Understanding Sales Contracts

Well-written sales contracts are essential to any small business that deals in products and services. The sales contract is an agreement that delineates the rights and obligations of both the seller and buyer.

Rather than being a standardized form, companies usually tailor their sales contracts to suit the specific needs of their type of business. Often, the agreement is printed on the back of the invoice or bill of sale. For those customers who pay for an item when they buy it, they automatically accept the terms of the sale at the point of purchase.

In addition to receipts, retail outlets often display representations and warranties relating to sales transactions in signs throughout the store. This can include a store’s return policy, with language such as “Purchased items must be returned within 30 days with receipt for a refund.”

When drawing up a sales contract for your business, you need to have it reflect the particular aspects of your business, including types of products and services as well as price and payment terms. You can also make the contract more favorable to you as the seller. The following are general terms and conditions that you can include in your sales contract.

  • Identification of the contracting parties: Identifies who is the seller and who is the buyer.
  • Description of goods and/or services: Describes what specifically is being bought and sold.
  • Price and payment terms: Gives the price of goods and/or services, including any taxes, finance charges, and price adjustments. Also gives the terms of payment, including dates and amounts.
  • Buyer and seller’s rights and obligations: This includes any representations and warranties that the seller has made to the buyer.
  • Liability limitations: Sellers try to limit their liability to the purchase price. Include a clause that states that you are not responsible for lost profits or damages caused by malfunctions. Some consumer laws may negate this clause or limit its legal effectiveness.

The National Conference of Commissioners on United States Laws gathered in 1952 to formulate the Uniform Commercial Code, or UCC. The UCC governs an array of transactions that include borrowing, contracts, and a variety of other business practices. Since its inception, the UCC has been adapted to include more consumer protection laws.

Most states have adopted the UCC, and you should be familiar with your state’s interpretation of it when drawing up the representations, warranties, and liability limitations of your sales contract.