Contracts are an essential tool for businesses and organisations because they build trust between the parties. They provide a framework for establishing the terms and conditions of an agreement between two or more parties and can cover a wide range of transactions, from the purchase of goods and services to employment relationships and real estate transactions. Organisations spend a lot of time formulating, drafting, negotiating, signing and managing contracts. Is it worth it? Yes, it is for a number of reasons.

Mostly importantly, contracts are a source of revenue.

Contracts are an essential tool for businesses, providing a clear framework for establishing the terms and conditions of an agreement, protecting the interests of both parties, minimizing risk, and providing a source of revenue. Whether required by law or voluntarily entered into, contracts play an important role in establishing trust and ensuring that the parties honour agreements. As such, it is important to take the time to properly draft and execute contracts to ensure that they are clear and enforceable, and provide the necessary protections and benefits to all parties involved.

Intangible assets that are the source of revenue

Contracts are an intangible asset that you can monetise and can provide a source of revenue. Contracts can be sold, assigned, or used as collateral, and can be an important source of income or revenue for businesses. A business cannot invoice a customer unless there is an underlying contract. So if you don’t have a contract you don’t have any revenue. You have to have a contract in order to do business.

Build good relationships and avoid disputes through clarity and certainty

Contracts provide a clear and unambiguous set of terms and conditions that both parties must adhere to. This helps to avoid confusion or misunderstandings that can arise when agreements are made informally or verbally. When the terms of a contract are set out in writing in plain legal language, there is no room for interpretation or miscommunication.

Protection of interests

Contracts can be used to protect the interests of both parties by defining their rights and obligations. They can be used to set out specific terms related to payment, delivery, warranties, indemnification, confidentiality, and intellectual property rights, among others. When these terms are clearly defined in plain legal language, it is easier to enforce them and protect the interests of both parties.

Minimisation of risk

Contracts can be used to minimize the risks associated with a transaction. They can help to establish deadlines and performance expectations, and can provide remedies in case of breach of contract. When a contract is properly drafted and executed, it can help to minimize the risk of litigation and protect the parties from potential losses.

Comply with legal requirements (sometimes)

In some cases, contracts are required by law. For example, certain types of contracts must be in writing to be enforceable, and some industries may require contracts to be used in order to comply with regulations.

What is a contract?

A contract is a legally binding agreement between two or more parties. Once signed, this contractual agreement creates a promise that certain rights and obligations will be fulfilled by each party.

In essence, a promise is at the heart of every contract.

What is the difference between a contract and an agreement? All contracts are agreements, but not all agreements are contracts.

Action to take

  • Learn more about contracts by reading our insights.
  • Conclude an IT contract by asking for our help.