Business to business contracts in the UK (“b2b contracts”) involve two or more parties entering into a legally binding agreement relating to sale of goods, provision of services, partnerships, joint ventures, consortiums and much more.
Getting an independent legal adviser to help you draw up or review a B2B agreement can ensure you don’t get any hidden surprises further down the line.
Why are business contracts so important?
It is important to have a b2b contract for transactions between two or more parties.
The law treats b2b contracts differently to business to consumer contracts.
You need to make sure you aren’t tied into an unfair contract or one that you don’t want to be part of. The terms of a b2b contract should reflect the objectives of your business.
Clarity between companies involved
Two companies may have different terms for the same thing. A legal agreement allows the companies to clarify everything involved in the transaction or relationship, and avoid miscommunication.
It outlines the expectations between the two or more parties while simultaneously protecting all parties when the expectations are not met.
Protection against claims
Businesses, no matter how small, should always protect themselves against claims. It is necessary for all parties involved to be protected from illegal or unfair practices between companies.
Having a b2b contract does not remove all the risks in your company, but it can offer you protection and make issues easier to handle further down the line.
Improving company relationships
You should outline expectations and limit misunderstandings, ensuring that transactions with other parties proceed with greater ease and efficiency.
Establishing trust between partner companies can lead to your success. In the long run, having a business that can supply you with or purchase your products can be extremely beneficial. It can open up other opportunities that allow your business to grow.
Locking business deals
Without a legal agreement in place, you might be put in a tight spot when the other business decides not to carry through their side of the deal.
A common problem comes with the terms of payment. Sometimes, the other company does not hold up to their agreement of a specified due date. Without a contract, this can be a huge headache for the recipient.
On the other hand, a supplier might promise discounted deals as long as you buy from them. You need to have this agreement documented and consented in order to lock in the deal before proceeding with the transaction.
What to include in business to business contracts?
The following are some of the important details to consider.
Details of the parties to the contract
The name of the companies that are involved in the agreement should be detailed.
This is important so that it is clear which entities are involved. However, since companies can legally change their names, the registration number along with the country of incorporation should also be included.
Additional information such as the registered official address and name of representatives can further give clarification to the details of the parties involved.
All notable dates should be put included so that all parties involved are aware of any deadlines. This can include deadlines such as:
1. Start date
2. Contract length
3. Dates of any agreed milestones
4. Payment due date
The start date is the exact date that the delivery of products or services will commence. On the other hand, the contract length clarifies how long the agreement is in effect. This can be anywhere from days to a few years, depending on what the businesses have agreed to.
Details of products or services
Every detail necessary should be included in the details of the products or service section.
Make sure that both parties agree and consent to each detail. This will set the expectations of what will be received during the transaction.
It is important to clarify the prices of the products or services. It’s a good idea to go into detail here, including such things as:
1. Price per unit
2. Number of units
3. Frequency of transactions
4. Discounts applied
5. Duration the price is applied
6. Payment terms
Including frequency of transactions is important. Whether it is a one-time purchase or a recurring purchase, putting it in writing will benefit both parties, especially if a certain discount is applied.
Discounts applied to the transaction should also be included. Since discounts are typical in business to business transactions, you need to clarify this section in the contract.
Adding the duration that the price is applied is also a good practice. When a certain discount has an expiration date, this is an important clause to add.
A business should note that the duration that the price is applied should be within the contract length previously stated.
Other things such as changes in prices when the buyer buys more or fewer than the number of units previously agreed on should be included.
Aside from clarifying the prices of the products or services to be provided, the payment terms should also be included. This outlines the terms upon which the payments are due, including time frames and frequency.
These are the approved signatures of the representatives or heads of the companies transacting. Without this, both parties are not legally held liable for anything written on the contract.
The parties signing should be legal entities recognised by law.
How to make a b2b contract?
For a contract to be legally binding, it should have these four basic elements:
4. Intent to create legal relations
An offer is a product or service that will be provided by one party to another.
The consideration is what will be provided in return for the offer made by the other party.
The acceptance is where all parties agree on the terms and sign their names.
Finally, the intent to create legal relations should also be clearly stated.
The best way to write a contract is to hire a lawyer and have them write a draft for the transaction.
Alternatively, the other party's lawyer can also write up the agreement for the deal. However, you should still get a lawyer to review the contract before agreeing to it.
Understanding the legal framework surrounding B2B contracts in the UK is essential for businesses engaging in transactions. Contract law in the UK forms the foundation for these agreements, outlining the principles that govern their formation and enforcement. It's crucial to recognise that B2B contracts differ from those made with consumers, and as such, they are subject to distinct legal considerations.
