Even some experienced businesspeople assume that only large companies arrive at a business negotiation with their own standard agreement in place. Or they think they can only offer their own prepared agreement to a customer or supplier that is smaller than their own business.
No matter how young or small your business may be, there are good reasons for preparing and using your own agreement as the basis of negotiations or to record your deals.
(This article is part 1 of 2.)
I work with clients from a range of sectors, including startups who are shyly wondering if it would be too cheeky to have their own agreement, or who are panicking because their first/ second/bigger customer has asked them to send over their agreement and they never thought about having one. I also work with established players in their sector, looking to update their longstanding (and possibly dusty) old agreement.
All my clients have reaped the rewards of the development process, and then of having the developed agreement.
The benefits start with the process of developing your agreement. This involves thinking hard about the range of services that you offer and the way you want to offer them, to what different client types and through what sales channels.
As you know, if you are selling to consumers the legal framework that applies is different than the one for B2B sales. Similarly, different issues will arise if you are selling via the internet or in-person.
You may think all this is obvious, but, in my experience, it provokes some internal commercial questions. Some of these can be addressed or managed by baking some useful clauses into the legal agreement.
Do your planning
It’s useful to answer these questions as part of your planning:
- Do you have a typical customer profile (consumer, small business, large business)?
- Are there certain parts of your services which are proving high risk/ low profit?
- Are there any neglected parts of your company's offering and should they be rethought or abandoned?
- Are there any issues causing repeated complaints or disputes?
- Where are your customers located? And where is the work delivered? (This is even more topical post-Brexit)
- Should your service range be expanded to include ‘white label’ services?
- What legal risks should the agreement deal with?
Benefits of planning
Planning means the agreement will be relevant to your business. Also, on a less legal note, it enables you to educate and train your team on what you offer and how.
The developmental aspect continues through the drafting and checking process as you identify how far the business will go to accommodate clients on certain issues, and which issues it will stand firm on, even when negotiating with the most demanding client.
Whether you are deeply involved in the planning process or trained on it later, all the knowledge you gain adds to your kudos with the other side, because you’ll be able to answer their questions and explain your rationale behind the various clauses.
Although the customer or supplier might not instantly agree with all the solutions you’ve covered in your agreement, you are now the expert in thinking these issues through from the perspective of your business. You’ll be able to explain them, identify things you simply can’t afford to change, and make sensible suggestions about a compromise.
Benefits of customisation
Many of the problems that arise between customers and suppliers can be avoided, because you will have already thought them through and weighed up reasonable and sensible decisions about key issues such as:
- Contract length
- Scope of services
- Termination date and notice period
- Service level standards and penalties
- Pricing and payment terms
- Data protection
These are all standard topics to include, but the details are never standard and should always be built to reflect your business. For example, the termination process might need to be adapted to work smoothly for you.
For instance, if you have a contract that renews automatically or is for a long period (say, five years) you might want a clause that allows you to renegotiate your price or increase it in line with inflation without having to renegotiate. Five years is a long time in life and business (as this past year shows!) so you might want to think about inflationary pressures and interim price rises.
However, if it’s a contract lasting three to six months, you might not need to mention automatic price rises because, in a short-term deal like this, you would usually expect to be confident that the price will continue to work for you as well at at the end as it did at the beginning.
If you have more than one key customer group, for example B2B and B2C, your approach might remain the same, but you may either need entirely different agreements which are presented with a completely different look and feel or you may decide – for marketing purposes – to use essentially the same agreement terms but written and presented differently in order to be consistent with the marketing messages you share with the different groups.
Benefits over time
Once the agreement is developed, it significantly speeds up the time between agreeing sales in principle and signing off the contract. The level of negotiation is reduced, because it’s easy to focus just on the most important commercial points.
It demonstrates professionalism, enhances your credibility and empowers you when dealing with prospective and existing clients and suppliers. You also have the chance to let your marketing team dress the document in your favourite logos, fonts and colours etc.
It enhances your knowledgebase for dealing with your clients and/or suppliers. Although you may be asked to accept someone else’s agreement from time to time, it is likely to be less often. When this does occur, you will be much better equipped and capable to cope, by applying all your insights into their agreement to identify where any important changes are needed.
And finally, for a large part of the agreement, it quickly proves its value in removing the ‘groundhog day’ feeling of having to renegotiate many of the same clauses with every significant client every time.
For help with any of this, please give us a call.