In today's Freedom Friday blog and email newsletter, I want to talk about a topic that comes up with some of my business contract clients, and that's how to use a contract to avoid business disputes.  In other words, what types of clauses a business contract should have to avoid a dispute later on.  So, in today's Freedom Friday blog and email newsletter, I'm talking about how to handle contract issues to avoid business disputes.

Small businesses can reduce the risk of contract disputes by carefully drafting specific clauses in their contracts.  Here are five (5) common contract disputes which can be avoided by drafting specific clauses in business contracts:

1.  Payment Terms

The first common contract dispute which can be avoided by drafting specific clauses is regarding payment terms.  Unclear payment schedules, methods, or conditions can lead to non-payment or delayed payments, which can disrupt business operations.  To avoid disputes regarding payment terms, set clear payment deadlines by specifying exact due dates, e.g. payment is due within ten (10) days of the invoice.  You should also specify acceptable payment methods, e.g., credit card, check, etc., include late payment penalties, for instance, some invoices charge 1.5% interest for late payments.  Likewise, you should include provisions for handling payment disputes, such as mediation or arbitration, etc.

2.    Performance Standards

The second common contract dispute which can be avoided by drafting specific clauses is regarding performance standards.  Unclear performance standards, timelines, or quality expectations can create disputes regarding whether goods or services were delivered as agreed.  A solid contract should define clear delivery deadlines with specific deadlines and milestones, specify performance standards, and include remedies for delays and failures, such as liquidated damages or termination options.

3.    Termination

The third common contract dispute which can be avoided by drafting specific clauses is termination.  Vague termination clauses can lead to disputes.  A strong termination clause should specify grounds for termination such as material breach or failure to perform, define notice requirements (how much notice must be given and if it needs to be in writing), and give post-termination responsibilities such as returning goods or providing a partial payment for completed work.

4.    Liability Issues

The fourth common contract dispute which can be avoided by drafting specific clauses is liability issues.  When a party to a contract seeks to avoid liability for damages or indemnity obligations are unclear, disputes can happen between the parties on these kinds of issues.  A contract should provide clear provisions regarding liability and indemnity by clearly limiting liability, i.e., providing caps on damages and exclusions for indirect or consequential losses, specify specific situations in which one party must indemnify the other, e.g. for negligence or third-party claims, and address mutual indemnification appropriately for a balanced contract.

5.    Dispute Resolution

The fifth common contract dispute which can be avoided by drafting specific clauses is dispute resolution.  A business dispute can get even more out of hand if the contract does not provide a dispute resolution process.  Not only can you have a dispute, but then you can also have a dispute over how to resolve the dispute.  A strong dispute resolution clause includes alternative dispute resolution (ADR) options such as mediation and/or arbitration, governing law and venue, and set timelines for resolution.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.