7 Factors to Consider Before Getting Into a Contractual Agreement

7 Factors to Consider Before Getting Into a Contractual Agreement

Contractual agreements are documents prepared by contract managers or any other authorized persons that entail the intricate details of a business relationship and each party’s scope of work. The main reason for getting into contracts is to avoid misunderstandings about each other’s roles in the duration of an active contract.

Contractual agreements are binding and a breach might trigger a fallout, fines, or worse face litigation. For these reasons, it is essential to consider a couple of things before getting into any contract.

Allow me to expound.

  1. Usage of contract management software

Any contract manager will tell you that managing a contractual agreement is a difficult and daunting task. Especially for companies that undertake a dozen contracts at a go, monitoring the schedules, milestones, and approvals is not easy to do. That is why, for a successful contractual agreement, using ContractSafe Online Software is of the utmost importance.

Such contract management software streamlines the contract lifecycle, mostly through automation. It contains a centralized repository where all contracts are stored with advanced search features for easier retrieval.

Making sure that all parties are on board with using contract management software is a sigh of relief as you are sure of a seamless contract management lifecycle from the initiation to completion stages.

  • The reputation of the parties involved

To safeguard your business, performing a background search on the other intended parties is of paramount importance. It is your duty as an entrepreneur to safeguard the interests of your company and it starts with knowing the reputation of the other players.

Also, as you enter into a contractual agreement, get to know if you are diving in as a company or as an individual. The same applies to the other parties – you need to know whom you are doing business with. As simple as it may seem, this is often an overlooked factor when initiating a contract, which may cause unprecedented problems during a breach.

  • The capabilities towards the role of each party

As stated earlier, a contract defines the scope of work of every party. As much as you got into business with a company because you are optimistic that they can meet their end of the bargain, it does not hurt to verify their capabilities.

Before signing a contract, make sure that every party can handle the tasks assigned. You can ask for bank statements to confirm that they have the financial muscle to undertake the tasks. Take a deeper look at the teams involved to ensure they have the relevant experience and expertise. You can ask to interview the head of departments. Additionally, a great tactic to gain insight into their work processes is to ask for referrals and talk to them. Seek to know their level of satisfaction in regards to working with the parties you want to go into business with.

  • Terms of payment

Finances rank high in determining the success or failure of projects. The same applies to payments.

Delayed payments are notorious for causing a rift between business associates, the more reason that you should be sure of the terms of payment before signing any contractual agreement. 

One of the benefits of clearly stating the terms of payments is that it allows the parties involved to outline the consequences of breach of payment. For instance, if a party delays payment after a supply, the supplier can be entitled to claim interest on the unpaid amount.

  • The laws

The laws governing how businesses operate differ from one country to the other. Various governments have established rules and regulations that cut across all industries. Before getting into a contractual agreement with other companies, considering the laws is of the utmost importance.

The case becomes more complex when a company decides to get into a contractual business with a company in another country. In such a scenario, each company has to operate under both national and international laws of trade. As such, each of the parties needs to conduct an in-depth analysis of the trading climate and the penalties involved in case of a breach of contract.

Hiring the services of a reputable lawyer to guide you through these requirements is advisable. Through the years, law practitioners gain extensive knowledge of the legal system and are the best people to give you comprehensive advice.

  • How to settle conflicts

Conflicts in business are your everyday occurrence. They range from minor differences to full-blown disagreement that threatens the continuity of a contract. As much as they are bound to arise from time to time, how the parties involved deal with it is what determines the success of a contractual agreement.

For this reason, the importance of setting guidelines in regards to conflict resolution cannot be over-emphasized. It is best for both parties to agree on using the judicial system to settle conflicts. However, both parties can agree to avoid the headache of going through the court unless in unavoidable circumstances. Instead, they can seek arbitration for a faster and efficient conflict resolution process. 

  • Know the risk mitigation measures

Risk mitigation is a vital aspect of a contractual agreement. As an entrepreneur who wants to save their company from the adverse consequences of a trading mishap, making sure that risk mitigation measures are clearly outlined in the contract is imperative.

Business is unpredictable. Especially when a contractual agreement involves more than two companies, a slight problem in the supply chain can have severe financial repercussions. Risk mitigation measures determine which of the parties bears the risk of loss in such a situation. Also, it will be able to clearly state in which cases, these measures come into play.


From the knowledge you have grasped, it is accurate to state that contractual agreements are sensitive. For this reason, no entrepreneur should enter into such binging agreements blindly. By following the guidelines mentioned above, parties in a contract minimize the risk of a breach or termination of a contract.

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