Clear, well-negotiated contracts are vital for businesses. They set out agreed terms, reduce legal risks, and help build strong relationships with customers and suppliers. Poorly drafted contracts, however, can lead to financial losses, being tied to unfair terms, and expensive legal disputes.
These 13 key tips will help you improve your contracting process.
1. When contracting with another business, always use written agreements
A written contract makes the agreed terms and obligations clear. Without one, both sides may have different views on what was agreed. This can lead to costly and time-consuming disputes.
A well-drafted contract helps prevent misunderstandings and provides legal protection if things go wrong. Remember, contracts don’t have to be on paper they can also be made through emails or WhatsApp messages.
Be careful not to enter into an agreement unintentionally through informal channels. During , negotiationswhether in person, by phone, email, WhatsApp, or social media, make it clear that any deal is subject to a formal written contract.
2. Ensure the contract is complete before signing
Before signing, check that the contract is fully completed. Make sure party names, schedules, and appendices are correct and included. Look for any missing details, such as unfinished wording or square brackets left from negotiations. Remove any drafting notes, footnotes, or “subject to contract” wording.
Key commercial terms, such as prices, quantities, and dates, are often left incomplete during negotiations. Always double-check that everything is finalised before signing.
3. Sign and date the contract
Both parties should sign and date the contract to signify they are legally bound by it. If a contract is left unsigned, one party may later challenge its validity. The contract date usually marks the start of obligations, so no work should begin until all parties have signed and dated it.
If you are a supplier, working before signing may mean you won’t get paid. If you are a customer, accepting services before signing could mean that those services are not covered by the contract terms.
4. Use clear and unambiguous language
Contracts should be clear and precise. Courts interpret agreements based on their expressed terms (exact wording) and the common meaning of words. Avoid legal jargon and use plain language to prevent misunderstandings.
For an example of how unclear wording led to a legal dispute, see our blog post on Cantor Fitzgerald & Co v Yes Bank Limited: Drafting contract lists: the hidden risks of misplaced adjectives
5. Define the scope of services and deliverables
Many contract disputes arise from unclear terms about what is (and isn’t) included in a service or supply agreement. To prevent misunderstandings:
- clearly define the scope of work and services.
- list all deliverables and their deadlines.
- specify any exclusions.
- ensure pricing and payment terms match the agreed work and deliverables.
6. Plan for changes and reviews
Business needs evolve, especially during the course of long-term agreements. Contracts should allow flexibility where needed. If the scope of work may change over time, consider including:
- a formal contract review process (e.g. regular reviews).
- a change control procedure to document and agree on amendments.
Without these safeguards, even small changes can lead to disputes over what falls within the original agreement.
Remember, when things are going well, parties often extend deadlines or expand work informally. However, if a dispute arises, they may disagree on whether the contract was legally amended. Always document changes to avoid uncertainty.
7. Understand the termination rights
Make sure the contract’s duration suits your business needs. Consider these key questions:
- does the contract renew automatically unless you give notice within a set period?
- can it be ended for convenience (without cause), or only if there is a breach?
- if it can be terminated on notice, what is the notice period, and does it apply to both parties?
- are there automatic renewals or pre-set price increases after renewal?
If a contract automatically renews, ensure you track key dates to avoid being locked into an
agreement unintentionally. Suppliers and customers are likely to have different interests here.
Suppliers often prefer long-term commitments, while customers benefit from flexibility.
8. Ensure clear financial terms
Financial clauses often favour the party that drafts the contract, so review them carefully. Pay attention to:
- deposits and advance payments.
- invoicing frequency, payment terms, and late payment penalties.
- whether one party must approve invoices before payment.
- a supplier’s right to increase prices—and whether the customer can challenge the changes.
If a supplier can raise prices mid-contract, set clear limits on how often and by how much. Also, check that the default interest rate for late payments is fair.
An interest rate that is too high may be unenforceable, while one that is too low could have unintended consequences. For more information, see Caution: Low interest rate on debt can cost.
9. Protect your intellectual property (IP)
Intellectual property (IP) ownership is often overlooked but can have serious consequences. In many cases, the creator of the work owns the rights unless the contract says otherwise.
If you are commissioning work (such as a website, software, or creative content), make sure:
- you own the IP outright or have a sufficient licence to use it.
- the licence continues after the contract ends if needed.
- the supplier provides an indemnity if their work infringes third-party IP rights.
10. Balance risk with warranties, indemnities and liability caps
Warranty, indemnity, and liability clauses determine how much risk each party takes if something goes wrong. Suppliers often try to limit their liability, so customers should review these clauses carefully to ensure they have proper legal protection.
Key considerations include:
- are there meaningful warranties on performance and service quality?
- do indemnities fairly cover the specified risks?
- will any performance terms be implied by law, and (if legally permissable) should they be excluded?
- are liability caps reasonable compared to the contract value?
- could any liability limits be unenforceable under applicable laws and regulations?
A fair contract protects businesses from excessive liability while ensuring proper legal remedies for breaches.
11. How are you going to resolve any disputes?
Think about how you want to handle disputes before they arise. Mediation before legal action is becoming more common and it can be a quicker, cheaper way to resolve issues without going straight to court.
You’ll also need to decide whether disputes should be handled in court or through arbitration. Court cases are public, while arbitration keeps things private.
If you’re including an arbitration clause, make sure it actually makes sense for your agreement. Check the arbitration rules, the chosen location, and how many arbitrators will be involved. People often assume arbitration is faster and cheaper than court, but that’s not always true.
12. Choose the right governing law
Make sure the contract’s governing law makes sense for both the transaction and the parties involved. If the businesses are in different countries, one party will have to deal with foreign laws.
Taking legal action in another country can be expensive and complicated. In some cases, it may not even be worth the cost. Ask yourself: Is the chosen law suitable for the contract’s subject matter, where the work will take place, and the types of disputes that could arise?
13. Standardise your contracts where possible
Negotiating every contract from scratch can lead to inconsistencies, extra risk, and unnecessary legal costs. Instead of reinventing the wheel each time, try to use standard contracts where you can.
Most businesses do this for:
- buying or selling goods and services – keeping terms consistent across suppliers and customers.
- confidentiality agreements (NDAs) – protecting sensitive business information when working with third parties.
- employment contracts – ensuring uniform terms for employees.
If you have standard terms, use them consistently. Set clear rules on which terms can be changed during negotiations and which need approval before being amended.
If someone hands you their terms and conditions, don’t just accept them as final. Read them carefully and push back on anything unfair, especially things like one-sided obligations, termination rights, indemnities, and liability caps.
At PaperRock, we provide high-quality legal document templates that help businesses standardise their contracts – without compromising professionalism.
Our business contracts, shareholder agreements, employment contracts, and commercial terms are drafted by leading English solicitors. They offer a reliable, cost-effective alternative to expensive, bespoke legal drafting.
A final thought
Standard contracts are a great foundation, but sometimes expert advice is needed. If you’re dealing with a complex, high-value, or unusual contract, or if key terms differ significantly from your usual agreements, it’s worth consulting a commercial lawyer.
