As the owner, manager or executive of a business, contracts are part of your daily life. You need to sign new contracts, review existing ones and make sure that your company fulfills its obligations as outlined.
Some people have an aversion to putting things in writing and will try to reach informal agreements with suppliers, employees or even clients to save themselves paperwork and stress.
Bypassing a contract can make the transaction seem faster and friendlier, but it leaves you vulnerable. There are good reasons that most businesses insist on executing contracts for everything they do.
Contracts create clear obligations, from product delivery and services to payment
Perhaps the biggest issue with a verbal agreement with another party is how subjective human memory is. They may have wanted certain terms and remember the conversation differently than you do, resulting in conflict down the road.
You may have made statements about your expectations or the timeline for performance and anticipated that the other party would remember and understand that information, only for them to become upset with you about what they perceive as a delay.
When you put everything in writing, there is something you can reference that makes the terms very clear, from when someone will deliver a product to how much the other party will pay for it.
Contracts empower you to take action if the other party doesn’t follow through
If you make a payment, even just a deposit, to a service provider, you expect to receive those goods or services in full and then pay the remaining balance. When someone doesn’t perform contracted services, deliver goods or otherwise fulfill an obligation to your business, a contract gives you grounds to hold them legally accountable for their failure.
Although you can theoretically enforce a verbal contract, with no witnesses, it becomes your statement against the statement of the other party. Contracts are crucial evidence that can show you have grounds for your claim or that you have fulfilled your obligation to the other party.
Not only should you take the step of creating a contract for all major functions in transactions involving your business, but you will also want to invest in highly specific contracts for each individual circumstance. Understanding state laws that regulate your industry and contracts can optimize your protections when you do business with others.