.
Navigating Director DisputesWhen establishing a company and incorporating it with co-directors, disputes may seem improbable in the beginning. However, as time passes, roles and responsibilities evolve, and the company's growth may lead to disagreements among directors. Several triggers can contribute to such disputes, including financial concerns, family member employment, power struggles, dividend distribution, differences in business strategy, inadequate director performance, and share valuation when a shareholder wishes to exit. Director disputes can jeopardize the success of small and medium-sized enterprises. Here are three essential points to avoid such disputes:
- Incorporate a Dispute Resolution Procedure in Your Articles of Association and Establish a Shareholders' Agreement: Many SMEs are founded by family or friends who might initially feel uncomfortable discussing the inclusion of a dispute resolution process in the company's Articles. However, given the many potential reasons for director disputes, it's wise to prepare for resolution from the beginning. This approach mitigates the risk of costly, time-consuming court battles. A Shareholders' Agreement can address common dispute triggers, like succession planning and voting rights.
- Understand How to Remove a Director: If mediation and negotiation fail to resolve a dispute, removal of a director might be necessary. The company's Articles may provide guidance on the circumstances and methods for director removal. If not, you can attempt to persuade the director to resign with a severance package. In cases of non-compliance, shareholders can use a Special Notice under the Companies Act 2006 to remove the director.
- Protect the Company from Fraud, Money Laundering, or Corruption: Rogue directors engaging in bribery, corruption, money laundering, or fraud can implicate fellow directors and put the company at risk. Seek legal advice as soon as suspicions arise concerning a director's actions related to criminal activities.
The Significance of Contract ReviewsCommon sense dictates that signing a contract without reading it thoroughly is a grave mistake, though it's surprisingly common. Any signed contract, agreement, or terms and conditions can have substantial implications for your business. Thus, it's crucial to meticulously review all documents to avoid significant risks. This is where contract reviews come into play. A contract review is a systematic process used to identify and analyze the key provisions in an agreement. It involves a thorough reading to comprehend terms and conditions, highlighting risks, liabilities, and points of concern (or benefits). Some companies present contracts expecting them to be signed without question, often citing them as "standard documents." However, there's no such thing as a standard contract, and there's no excuse for not scrutinizing what you're given before signing. A comprehensive contract review clarifies obligations, safeguards interests, and ensures fair treatment of all parties. While it may lead to negotiations and compromise, the ultimate goal is to establish a long-lasting, mutually beneficial working relationship. Unlike automated contract review software, manual contract reviews are conducted line by line, providing a thorough analysis of each provision.
Why Are Contract Reviews Important?Contracts are legally binding agreements. Without a rigorous review, parties risk committing to obligations they can't fulfill or accepting unfavorable terms that may lead to costly and avoidable legal disputes. Contract reviews reduce legal and financial risks, offering parties a clear understanding of the terms and conditions before signing. While post-signature contract reviews are not ideal, they allow you to verify that clauses and provisions still align with your business needs and regulatory requirements. A contract review ensures that all terms are fair, enforceable, and properly documented, providing clarity on consequences for breaches. Many business owners find contract language challenging to decipher. Our unique approach translates legal jargon into plain English, a feature often lacking in automated software. Contract reviews are not exclusive to large corporations; smaller enterprises can also benefit from a cost-effective service like Contract Checking LLP., starting as low as £99.00.
Who Can Review a Contract?Anyone can review a contract as long as the terms are neither immoral nor illegal. We employ a diligent and experienced paralegal team, backed by £1 million professional indemnity insurance, to review contracts. We summarize the key points of liability and potential liability and advocate for the inclusion of a waterfall dispute resolution procedure in nearly all agreements. In small organizations, contracts may be drafted by individuals with limited legal knowledge, relying on internet research or the advice of lawyer friends. However, making errors in contracts can result in substantial financial consequences. Seeking professional contract review, which can begin as affordably as £99.00 with Contract Checking LLP., offers a fast, accurate, and insightful process. Key Steps in a Contract Review Contract reviews involve numerous considerations, including the 6 Ps and an assessment of the contract's objectives and potential risks. Specific areas to focus on include payment terms and triggers, commercial terms, and duration periods. For instance, understanding the difference between "30 days end of month" and "60 days end of month" in payment terms can significantly impact your average payment cycle.
Contract Review ChecklistWhile contracts vary depending on the agreement type, there are common elements that every contract should include. When conducting a contract review, consider the following key points:
- Does the contract accurately reflect the negotiated agreement?
- Are the parties properly identified in the contract?
- Is the contract's duration clearly outlined, including expiration dates and renewal clauses?
- Have payment terms and triggers been correctly established, with accurate payment dates?
- Are there terms that could be open to interpretation?
- Are both parties' obligations clearly defined?
- Are termination and renewal terms in place?
- Does the contract incorporate a dispute resolution procedure?