Selling goods, especially online or as a manufacturer can be a risky business. If you are starting to sell more, you will need to begin writing sales contracts between your company and the companies you’re selling to. These contracts make enforceable any orders that are made.
Such contracts will help your company maintain documentation on a growing list of orders, as well as to provide a background for dispute resolution should one arise between you and your buyers.
You’ll need to do all of the proper research and homework first, but this template will give you a head-start and a good framework. You should always consult a lawyer though before finalizing any contracts.
If you’re in the business of selling goods, you might have started out with oral agreements. When a customer calls you on the phone, you can negotiate the sale of goods, and if it is a trusted customer when you send them the goods, you can expect them to pay. For small companies with a small trusted network of buyers, this might be a steady and sustainable way to operate in the long term. However, for many companies, even when operating as a small business, they are open to customers over the internet, all over the world.
When you are expanding your manufacturing or sales business, and want to sell goods to more people, and not just over the phone, or if the transaction limit is significantly over $500, you probably want to look into using a standardized sales contract like this one. It can seriously reduce the level of risk that you take on as a business while enabling you to scale up, and address customers all over the world, while not necessarily requiring a phone conversation.
In the US, special laws and considerations need to be made when selling goods, when the overall transaction is over certain thresholds. For example, under $500, contracts are generally not very enforceable, however oral contracts are seen by a minor court judge to be just as valid as contracts that are written and signed on paper. Over $5000, any oral agreements are generally not enforceable and need to be made in writing. This means that parties need to sign a contract to purchase or sell goods legally.
When you sell goods, you need to pay close attention to taxes. In the US, taxes are decided by state law, and specifically, the state to which the goods are delivered. The customer’s delivery address then must be known, and the seller in most cases must then use this information to calculate sales taxes and collect them from the customer. Sellers need to pay sales taxes on a quarterly or annual basis, so the sales contract can help provide documentation for those taxes, and ensure that taxes were paid on each transaction as required by law.
In other countries, such as in the European Union, and over 160 countries overall throughout the globe, transactions must include a VAT (Value Added Tax). This VAT varies based on the country and is paid to the federal government. VAT is a gross margin tax, so it means that if your company already paid VAT on a specific item or the item’s raw materials when re-selling or selling that item, you charge the same VAT, but subtract already paid (or provisioned) VAT from the amount you would send to the government. At the end of every transaction chain then, if the gross margin is calculated, VAT will be a percentage relative to the gross margin only, although it is charged the same way with every transaction.
If you are running an online business, making or reselling goods, you may be interested in removing restrictions to the locale of potential buyers- that is, enabling sale all over the world. In this case, you need to make sure that your sales conform to the Vienna Convention, which is more formally known as the CISG, or United Nations Convention on Contracts for the International Sale of Goods. As of this writing, 92 countries have accepted the CISG, including all of North America, most of South America, Central America, most of Europe, Asia, and Australia.
In these countries, the legal conventions for writing international sales contracts are included within the domestic federal regulations. If your contract is written in accordance with the guidelines set forth in the CISG, then your company will be that much closer to selling goods internationally.
In this Sales Contract Template, there are some general provisions that are included in almost all contracts. Enforceability and Governing Law are very important ones, and generally encompasses the location for which the goods are sold or manufactured. It’s important to note that certain rights and privileges are available to all companies and/or persons by law, and it may not be possible to waive or remove those rights or privileges even with a legally binding contract. You should take care to have a legal team fully understand what these legal rights and privileges are in your jurisdiction so that your contract doesn’t step on them accidentally. If your contract does make any technically illegal statements, then it is possible for one of the parties, notably the customer, to dismiss the contract’s validity in court. Because this could cost your company the entire value of the contract, it is something to exercise extreme care towards.
An uncommon clause in this contract, which you don’t see in other contracts often, is the Warranties clause. Whenever property is provided from one entity to another, the definitions of what that property is must be clearly outlined. You can use standards, certifications, or industry best practices to define warranties. Essentially, these statements are promises that the goods meet a certain specification. The goods may not have any more definition than the category, and specification or certification standard that they are designed to meet.
If the customer inspects the goods, and finds that they don’t meet the warranted metrics for quality given in the contract, then they have a remedy defined in the contract. Generally, sales contracts define a specific process for remedies, inspection periods, and acceptance. If the items are sold as-is, for example, they may not have any inspection period. Goods sold as-is are normally discounted compared to warrantied items, because of the higher risk to the consumer that they provide. However, faster, more efficient transactions can be made using this method.
Last but not least, the contract should include payment details. For any contract to be made enforceable, the “covenants”, or promises, must be made on both sides of the transaction. The buyer, therefore, must agree to give money or other (generally liquid) assets in exchange for the goods. In this section, it is quite common to refer to a promissory note or to a line of credit, especially when companies are purchasing from other companies. If you want to increase sales, and have the financial insurance to back it up, you will probably want to look into selling using a line of credit style financing, allowing buyers to order and pay a lump sum for all orders on a monthly basis, which is generally referred to as “Net 30.”
Now you have a handle on the sales contract. It will allow your business to grow beyond simply personal, oral agreement, or telephone call sales. Take care and have your legal team draft the perfect sales agreement for you, and always remember that these types of documents evolve with your company as you change and grow. Start simple with this Sales Contract template, and you will have all of the basics you need quickly to get your sales going strong.