Many vendors experience the same problem. The sales people work hard to make a sale and then it takes forever the sign the contract. It starts with identifying a prospect, then making contact, building a relationship, explaining the offering, reaching the decision maker, submitting a proposal and then finally hearing that the proposal has been accepted. The sale has been made. Or has it? From the salesperson’s perspective the sale has been made, but not from a legal perspective. The agreement between the vendor and the customer that records the transaction in writing still has to be concluded. The agreement is very important and there are many reasons why the agreement must be concluded. But the agreement should not get in the way of the deal – some contractual risks are worth taking to get the business.
But at the end of a long sales cycle, the last thing that the vendor wants is for it to take months to sign the agreement. The vendor does not receive any money until the agreement is signed, so it is often top priority. The problem is that it often takes a long time to get the agreement signed. It often goes something like this:
- The vendor has to first prepare the agreement to send to the customer. This can sometimes take a while and might not be done correctly or might have some mistakes.
- Then, the customer often sends the agreement to their legal advisor for review and comment. This can take weeks and results in a list of comments or requested amendments.
- The vendor (or their legal advisor) then reviews it and responds.
- The customer (or their legal advisor) reviews what has come back and responds because they feel that some of their issues have not be adequately addressed.
- And so it goes.
“Legal ping pong” is what I call it.
The result is that the agreement only gets signed a while after the “sale” has been made, resulting in a loss of revenue. It can also be a very frustrating process that can damage the relationship between the vendor and the customer. Sometimes the vendor starts providing the goods or services before the agreement is signed – this is not a good situation and can have serious consequences.
What are the causes of this situation and what can be done to avoid it or at least make it a shorter process. There are many causes, but some of them relate directly to the template that the vendor uses for their customer agreement. Often they are horrible documents. This cause is in your control, so you can do something about it.
To sign-up customers fast you need to fix your template.
Sometimes there are mistakes in the agreement that is presented to the customer. For example, the commercial details might be wrong. Or changes that were made for a previous customer are included in the agreement for the next customer. This does not create a good impression. This can be avoided by including tags or drafting notes in the templates. Tags denote where variables need to be inserted, ensuring that all necessary variables are inserted. Drafting notes assist the person who creates an instance of the template for each customer.
The agreement that gets presented is often one sided in favour of the vendor. If an agreement is one sided, the other party tends to over-correct the bias in their favour. A lot of negotiation is then required to reach a middle ground. It is better to start closer to the middle ground, as this shortens the negotiation process. Sometimes unnecessary wording is used that creates the impression that an agreement is one sided. For example, a clause that says, “Vendor shall not be liable in any circumstances whatsoever for any cause …” sounds much more one sided than “Vendor will not be liable for” and it means the same thing.
The agreement is often badly drafted. This makes the agreement harder to understand and if a customer feels like they are being asked to agree to something that they do not understand, they are more likely to send it to their legal advisor and ask more questions. All agreements should be drafted in plain language as there are significant benefits to be gained from doing so and the law will soon require you to do so. Simple agreements get signed quicker. There are some quick wins that make a big difference.
Often the general or legal terms, and the commercial terms are all mixed up in the same document. They are meant for different audiences and should therefore be in separate documents. There are many advantages to using a modular approach to drafting. A customer is less likely to negotiate terms if they are in a separate document with two columns and in pdf format. The agreement should be cleverly structured to discourage the customer from requesting amendments.
Placing unnecessary obligations on the customer
Sometimes the agreement places unnecessary obligations on the customer. For example, a clause that says “the customer must comply with all applicable laws” is unnecessary because the customer has to do that by law anyway. When the obligation is placed on the customer but not the vendor, it is going to get the customer’s back up. Just leave it out – the vendor is in no worse position.
Outdated dispute resolution clause
Often the alternative dispute resolution clause is outdated. The latest recommended clause should be used.
“Affiliates” or related parties are not dealt with
Often the agreement does not deal with the “affiliates” of the parties – if it did, it would avoid the need to sign multiple agreements with multiple entities within the same group of companies. This can make a huge practical difference. It can mean that you negotiate and sign one agreement, rather than five or more.