What is a Sales Contract? Elements, Importance and Advantages

What is a Sales Contract?

A sales contract is an agreement between a seller and a buyer which includes the delivery and sales of goods, various securities, and many other personal properties. it is also known as sales or goods agreement or purchase agreement. In addition to buyer and seller, their witnesses will become legally binding of the party at the time of signing a contract. In the United States of America, these contracts are governed by the Uniform Commercial Code.

In this article, you will learn about the important elements, advantages, disadvantages, and how to write a sales contract.

Important elements of a sales contract

When writing or reviewing a sales agreement, it is important to know what things must be included and which terms are most important to be included in a sales contract.

Having the knowledge of these things and terms will help you to protect your rights in the future and save you from problems in transactions in sales transactions. A sales contract contains elements such as the seller, the buyer, the goods and all other important terms. Next, you will learn about the important things that you should pay close attention to while writing a sales contract.

1) Description of Goods

It is very important to mention a detailed and vivid description of goods in the sales contract. Otherwise, later you can get into trouble because of the errors in the description of goods. Make sure that your description should be of exact goods that a buyer wants to buy in the future. you should include details such as Model number, type, color, weight, and size.

Mentioning all these details accurately will ensure that the seller will deliver you correct product. In the failure of getting the correct goods, you can take legal actions on the basis of the sales contract. However, all other problems with the agreement can be neglected as long as the buyer is getting the products that he has asked for.

2) Delivery instruction

late delivery, delivery at wrong address or careless delivery can cause problems and can disrupt the production or sales process. therefore, it is very important to mention the correct date, time and place of delivery of goods clearly. In addition to this, your sales contract should also mention who will be responsible for the loss of goods or any other mishappening.

3) Inspection period

“inspection period” is one section that most buyers forget to include in a sales contract. This period will give time to the buyer to inspect the goods deliver to him and reject any different goods. However, the inspection time is different for different types of goods. For example, goods which have a short shelf life (perishable goods) are required to accept or reject immediately.

However, expensive goods such as machines a buyer requires a little longer time (for a week or a month) to inspect goods and take the decision of accepting or rejecting goods.

4) Warranties and guarantees from the seller

It is common to neglect the warranties set by the seller for the goods. However, neglecting warranties can be risky as no one can predict how a thing will come out in the future. besides this, there is no standard format for warranties on goods and it varies from industry to industry and company to company.

5) Payment details

This is the most important part after the description of goods in a sales contract. Mentioning the total price of goods is important. However, it is also important to mention all other payment details to avoid any type of confusion in the future. the payment details should include whether the payment will be made in installments or single transaction, will buyer have specific criteria to get paid.

In addition to this, in case if the buyer is not paying the right way then it is wise to include a promising note or have a separate promising note to mention payment terms in more detail. In the note, you can also mention whether the interest will be incurred by the seller or not for the delay in the payment.

Advantages of Sales Contract

1) Minimizes Risks

A sales contract is always advantageous as it reduces the risks of loss and company getting sued. A proportion of risk reduces by mentioning terms of a particular agreement clearly and get it signed from all the important parties. Doing this will provide you grounds to take legal action in the failure of meeting conditions mentioned in the contract.

2) Clarity

Besides reducing risks of the lawsuit, contracts are useful to provide clarity to employees and both seller and buyer. Sales contract contains all important details related to contract and expectations from each party. Contracts make both parties stay true to what they have agreed on while writing a contract and avoid risks of the lawsuit.

Disadvantages of Sales Contract

1) Time and Money

To prepare a detailed and accurate sales contract takes a lot of both time and money. A company has to hire a lawyer to get constructed an airtight and detailed sales contract and hiring a lawyer costs you a lot of money. In addition to this, it takes a lot of time to form accurate and detailed contracts, because it is required to discuss with both parties concerned and design contract as per the specifications of both parties.

2) Litigious environment

Making a sales contract involves various things to talk about and it creates an unpleasant atmosphere among all the members who are responsible for signing the contract. This not only built suspicion among the people but also increase the chances of the lawsuit as both parties will do their best to saves itself from the risks and be less concerned about another party.

How to draft a Sales Contract?

1) Mention Parties and Date of agreement

The first section of the sales contract should address the intent of both the participating parties. The names of legal entities of your business and the name of the individual or the name of a legal entity of the company that you are doing business with. The sign section should include the name, title (such as Will Smith, CEO) and a sign of both the parties.  The first paragraph of the Sales agreement/contract should mention the date of agreement prepared and executed.

2) Description of Goods and Services

A sales contract should clearly mention all the goods and services being sold between the buyer and the seller. It should mention a detailed description of the goods and services at the delivery time such as the number of goods, industry standards required to be met for the goods and services, and duration of service etc.

3) Delivery

A sales contract should mention all aspects about the delivery of the goods and services, which includes place of delivery, time of delivery, cost of delivery, a method of delivery, and the liability of a party in case of failure of delivery/ failure of delivery on time/ damage occurred during the delivery. It should also include all scenario such as an act of God, flood, fire, riots etc. which may not be in control of both parties.

4) Payment

Decided the price of the goods and services is most difficult and it is the most negotiated element of the sales contract. therefore, it is important to mention the mutually decided price in written form as soon as it is decided. In addition to the price, the contract should also mention the time of payment, payment schedule (Monthly, Quarterly installments or lump etc.), and the method of payment.

Above mentioned parts are must to be included in a sales contract. in addition to these, there are few more miscellaneous elements that can be included in a sales contract to make it more specific and airtight.

5) Breach of Contract

in this section, you will mention what should be done when one of the parties fails to keep the commitment, waiting time before terminating the contract, at what point a party can terminate the contract, and what remedies should be taken to recover the contract.

6) Warranties

In this section, you will mention all the quantity, quality requirement, and reliability and in addition to this, it should also include all warranty disclaimer agreed upon by both parties.

7) Severability

This section will mention that all other sections mentioned in the contract will remain valid and will be enforced in case of any provision is not obliged.

8) Confidentiality

This section will mention about the propagation of all information mentioned in the contract. here, it will be made clear with whom the information can be shared and what actions should be taken in case of a breach of confidentiality.

9) Legal

the last section of the sales contract will mention all state laws are applicable and in case of breach where the lawsuit will be held, who will be responsible for the charges of litigations, or litigation will be carried out in a law court or through arbitration.

In addition to all above-mentioned provision, the company can also include any special provision required. A sales contract should be correct and without any loopholes to avoid future issues.