In the good old days, people shook hands and did what they said they’d do. However, things are considerably more complicated now. While most people have only good intentions, modern deals can have so many moving parts you’ll need a written record just so everybody knows what they’re supposed to do in the first place. And, of course, there’s the whole protection aspect to consider.
Yes, business insurance will cover you in the event of certain unforeseen circumstances, but a strong written agreement can prevent a dispute in the first place. Let’s take a closer look at the true importance of contracts in business.
With time and involvement, details can slip through the cracks. A precisely written contract can serve as a touchstone to which all parties can return from time to time to ensure they’re fulfilling all of their promises. Further, when all the details are written in one place, it gives the contracting parties an opportunity to see the deal from 30,000 feet to make sure they’re entering into an agreement they are comfortable fulfilling.
Even when both parties agree to perform certain actions, misunderstandings about how those actions are to be conducted can arise. Contracts make it easier to agree should this happen. If the two parties can’t come to an agreement, a contract will also determine how to reach settlements of disputes. To avoid litigation, contracts can specify that an independent arbitrator will first hear disputes, instead of taking them right to a court of law. This can save both parties considerable expense.
Assurances of Privacy
In situations in which disclosure of processes or methods could lead to the loss of a competitive advantage, confidentiality clauses allow parties to work together free from concerns of disclosure. Parties can agree in the terms of the deal to keep all aspects of the project secret. One of the chief concerns when developing something new is the worry of discovery before one is positioned to reap the benefits of the work. With a confidentiality clause, all parties can have access to whatever information they need to accomplish their part of the deal.
Costs, Expenses and Remuneration
Financial details are often particularly complicated. Taking as many scenarios into consideration as possible and outlining their handling is an extremely important aspect of contracts. How much will the party performing the work ultimately get paid? Will operating expenses be reimbursed, or provided up front? Will materials be provided, or will the contractor procure all the needed materials, personnel and equipment and be reimbursed later? What are the payment terms? Will the full price be paid at the completion of work, or will there be a deposit and milestone payments? Agreeing upon these stipulations in writing is crucial to the success of any project.
Ultimately, this is just the tip of the iceberg when it comes to the importance of contracts in business. Shaking hands and agreeing to do the job is too open ended. Good legal advice is a must-have before entering a binding contract.
And, in case a dispute arises, business insurance is a safeguard against financial ruin. Consult CoverHound for more information and a commercial policy quote today!