Our clients approach us a number of times with challenges of enforcing certain terms that they agreed to with different parties but they are failing to enforce. A few questions in and it’s clear that most of them had a gentleman’s agreement because they believe reducing it into writing is mistrusting the other party. Business contracts are the highest form of trust for businesses showing that each party is relying on the other to do exactly what they have bound themselves to do.
A Contract is a legally binding agreement between parties. Contracts can be used business-to-business or business to a client to arrange services and fees for any given project.
A Contract is essential for building trusting relationships and streamlining important transactions among many advantages. There are a few more reasons for making contracts, these are;
Relationships: Two or more parties agree to work together and forge a connection. Contracts hold each party to the original agreement holding each side accountable to the terms set out at the beginning of the relationship.
They prevent conflict and mitigate risks: Each party in a contract feel they are getting the best deal possible and thus minimising the risk of conflict at a future date.
Compliance with legal requirements: Most business people do not have a legal background for them to understand their actions may not be complying with regulatory requirements. For example, in order to pay your rental income tax, you must produce your tenancy agreements/contract for the tax master’s perusal. Thus certain contracts help in compliance with legal requirements.
It’s a communication and collaboration tool: By communicating one’s needs and forging a relationship between parties creates teamwork and cooperation.
They bring revenue to a business: signing more deals to deliver a service in exchange for a payment will help generate income for the business. The more efficiently a contract is executed helps companies generate more revenue.
Increases efficiency in the company. Having all people, processes, and documents in one place is critical for aligning with the current pace of business creating efficiency.
Improves the Company’s reputation. Contracts are an extension of a company’s brand. A contract is a symbol that an organization cares about having a detailed record of a relationship that they are making a commitment to.
In business transactions, contracts are important because they outline expectations for both parties, protect both parties if those expectations aren’t met and lock in the price that will be paid for services.