31/03/2014

It never ceases to surprise lawyers when clients seek help with a problem involving contracts and even the very basics have been ignored!

But what are the basics?

Forget the law, many of the basics are just sound commercial practice or good old fashioned common sense. Consider these:
 

When is there a contract?

If your business pays for a product or service or supplies a product or service and, in return, a payment is made, that is generally enough to make a legal contract. Businesses enter contracts on an everyday basis and no business can avoid them. A contract can be verbal or in writing, whether as simple as a receipt or a tax invoice or a 100 page deed. The trick is to know what are the responsibilities and obligations of each party under the contract. Even if this is all you know, you can minimise many issues.

Who are you dealing with?

If a person wants to buy a chocolate bar from your shop, they pay you, take the chocolate bar and leave. You don’t need to know their details (and they probably wouldn’t tell you if you did!). But for most business dealings, and particularly business-to-business, you need to know exactly who the other party is. Are they an individual, a company, a partnership or something else? Where are they located and what are their contact details? And, most importantly, can they “do the job” or pay you when you do the job?

Do some checking

Before you rush into a contract, try to make sure the other party can actually do what they say they will do. In other words, can they perform? Check their details with ASIC, the ATO, a credit reporting agency or through your accountant or just ask your business associates, to reassure yourself that they can!

Get it in writing

The days when you could run a business on handshakes are, unfortunately, long gone (if they ever existed). If you have a dealing with a customer or business and it is important to your business, get it in writing every time and get it signed. Then at least you know what each party is to do and when payment is made. Rarely will you need a lengthy document.

Keep records

This is so basic we are reluctant to mention it. Whatever contracts, records, documents or other material you have in connection with any dealing your business has, make sure you keep those records in a safe place where you have easy access. Not only will this help you if something goes wrong, it will help at tax time or when you see your accountant. A “paper trail” is always useful!

Get advice

If you are given a written contract, never just sign it without reading it, on the basis that “he’s a good bloke, he wouldn’t rip me off”. Too late if they do. Similarly, if you don’t understand a contract or don’t think it covers what you agreed, get advice on it before you do anything. Remember- prevention is always better (and generally much cheaper) than the cure!

This article covers in a general and very simple manner some only of the contract basics for business people. It is neither exhaustive nor a substitute for legal advice, which you should seek and rely on in every specific case.

If you need help further assistance with any aspect of your business contracts, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.