Why Use a Contract

24 February 2020

Why do you need a contract?

Is it tempting to shake hands instead of getting a contract signed?
It’ll be quicker and cheaper wouldn’t it?
After all, we all know what we want – it’s clear from the emails!!

Well, you could trade/buy/sell/provide or receive services without a contract but both parties are leaving themselves wide open for potential hassles that a signed and agreed contract would eliminate. 

If you are considering making do without a contract, how about the following reasons to sign one instead?

1. A Contract Creates Certainty
Yes, matters can be orally agreed, or perhaps by email. However, such will have very little legal recognition or standing. A contract will detail the nature of what you are doing, whether it is sales or services procedure, and ruling what can and can’t be done. By communicating this information, you are creating certainty – all parties know how to act and what is expected from them.

2. Contracts Provide a Description of Responsibilities 
Rather than suffer through the confusion of wondering what each party’s responsibilities are, you’re better to have everything in writing. This will help avoid confusion or disagreement. This is especially useful later on when a confusion or dispute might surface.

3. Contracts Bind Parties to Their Obligations
It is incredibly disruptive and can be costly if one party attempts to back out of an agreement or change its terms. A contract will bind the parties to the previously explained description of duties, thereby eliminating this problem.

4. Contracts can Determine a Timetable of Obligations
If a party needs or is expecting work to be performed within a certain time frame, or goods delivered by a certain date, a contract binds the other party to that time frame. 

5. Contracts can Secure Payment
This might sound obvious, but a contract will stipulate payment by a certain date and help ensure payment actually happens. If for any reason, payment does not happen, the contract is evidence of the business performed and the monies owed. 

6. Contracts Provide Help and Comfort if the Relationship Struggles
If the relationship between the contracted parties deteriorates beyond repair, a contract outlines the agreed procedure for termination.    

7. A Contract Helps to Reduce Disputes or Problems
Whilst a contract cannot wholly eradicate disputes or difficulties, a contract can help to minimise them. Should you have to face a dispute, a contract can help to protect you as the nature of the agreement is there in writing for you.

8. A Contract can Protect Your Intellectual Property (IP)
Protecting your business and its assets is extremely important. Intellectual property is a very valuable asset of any business and can come in many forms. IP needs to be protected against theft or misuse and copycatting. If the client needs to use your IP during the agreement, the contract will detail how and for how long (by way of licence).

9. A Contract Limits Liability
A handshake gives both parties unlimited liability whether desired or not. Do you want this? Contracts can deal with liability and limit this where desirable and appropriate. 

10. A Contract Helps to Build Trust and Give Peace of Mind.
By putting a contract in place, both parties will have peace of mind, allowing the trading relationship to develop more healthily as both sides know suitable protection is in place.

So, what’s it to be?

John Davies

We have a wonderful contract template collection

Why not head over to our "Contracts Collection". You'll find a great selection of self-service templates covering the sale of products and services business to business, business to consumer, private individual and agency. We think we cover most general contract needs! Can't find what you are after? Well don't forget, we can offer a bespoke contracting service! It's easy to get in touch right here.