Key Issues in Sales Contracts for Startup Businesses

Many small businesses sell product and therefore need a well-written Sales Contract. The Sales Contract lays out the price, terms, and conditions for the sale of goods, equipment, or other products. The actual Sales Contract can take the form of fine print on the other side of an order form or an invoice, or it can be tailor-made for a particular sale.

From your company’s perspective, you always want to start with your own form. Having your form preprinted helps it to look “standard” and non-negotiable (although be aware that no “standard” form of Sales Contract actually exists). As the drafter of the Sales Contract, you can make the contract more favorable to you as the seller.

• Price: Make sure that the Sales Contract correctly states the price (often by filling in a blank space provided on the form). The Sales Contract also needs to spell out any discounts, installation charges, and delivery charges.
• Price adjustments: Consider how you may increase the prices from time to time if you are entering into a long-term contract.
• Taxes: Try to ensure that the purchaser is responsible for all sales taxes.
• Payment and credit terms: Make sure to state when payment is due. If you don’t require immediate payment, consider a small discount to the purchaser if payment is made within 10 days and a finance charge if payment is late (such as 30 days past due).
• Warranties: Decide what warranties you want to give. Ideally, you want to have limited warranties, but the competitive marketplace may require you to grant extensive warranties. Indeed, one advantage you may have over more established competitors is to offer a better warranty (one year, for example) than the industry standard (which may be 90 days). Typical warranties state that for a designated period, the goods sold will be free from defects of workmanship and will conform to designated specifications.
• Disclaimers: State clearly in your Sales Contract (after you have set forth what your warranties are) that no other warranties exist, express or implied, including merchantability or fitness for a particular purpose. This disclaimer is usually in all capital letters or boldfaced to stand out and comply with certain provisions of the Uniform Commercial Code.
• Liability limitations: Use the Sales Contract to attempt to limit your liability under the contract. A typical clause for liability states that the seller’s maximum amount of liability is equal to the purchase price. Make sure, too, to include a sentence that says you are not responsible for consequential, punitive, and speculative damages or lost profits (although some laws may limit successful enforcement of this clause).

For a sample Sales Contract, see the Forms and Agreements section of AllBusiness.com.

Be sure to also read Key Issues in Service Contracts for Startup Businesses.

Copyright © by Richard D. Harroch. All Rights Reserved.