5 Clauses Every Business Needs In Its Contract

Written by Wesley Henderson

September 14, 2020

woman working at home

As a business owner, you’ll deal with a lot of contracts in the course of operation. Many are between you and your vendors or customers and have to do with an exchange of goods or services for money. You probably don’t need a 20-page contract to accomplish what you want to accomplish, but you do need to address some basic things.

Contract Clauses You Need In Your Agreement

  1. Services or Product Description.

Describe exactly what is being provided. Be clear with what is and what is not included. For products, include when delivery will take place. For services, you may want to include what happens when the work goes beyond the original agreed upon scope.

  1. Payment Details.

Include when payment due and how much. You may also want to also address acceptable payment methods, applicable rush fees, and how and when late fees are applied.

  1. Limitations on Liability.

Be clear on what you’re not liable for.

  1. Terminating the Contract.

Give both parties an out if appropriate. You may find that you and the person you’ve contracted with simply don’t work well together, and that’s fine. You can extricate yourself from the contract if you put in a clause about how to terminate it. Be sure to include what payments would be due if terminated.

  1. Attorneys’ Fees.

A “prevailing party” clause should be considered in every contract. This provides that the prevailing party (i.e., the one who wins a legal dispute) recovers attorneys’ fees from the other party. Practically, this gives you a lot of leverage in you are in the right. Let’s say a client owes you $2,500. Under a prevailing party clause, you can explain to them that if you have to bring a lawsuit, it’s likely they will owe closer to $10,000 because you will be awarded attorneys fees. Usually, when you explain that fact, it gest a better response from the offending party. 

Read more about how to customize your agreements here. Better yet, download Drafted’s industry-based templates here

Action Steps

  • Create a standard contract to use with your customers, making sure to include these five clauses. You may want to have it reviewed by an attorney in your state to make sure it’s enforceable and that you’re not missing anything. Pro Tip: Download Drafted Legal’s Attorney Drafted templates that are based on your industry (they cover these clauses and much more)
  • If you are drafting it yourself, do your homework. Read through contracts used by businesses in your state that are similar to yours. This might give you ideas for additional clauses you want to include in your contract that are specific to your industry. But be careful – you don’t want to include anything you don’t fully understand or it may end up hurting rather than helping. You also don’t want to violate copyright laws.
Wesley Henderson

Hi, I'm Wesley! A business attorney turned entrepreneur devoted to simplifying how you protect your business and your assets. Like you, I'm an business owner so I get it and I started Drafted Legal to help you put in place simple and sound legal strategies so you can focus on your business and not worry about getting lost in legal nuances.

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