Moreover, certain industries might have specific regulations or statutes that apply to their contracts. Staying informed about any sector-specific requirements ensures that your agreements comply with the relevant laws and provide the necessary protection for your business interests.
Common Types of B2B Contracts
While we've touched on various B2B contracts, it's important to explore some common types in more detail. For instance, Service Level Agreements (SLAs) play a crucial role in defining the level of service a business can expect from its partners or service providers. While a Non-Disclosure Agreement (NDAs) is vital when sharing confidential information with other businesses, safeguarding your trade secrets and sensitive data.
Another important contract is the Intellectual Property (IP) agreement, which helps to protect your creative assets, inventions, and proprietary information. Understanding these different contract types empowers you to select the appropriate agreements for your business needs and foster strong relationships with your partners.
Effective negotiation is key to crafting successful B2B contracts that protect your interests. Before entering into any agreement, conduct thorough due diligence to understand your potential partner's reputation, financial stability and industry standing. This knowledge will enable you to make informed decisions and mitigate risks.
During negotiations, adopt a collaborative approach, seeking to understand the needs and objectives of the other party. Open and honest communication paves the way for mutually beneficial terms that build trust and foster a long-lasting business relationship.
While we hope for smooth and seamless business interactions, disputes can occasionally arise. In your B2B contracts, it's prudent to include provisions for dispute resolution. There are various mechanisms for resolving conflicts, such as mediation, arbitration and litigation.
Mediation allows parties to seek an impartial third-party mediator to facilitate negotiations and find a resolution. Arbitration involves presenting the dispute to a neutral arbitrator or panel, whose decision is legally binding. Litigation, on the other hand, takes the matter to court, where a judge or jury will render a verdict.
Digital Contracts and E-Signatures
As technology advances, digital contracts and electronic signatures have become more prevalent in the business world. The UK recognises the legality and validity of such digital agreements, making them a convenient and efficient option for B2B transactions.
Implementing digital contracts through secure platforms not only saves time and resources but also provides an auditable trail of changes and signatures. Likewise, e-signatures offer a secure and legally binding way to finalise agreements remotely, simplifying the contract execution process.
Adopting digital solutions in your contract management ensures your business stays current and operates efficiently in the modern landscape.
Does the Consumer Rights Act apply to b2b contracts?
The Consumer Rights Act applies to transactions made by an individual consumer or consumers, and a business. Since a b2b contract is made between two businesses, the Consumer Rights Act does not apply.
Consumers and businesses have different rights and protections offered by the law.
For example, a term that excludes liability from a business to consumers is invalid. However, businesses need to specifically check in advance if there are clauses excluding certain liabilities when buying as a business.
A consumer is not acting as a business when making a purchase. Therefore a business is not a consumer and not protected by the Consumer Rights Act.
Do I need Terms and Conditions for business?
What happens if the other party orders more goods than agreed upon? What happens if the buyer does not pay on the due date? What happens if the products supplied are not the same quantity or quality as agreed?
This is where the terms and conditions for b2b contracts apply. Always include terms and conditions in your contracts so that anything written on it will not be abused by other parties.
The terms and conditions can also make it easier for businesses to end their contract, especially if the situation calls for it. Furthermore, it can protect a business when there is a breach of contract, such as not delivering on their promises.
Is a verbal agreement enough between businesses?
Having no written agreement can be a big mistake for small businesses.
Since verbal agreements only rely on the good faith of both parties, it can be difficult to prove anything that has been agreed upon. A verbal agreement can offer much less protection compared to a written legally binding contract.
How to avoid unfair terms?
The easiest way to avoid unfair terms is to hire your own legal adviser to check the contracts before agreeing to anything.
To avoid unfair terms, you should not agree to terms and conditions that:
1. Causes harm to one party if enforced
2. Binds a business to hidden conditions
3. Intends to mislead one party
4. Only allows one party to make any changes
5. Gives more responsibilities after the contract term has concluded
6. Foresees automatic contract renewal
7. Excludes liabilities for death or injury
8. Excludes liabilities for damages or losses of goods caused by negligence, unless to do so is reasonable
9. Excludes liabilities of poor quality or defective goods, unless to do so is reasonable.
There are other unfair terms that might not be evident in the beginning. However, hiring a business contract lawyer can help you avoid terms that can be detrimental to your business.The Unfair Contract Terms Act covers and protects businesses when transacting with each other.