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Running a business always involves risks, but written contracts go a long way to mitigate the risks and make sure that the business is protected. When properly written, these contracts can help to prevent or settle disputes. They can also help to keep customers happy and preserve your business relationships in the event of a disagreement.

The 3 Purposes of a Contract

  1. To Quickly Settle Disputes – The main point of a contract is to satisfy any potential disagreements. If something happens between the business and customer / contractor, then the two parties can always refer to the contract to settle any potential disputes. In the long run, this can also help to save both sides a lot of money and headache. Litigation is obviously very expensive for everyone involved, not to mention very stressful.
  2. Provides Certainty – A written contract also helps to provide a level of certainty. It lets both sides know what to expect. If either side feels that he or she did not receive what he or she was entitled to, then they can refer to the contract to see if it was honoured. The contract should also provide a plan of action should the expectations not be met. It should outline what happens, the costs, who assumes what responsibility, etc.
  3. To preserve the relationship – The final main purpose of a contract is perhaps the most important purpose. This is to greatly improve the chances that the relationship will be preserved between the company and the customer / contractor even if there is an unmet expectation. Knowing what plan of action will be taken and the responsibilities involved will help to ease any anxieties.

A lot of thought should go into creating a contract. To avoid disputes, the contract must take into consideration every possible scenario and then provide a clear plan of action for each one of those possible scenarios.

Take, for example, a guaranteed ship date. If the business guarantees that they will ship out a package within two business days after the date of purchase, then the customer knows for a fact that the business will meet that deadline. The contract should also state what happens if that deadline is not met. In this case, the business could guarantee their money back for the shipping costs if the deadline is not met. Now the customer knows exactly what to expect and exactly what will happen if those expectations are not met.

To make sure that everything is covered for your business, you should get your contracts reviewed before sending them out to your customers and contractors. A legal team can look at the contract from a different perspective and find any potential snags that may arise from the contract. They can also help to ensure that the business is protected in each possible scenario so that one single incident will not sink the company. Not having a contract (which has been reviewed by a legal team) can and will expose your company to unnecessary risks.