Importance of Contracts for a business
- Saptaparni Raha
- Jan 27, 2023
- 3 min read
Written by Saptaparni Raha, Lawyer
Introduction
A contract is a document accepted by both the employer and employee to flourish their business. The contract gives legal recognition and better visibility to meet the duties. It helps to achieve the objectives as agreed by the agreement. It supports the business in building a good rapport with the customer. So, contract management is adapted to manage the contracts in business legally signed by customers, partners, and employees. If we explain the term contract management, it includes adjusting the terms and conditions and adhering to the rules per the contract. A well-drafted contract guarantees a standard procedure by giving clarity of your requirement.
Benefits of having a contract
The contract will enhance the trust between the parties.
You would initially have tangible proof of what you and the other party agreed to.
You would have peace of mind because the terms of the agreement are written and cannot be changed.
A written, well-drafted contract will provide you with proof and certainty of what has been agreed between the parties. The terms and conditions mentioned in the contract should clearly outline each party's rights, obligations, and duties under the contract, which helps to manage each party's expectations. It also minimizes the risk of any dispute and misunderstandings as to what was agreed upon.
Every business, small or big, needs to understand the liabilities and obligations under any new business agreement. The best way to do this would be to enter a written contract with your clients. This written contract would allow you to add additional protections to balance the risk under the agreement.
If any dispute arises in your business, this contract shall help you resolve the dispute by mentioning such legal provisions in your contract.
The contract will ensure you get paid within a stipulated time.
The contract will guarantee the confidentiality of your business.
In any business, a contract is rarely approved by just one person or department. A contract is often passed between departments via email, which is time-consuming. With so many parties involved in the contract review process, contractual agreements provide the perfect opportunity for departments to collaborate and discuss the business direction and how to achieve the best results from an emerging contractual relationship.
The contract will help you to generate higher revenue by negotiating, which will work in your favour. Like you may increase the price for a particular software subscription.
You can inform your other party to end the contract before the specified work is finished.
Importance of contracts
Proof of details
A contract mainly focuses on recording details that shall agree upon by mutual consent. It provides precise knowledge about services provided by the third party or monetary expectations to be met by the person.
Avoid misunderstanding
In business, misunderstanding is a common problem. Both parties can easily abide by the rules if there is a well-drafted contract. It helps to protect from the breach of contracts.
Security in the business
The contract can help to feel secure with the parties. It specifies the tenure of the contract and set of responsibilities. In any business, an employer is lawfully responsible for paying the salary on time to their employees. Contracts add some appropriate legal provisions to deal with court cases.
Confidentiality
The contract includes a non-disclosure agreement to protect the confidentiality of a business. This agreement does not allow to reveal of business and monetary transactions between them with any third party.
Record of business
A contract helps to keep relevant records stating the mutual consent of the proceedings listed in the agreement. It helps for future reference and comprises information regarding the stipulated delivery timeline of any work assigned as per the contract.
Financial Agreement
If you draft this agreement correctly, you will be assured that you will receive your payment promptly.
Conclusion
The above reasons make contracts inevitable for small-scale businesses to keep their information secure and protect them from ill-intentioned investors. Besides, it can safeguard employees when employers refuse to abide by the contract rules by giving false commitments to employees and misleading them. In this era, the law of contracts in business needs to be understood. The contract helps to take strict legal action if someone breaches the contract. Most contracts are written and based on the government law sanction depending on the states in which it is enforced.
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