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A sales contract is a legally binding agreement between a seller and a buyer that outlines the key terms of a sale such as who’s involved, what’s being delivered, and how the client will pay. Typically, companies that sell expensive products with warranties or ongoing services use some form of sales contract. In addition to protecting your business, contracts also clarify expectations during the closing phase of the sale and in turn lead to successful relationships with clients.
Sales contracts establish in writing the terms and conditions of a sale so that if a disagreement or event arises, upsetting the steady state of your relationship, you and your client can turn to the contract for guidance on how to proceed. For example, if a tornado stopped you from being able to deliver your product, who would be responsible? And what steps would that party have to take? Further, sales contracts protect your business from unfair lawsuits by customers.
The most common sales contract, also referred to as a sales agreement, contains the following sections: identification of parties, description of goods or services, payment terms, delivery terms, breach of contract, and governing law. We’ll cover each more in the steps. Depending on your needs, you may add other sections as well, such as confidentiality, or sections that account for certain contingencies.
There are four major forms a sales agreement can take:
Different types of business relationships call for different types of sales contracts. A $100,000 ongoing B2B service deal will likely require an MSA, whereas a $1,000 one-time writing project will likely use a short SOW. Some businesses selling lower-priced products — say a bouquet of flowers — directly to a consumer need no sales contract. As a rule, contract document length generally rises in proportion to the complexity of the deal and the price of the product or service.
Drafting a sales contract is a unique experience for every business. Companies involved in more complex sales might hire a lawyer to write it. But many companies, especially small businesses, write their own, using some form of sales contract template to streamline the process and ensure that they’re including the critical clauses. There’s also software designed to help you draft, send, and track contracts, as well as unique tips to improve the creation process.
We created a free general sales contract template that you can use as a base for your own sales contract. It includes the key sections of a sales agreement and blank spaces where you can tailor it to fit any given sale. If you want a more scenario-specific contract template, check out our article on sales contract templates, where we provide more effective templates and even walk you through how to create your own. Click below to grab the free editable template:
There is a systematic step-by-step process you should follow to write an effective sales contract and send it to a client in a way that’s professional and efficient. The steps are to define your needs, determine your sales contract type, find a contract template, add necessary clauses, fill out the contract template, add signatures spaces, have a legal professional review it, send your contract, and negotiate the agreement with your customer. We cover each step in depth below.
The first step to writing a sales contract is to brainstorm what you want your contract to accomplish for your business. Doing just 10-15 minutes of this will help you choose the right type of sales contract (MSA vs. SOW, for example) and the ideal mix of clauses. For example, if you need to protect your business against stolen information, a confidentiality section is a must-have.
Ask yourself the following questions to kickstart the brainstorming process:
If you’ve had past business relationships that have gone awry, figure out why that occurred and use your contract to prevent it from happening again. For example, if you once had a client who expected you to be available at their beck and call, you might include a section in your contract outlining how often you and the client will communicate. Up until this point, you’ve been thinking a lot about the client’s needs. Now it’s time to focus on the needs of your business.
Next, find a sales contract template online to use as your foundation. This speeds up the writing process dramatically. Templates come with pre-written legal language so all you have to do is personalize it to the specific sale. Often, you’ll find multiple free templates that are particularly well-suited for your needs. For example, PandaDoc’s template library has some as specific as “real estate apartment sales contract template.” We also offer a general one up above.
Using a template to write your sales contract also ensures that you include the right clauses and use legal language that is exact and won’t open up unintended loopholes. Even if you have legal experience and are comfortable writing the entire contract from scratch, it can still help to look over a template to gain ideas for what to cover.
Most sales contract templates will include clauses dealing with parties involved, product or service deliverables, payment, delivery, breach of contract, and governing law. Depending on your needs and the makeup of the template, you may need to add some additional clauses. For example, if you offer a product warranty, you’d include a warranty clause where you’d describe the warranty’s terms and conditions.
Below are some sections to consider including in your sales contract template:
One way to add a clause to your current template is to look over other online sales contract templates that contain the clause. If it fits your news, you can copy and paste it into your own. Once you have all the clauses, go through your template from top to bottom with a fine-tooth comb to ensure that its language is in line with your needs. If you’re unsure about which clauses you should use, read Andreessen Horowitz’s article describing sales contract clauses.
Give the contract a name that’s associated with the type of contract. For example, write “Statement of Work Contract” atop an SOW. For most of the clauses in your template, all you should have to do in terms of writing is fill in the blanks with relevant information about the sale. For example, in the identification of parties clause, you’ll write your business name, business address, and date of sale, as well as your client’s business/personal name and address.
However, there are some clauses that require more writing and explanation, specifically, description of goods or services, payment, delivery, and contract duration/termination. This is because these clauses are hyper-specific to your unique situation and business.
Let’s go over how to write each standard clause so that they’re clear, exact, and effective:
Identify the names of the seller and the buyer, their company name if they’re a business and their personal name if they’re an individual. Also, state each party’s mailing address and nickname that you’ll use to refer to them throughout the rest of the contract. For example, many use “Provider” for their business and “Buyer” for the buying party. Lastly, add the date when this agreement will go into effect.
Describe in detail the goods or services you’ll be sending or rendering for the client. For goods, share the weight, size, edition, and other pertinent information. For services, write your scope of work — your responsibilities in the agreement and any deliverables you’ll provide the client. Also state the quantity of goods or duration of service, as well as any standards they must meet.
