Business-to-business agreements: The questions you need to ask

Your business success relies on your interaction with clients/customers and other businesses. Your profit is directly proportional to the behaviour of these external role-players. Dealing with individual clients/customers does come with some risk – especially if you offer a line of credit. However, your agreements with other businesses, in which greater risk and sums are applicable, you cannot afford to take a wrong step and jeopardise your own position and growth.

For this reason, the way you approach your agreements with other businesses should be done with much forethought and consideration. These are some of the things to consider in your business-to-business agreements:

When does the agreement start and end?

It may sound obvious, but having a clear understanding of when a contract starts and ends is extremely important. The world changes and the economy goes through volatility, and as a result, your scope might change. There are too many variables in the world of business to have a contract that goes on indefinitely. Also, make sure that if there are certain conditions that may trigger the commencement of the contract, that it is clearly stipulated. Should you want to leave the door open to continue the agreement in the future, be sure to include a renewal clause in the contract along with the process to be followed.

How can the contract be terminated?

You may enter into an agreement and discover at a later stage that it no longer suits you or your business’s needs. So be sure to include terms that explain the process and/or penalties applicable when one or both parties are intent on terminating the contract.

How will disputes be resolved?

As much as we would love to live in a world where everyone does their part and there is no conflict, it is practically impossible to escape the odd bad egg. Inserting a clause that explains how disputes will be resolved can go a long way to avoiding unnecessary legal fees and time spent in court trying to set things right. Most contracts prefer to do so by insisting that the first course of action is arbitration, and not litigation.

How can you protect yourself from risk?

There may be instances where there isn’t just a dispute but rather a blatant breach of contract. If another business causes you damages because of their action (or inaction) in contradiction of your agreement, there must be a way to take appropriate action. Including a breach clause and damages clause in a contract ensures that in such an unwanted event you at least have a clear plan for legal recourse.

How confidential is the agreement?

How you conduct business should be a private matter. Protecting your trade secrets are often vital for the sustainability of your business in a competitive environment. For this reason, there must be a confidentiality clause inserted in your commercial contracts.

How will you protect yourself from the worst-case scenario?

As was made clear by the Coronavirus pandemic, there is always the possibility of an unforeseen event that can derail your ability to satisfy the terms of your agreement with another commercial entity. For this reason, no commercial contract should be drafted in which there is not a force majeure clause that stipulates the large-scale external conditions that could void the contract.

Who will I approach to draft my commercial contracts?

Drafting a commercial contract is not for the faint-hearted. In fact, there are professionals who devote their entire lives to the drafting of watertight commercial agreements that are valued in millions of Rands. It is always advisable to speak to a reputable Commercial Law Attorney who will be able to help you navigate the world of commercial contracts and ensure that your best interests are protected.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Is it possible to backdate an agreement?

A popular question which comes up during a consultation with a client when the drafting of commercial documents is discussed is, “what is the effective date of the transaction?” It is common practice that the effective date be expressly defined in the agreement, this is to indicate when the agreement will come into force and effect. The effective date of a transaction is of great importance especially when there are certain conditions which must be adhered to prior and/or after the date on which the agreement was signed by the relevant parties.

 

In some instances, the effective date of an agreement will either be set on an earlier or later date than on which the agreement was signed by the parties. It is often found that the effective date of an agreement is earlier than the signature date, which can also be referred to as backdating of an agreement. Despite the fact the aforesaid is permissible, the effect of backdating any agreement must not be overlooked by parties. Backdating any agreement means that the agreement binds the parties retrospectively from the earlier date.

 

Due to the retrospective effect of the agreement, it is necessary that the parties ensure that no representations are made during negotiation stages and/or signature of the agreement which they know to be untrue and/or not possible to adhere to. In cases where a misrepresentation is made and lead to certain losses, it can result in one party instituting civil procedures against the other. Parties must declare all facts known to them which may affect the transaction between the signature and effective date to avoid situations where a party to the agreement suffer losses which could result to civil and/or criminal liability. Furthermore, should all obligations and terms of the agreement be of such nature that they have been executed timeously and the effective date is earlier than the signature date, same must be properly recorded in the agreement which will only be signed at a later stage.

 

Although it is possible to backdate an agreement, it is advisable to ensure that parties timeously approach professionals which specialise in the drafting and implementing of commercial documentation to properly record the agreement between the parties.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Is it possible to backdate an agreement?

A popular question which comes up during a consultation with a client when the drafting of commercial documents is discussed is, “what is the effective date of the transaction?” It is common practice that the effective date be expressly defined in the agreement, this is to indicate when the agreement will come into force and effect. The effective date of a transaction is of great importance especially when there are certain conditions which must be adhered to prior and/or after the date on which the agreement was signed by the relevant parties.

 

In some instances, the effective date of an agreement will either be set on an earlier or later date than on which the agreement was signed by the parties. It is often found that the effective date of an agreement is earlier than the signature date, which can also be referred to as backdating of an agreement. Despite the fact the aforesaid is permissible, the effect of backdating any agreement must not be overlooked by parties. Backdating any agreement means that the agreement binds the parties retrospectively from the earlier date.

 

Due to the retrospective effect of the agreement, it is necessary that the parties ensure that no representations are made during negotiation stages and/or signature of the agreement which they know to be untrue and/or not possible to adhere to. In cases where a misrepresentation is made and lead to certain losses, it can result in one party instituting civil procedures against the other. Parties must declare all facts known to them which may affect the transaction between the signature and effective date to avoid situations where a party to the agreement suffer losses which could result to civil and/or criminal liability. Furthermore, should all obligations and terms of the agreement be of such nature that they have been executed timeously and the effective date is earlier than the signature date, same must be properly recorded in the agreement which will only be signed at a later stage.

 

Although it is possible to backdate an agreement, it is advisable to ensure that parties timeously approach professionals which specialise in the drafting and implementing of commercial documentation to properly record the agreement between the parties.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)