Watching America’s Court, People’s court and Judge Judy on TV the majority of claims are lost because there was no CONTRACT. Further, the Contract did not have all the terms intended. Even between friends and family members every exchange of money or obligations is reduced to some sort of a contract.
Local business especially SME’s do not seem to understand that importance of CONTRACT in their business. Many businesses are based on oral agreement or contracts by conduct (performance). Terms are rarely set out. Oral contracts are valid but are very hard to prove. When a dispute arises it is reduced to “He Said vs She said”.
It is prudent for every business person to reduce their obligations and what they offer in a written form. This makes it easy to comply and enforce any rights that may arise. This creates certainty of what the business owner is supposed to do and what the customer has a right to. This reduces misunderstanding.
A contract ensures every party knows what to expect. This is important especially when a dispute escalates to dispute resolution or court. Most disputes are won or lost on the basis of what the contract sets out.
CONTENTS OF A CONTRACT
- Offer– what are you offering as a business. What are the specifics offered? Any terms and exception, terms and conditions. Be as specific as possible.
- Acceptance– by signing or paying a customer has accepted the offer and terms
- Consideration– The customer agrees to pay and the business person to supply.
- Performance– The business owner supplies or provides the product and the customer pays
- Termination– How do you exit the contract?
- Dispute Resolution– How are any disputes to be resolved? If not stipulated the option is Tribunal/court (https://www.lawquery.co.ke/legal-help/courts-and-tribunal )
(Check out LawQuery blog for more details on Contracts https://www.lawquery.co.ke/our-blog/contract-law-for-todays-entrepreneur-ten-things-to-look-out-for-before-signing-business-contract )
Sometimes, the four steps occur almost simultaneously. Asking for a quotation is not an OFFER until it is agreed on and accepted whether by payment or signing the agreement/offer contract.
Many times the terms of the transaction may be on the invoice, delivery note or receipt. E.g. return policy, scope of service etc. It is important for customers to read the fine print in the invoice/delivery note as these are binding terms.
Also, there are industry standards that customers and business people need to be aware of. These are binding on the parties e.g. Sales of Goods Act, Consumer Protection Act, Law of Contract to name a few. ( Check out www.lawquery.co.ke for simplified version of these Kenyan Laws).
BENEFITS OF HAVING CONTRACTS IN YOUR BUSINESS
- Certainty– obligations of the business owner and customer
- Performance– it is clear how the contract will be performed and what is included e.g. installation, deliver in 7 days
- Enforcement– a party can claim enforcement of their contractual right e.g. payment
- Summary judgment– during dispute resolution, the claim is quickly settled as the terms are agreed. Reducing cost of conflict, enforcement of rights and recovery.
- Access to Financing– a contract like a LPO/LSO can be the basis for accessing finance.
- Professionalism– business owner is able to ensure delivery of what is promised in the contract it is set out in black and white. This ensures consistency and customer satisfaction.
Entrepreneurs can invest in training on contracts to build their capacity or engage legal persons to create the contract templates. It may seem technical and complicated but it is necessary for any business.
In conclusion, small business owners are encouraged to embrace use of contracts in every aspect of their business i.e. with customers, financiers, suppliers, employees, consultants, lawyers etc.
What difficulties do entrepreneurs face when they don’t use contracts? Comment and send your views.