In addition to outlining the total and sub costs of the services or goods, state the payment frequency, the date you’ll send invoices (e.g., last Monday of every month), how quickly you expect payment (e.g., upon 30 days of receipt), and late payment fees. Also, explain which method the client should use to pay, be it credit card through an online portal or check through the mail. Clients often want to negotiate aspects of this section, so it may change.
Describe when, how, where, and if it’s recurring, how frequently, you’ll deliver the goods or deliverables to the client. Clarify which party will pay for shipping and handling, and which party is liable for late arrivals or damaged goods. Services might outline project milestones here, providing due dates for when each aspect of the job will be finished. Include a force majeure provision clarifying who’s at fault if something out of your hands like a hurricane affects delivery.
State when the contract will end as well as how one can leave the agreement. For example, many businesses require the leaving party to provide notice of leaving the relationship 30 days in advance. Also, describe what will happen if one of the parties breaches the contract before it’s over.
Define which state law will be applied to interpret and enforce this sales contract. If there’s a dispute, this is the state law that will be used to decide who’s guilty and who’s right. Typically, companies use the state where their business resides, or where production is done. Check out Transatlantic Lawyer’s article detailing governing law and how to choose it.
Note that for some clauses you borrow like severability, you won’t have to change or add any words unless you catch something you don’t want to agree to. Whenever borrowing legal language from an online source, even a reputable one, read the fine print closely and make necessary sentence-level alterations and additions to fit your needs.
At the end of your sales contract, include lines where each party can sign their name, print their name or business name, and insert the date of signing. Most templates will come with this section already. Leave these blank when you first send the contract, because it’s likely the client will have changes they want to make to the contract before they sign it. After the client signs the contract, you can go ahead and sign it too.
Here's the signatures section from our free template:
Hiring a lawyer, or asking a friend or peer with legal expertise in your industry, to proofread your sales contract will ensure that the language is adequately protecting your business’s interests. They might also offer up additional clauses they think you should add based on the nature of the sale. For $39, you can hire a lawyer through LegalZoom to read over your sales contract. This step is optional, but it’s a precaution that helps you avoid opening your business to risk.
While you can send your contract as a PDF attached to an email, using an esignature tool or contract management software platform is often a better choice. These software tools enable recipients to sign documents digitally, and provide you with features for building contracts and managing them through their lifecycle. Other helpful features include audit trails, mass signatures, template libraries, in-line commenting, notifications, and CRM software integrations.
Here are some software tools to help you send the contract in an easy-to-sign digital format:
We wrote two buyer’s guides on this topic, one outlining the best contract management software platforms, and another outlining the best esignature tools. Some tools, like PandaDoc and DocuSign, are on both lists. Give them a read to learn about various tools’ use-cases, pricing, and key features. Then pick the one that best fits your needs.
Sometimes clients will want to alter some of the terms in your contract. Their amendments can range from word changes to full inclusions of new clauses. Often, most of the negotiation will be over pricing or the description of goods and services. When a client pushes back on something, be open-minded and understanding, but firm when it comes to the terms you cannot sacrifice. Also, consider concessions your client can give you in return for accepting their change.
At some point, you and your prospect may agree to sign the contract. If so, send a countersigned copy to them — that is, your software doesn't do it automatically or if you're not using software. After they sing it, congrats — new customer acquired. If for some reason the deal fails, leave amicably and thank the prospect for taking the time to learn about your business, and perhaps even suggest other companies that might be better suited for them.
To improve your contract negotiation skills, check out our article on how to negotiate, where we break down the optimal negotiation process and provide tactics that’ll help you win more deals.
Creating and using an effective sales contract provides your business with many advantages. You’ll protect your business, establish expectations, and more easily close the sale. Let’s double-click into each benefit.
In sum, sales contracts mitigate your business risk, decrease legal and labor costs that come from suits or scope creep, and speed up your sales cycle.
There are some tips you can follow to craft sales contracts that work to your advantage, including reviewing past disputes you had with customers to find ways to prevent them from happening again, crafting a sales contract template, and using too much detail rather than too little. Keep reading to learn about each tip.
If you follow our steps for crafting a sales contract and use the above tips, you’ll create a legally binding document that fosters a mutually beneficial relationship between you and your buyer.
Sales contracts are used in almost every industry where sales agreements must be made between a buyer and a seller. This includes professional services, technology, software, consulting, real estate, recruitment, entertainment, and others. Freelancers, small business owners, contractors, and enterprise businesses can all benefit from putting a sales contract in place. The one business type that doesn’t often use a contract is B2C products.
It’s always a good idea to ask an attorney to review your sales contract, check it for loopholes and misuse of language, and offer up possible alterations that can further protect your business. A general rule of thumb is that the more complex the deal the greater the benefit of working with an attorney. If your deal is simple, such as an exchange of six hours of landscaping for $750, you’ll likely be okay on your own, but it won’t hurt to get a professional’s opinion.
Sales contracts are legally binding documents signed by the seller and the buyer at the end of the sale. Thanks to online templates, software tools, and resources, drafting a successful sales contract for your business doesn’t require legal expertise. Whenever you sign a sales contract, be sure to deliver on your promises so that your customers keep coming back and you avoid any legal troubles.
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