If you conducted an audit on the contracts your Company is committed to, would you find any nasty surprises?
Being contract aware
When undertaking training for a sales team a few years back, I asked the CEO whether all contracts were entered based on the Company’s standard sales terms. His answer, although a little sheepish, was an honest “I am not entirely sure.”
Together, we did a little digging and unearthed some not entirely surprising, but still a little worrying, results.
Although the Company’s standard terms of sale were provided to customers, certain savvier customers would respond with a rejection of the terms and attach their own purchase terms.
Those purchase terms were, as you might expect, highly unfavourable to the Company, imposing extremely high standards of supply and significant penalties for even the most minor breach or lateness in delivery, and in one case, were subject to the laws of the state of Nevada!
The sales team member had not knowingly committed the Company to such detrimental terms. She simply didn’t know what to look out for. And even if she had spotted the purchase terms, she had no idea about the ramifications, and there was no process for dealing with them.
Training and implementing processes
We drew on this example during the training session. We highlighted the problems and risks that this created for the Company compared with the protection offered by the Company’s standard terms, particularly as regards limiting its liability.
Once we had discussed how contract formation works and what to do if a customer or supplier tries to impose their own terms, the sales team were in a much better place to deal with this scenario in the future and limit the Company’s exposure to high-risk terms.
Their understanding and appreciation of the key terms of the Company’s standard terms also equipped them to deal, to a certain level, with queries and any proposed amendments to the Company’s standard terms.
You don’t know what you don’t know!
It is always a good idea to ensure that those customer and supplier-facing staff members have at least a basic awareness of the principles of contract law.
Without the proper training and knowledge and clear processes in place, they cannot be expected to act in the best “contractual” interests of the Company. The acceptance of some innocuous and standard-looking customer terms can become the cause of an expensive headache for the Company.