BUSINESS
Sales tales: contract terms & conditions
Today’s Tale: how to close an order without making it a legal trial
by Stephen Allott, Venture Partner, Seedcamp Sales Tales
Are you spending precious time on negotiating customer contract terms? This can be more of a trial than getting the purchase decision itself. Would you like an elegant way to escape the law’s delays?
Today’s tale is a very short guide to getting your order fast, without fighting or fuss. I’ll explain some key legal aspects along the way.
Try each step in turn. If a step does not work, move on and try the next step.
We shall start with a human led offline sale and then compare that with an online SaaS sale.
Human Led (offline) Sales
Send your prospect a quotation which must be based on your standard terms of sale. Somewhere it needs to say “our pricing is subject to our standard terms of sale.”
Then, ask them to ‘accept” your quotation orally. If they do, that may be all you need to book the order. They can say accept on the phone or on a Zoom or face to face. Oral contracts are fully binding in many jurisdictions in the US and in other countries including in English law. You can record oral contracts for proof if some-one insists on that.
If that doesn’t work for them or for your finance department, go to the next step.
Ask them to say “accept” to your quotation in writing whether by email, IM, text or message or snail mail letter and that is all you need. This will be a contract made in writing. Only things like sales of land or guarantees have to be in writing to be effective. Other things can be oral.
If that doesn’t work, go to the next step.
An order letter can short circuit the order process. It’s very similar to a quotation and should incorporate your terms of sale. They sign and return it.
If that doesn’t work, go to the next step.
Ask them to send you their company’s Purchase Order referencing your quote. Celebrate when you get their PO and then have your Finance Dept send an order acknowledgement form stating that you accept their order “subject to your standard terms of sale”. This is called the “battle of the forms”. If they then start using your service or product without protesting about the terms of sale then they are likely to have accepted your offer to enter into a contract by conduct. If they pay your invoice so much the better. This works in England for example but only partially or not at all in some other countries.
So far we have avoided looking at contract terms themselves. What if you cannot avoid it? This can happen in various ways.
Shorten negotiations by selling your terms.
First, your own company finance department may insist on your customers signing your contract. Most people confronted with a contract will ask a lawyer to review it and may come back with changes. If you are the company founder you probably have the power to agree the customer requested changes to your terms without legal review but if you are in sales, you will have to send it for legal review on your side.
“Stuck in Legal” here we come.
So here is my best suggestion to escape.
When your customer says your contract terms are going to legal review, explain that you will be delighted to meet their requirements for changes to the contract terms but that might have a price implication. Your original quote was subject to your standard terms of business and that enables you to offer the keenest price which is what customers generally want. In effect they can have any contract term they want but you will quote a price variation in the form of a % change in price for each amendment. A higher limit of liability will cost so much and so on. Pricing terms in this way is economically rational and good business even if its rare in many industries. Best of all it is quick. They send you their changes. Take the changes to your decision makers and get them to agree the % loading which you send back to your customer. The customer will rarely want to pay more for legal terms so they will probably drop their requests. 25 years ago, I developed this technique out of necessity, and have used it ever since. I have presented it to legal departmental meetings in large corporations and published articles on it.
Second, the customer’s procurement department may insist you sign their purchase contract. This could be the start of a world of pain not least because their terms don’t reflect your business model. There are 4 main types of contract term.
- What you have to do to get paid
- What happens if you are late
- What happens if it doesn’t work
- Other legal stuff
Use the same suggestion and price each amendment they want.
Try and “play at home”, asking them to propose changes to your terms of sale, rather than slogging through a re-modelling of their procurement terms.
If you are selling to a Government, note that they have to buy on their standard procurement terms because all their tenders have to be on a like for like basis to be comparable. So they cannot make changes. Just explain that to your management and put in the price at which you can make a compliant bid. Selling to economically powerful large companies like big pharmaceuticals or big IT, you should treat like selling to Government. Just charge them more for their terms and celebrate if they are willing to pay more for their terms.
And that’s how it’s done.
You have closed an order without making it a trial.
Online SaaS sign-ups
What is different if you are a SaaS company doing an online sale? Do you need to publish your terms of sale somewhere on your web site? Do you need a box during the sign-up process which a customer ticks to say they agree your terms? Do you need to make the customer browse through your terms before assent?
It all depends. It depends on the legal jurisdiction you are in, your judgement of legal risk and how you trade off legal risk against introducing friction from a contract step in the sign-up process. You can A/B test the funnel drop out with different contract sign-up journeys.
But its also a journey for your trade-off decision and you will become more risk averse as your company grows and you have more to lose.
Some useful trivia:
People talk about “Terms and Conditions” or “Ts & Cs” pronounced “Teas and Seas”. This usage is just tradition. I prefer “Standard Terms of Sale” but the names don’t matter. Technically, a condition is a special type of contract term, breach of which entitles you to terminate, as opposed to the other type of term which is a warranty which only entitles you to damages.
What is a “verbal” contract? I have carefully talked about oral contracts. Many people use the term “verbal” contract when they mean oral. Oral means spoken by mouth as distinct from written down. “Verbal” means “in words” from the Latin word “verbum” for a word. “Verbal” is not the right description for a spoken contract.
Customers frequently want to negotiate the monetary limits of liability but this is mainly because they see the number and it’s easy to suggest a change. It’s irrational but there will be heads of liability which cannot be limited or excluded, by law, so why pick on the ones that can?
Payment terms and governing law clauses also attract attention.
Non-disclosure agreements (“NDAs”), GDPR, security compliance forms and IPR terms for trials can be presented to you for signature during a sales process as a condition for engagement. Sorry but you have to review them carefully and act accordingly.
Supplier on-boarding systems can present you with mandatory terms. You can explicitly contract out of these, before or after the fact, if you are negotiating a custom agreement.
Finally should you worry about protecting your business by securing clear agreement to your terms of sale? Is your IPR secure and have you limited your liability? This is a business decision not a legal decision. It’s your decision. An outside legal adviser is not equipped to make the trade-offs between the value of closing an order and the monetary value and probability of the liabilities under these terms. How likely are you to have a legal disaster which could have been avoided with legal terms? That’s your call.
It would be useful to collect data about how often problems happen in practice. Please send me details. In my experience it’s rare.
By the way, I am not accepting legal liability for you relying on the advice in this article and if you have read this far you have accepted exclusion of my liability.
With grateful thanks for my friends and colleagues Omar Pera, Ed Boulle and Jonathan Malin for feedback.