Our Guide to Creating a Contract – summary

How can a contract help your business?

Does your business sell goods to other businesses? Do you provide services to business customers? If so, having a written contract is one of the most important tools you can use to protect yourself.

Before we get into the detail, think about the real risks you face.

What if:

• you have to wait 90 days for an important payment?
• your biggest customer goes under before paying you?
• there’s a dispute and nothing was written down? Who knows what was agreed?

Write down what’s been agreed, in a simple, clear way that everyone understands.

This guide aims to help you do that. If there are complicated issues to work through, or the contract involves significant risks or costs, legal advice is a good idea.

But even simple contracts make a difference. Whatever your size, you’re an equal partner. A good contract makes that clear.

A phrase I’ve heard often is worth remembering: contract for the marriage, not the divorce.

What is a business contract and why do I need one?

A business contract is simply a clear agreement between two or more businesses. It sets out what each party has agreed to do, supply, or pay.

But unlike a handshake or a casual conversation, a written contract is legally enforceable.

What needs to be in the contract?

At the very least your contract should include:

How the contract ends and what happens if it ends early

What’s being provided: The specific goods or services

How much: Quantity or volume

Details that matter: Quality, known limitations, or conditions

How long it lasts: For example, 12 months or until a project is completed

Who’s involved: The legal names of all parties

Why should I get a contract in writing?

If the contract runs for any length of time, you’ll probably need to refer back to what was agreed. If there’s nothing written down, people can remember things differently and that’s when disputes start.

A written contract is there to protect both parties. It’s not just for when things go wrong. It also helps prevent problems in the first place. It doesn’t have to be long or complicated, but it should be clear, specific, and reflect how you intend to work together.

What counts as a breach of contract?

A breach happens when one party doesn’t do what they promised. This might include:

• Missing a payment deadline, or not paying at all
• Refusing to carry out duties listed in the contract
• Stating in advance that they won’t meet their obligations

Some breaches are minor and may be resolved quickly. Others are more serious and could allow the other business (party) to end the contract or claim compensation.

How can I protect myself when it comes to payments?

Payment terms are one of the most important parts of any contract, especially for micro and small businesses. Getting them right helps protect your cashflow and avoid long waits or overdue payments.

You can get help from the Small Business Commissioner (SBC)

If you’re a small business (fewer than 50 staff) and your customer is a larger business, the Office of the SBC can help for free.

They can:

• Help resolve disputes without court action
• Advise you on your rights
• Contact your customer on your behalf if that’s what you want

One final thought on late payments

The OSBC can help for free. Legal action is the last resort.

Once you’ve signed a contract agreeing to long payment terms (e.g. 90+ days), you can’t challenge them later, even if they’re tough. But if the payment is late after that period ends, you can take action.

Don’t let fear of losing work stop you from chasing what you’re owed. Late payments can put your whole business at risk.

Final Top tips:

• Keep contracts as simple and clear as possible with no surprises.
• Put the contract in writing, even if it’s just a few bullet points.
• Negotiate with a view to reaching a fair agreement that works for both sides.
• Compromise where you can and stay open and respectful.
• Always remember contract for the marriage, not the divorce.