Sales Agreement

Sales Agreement

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Party 1

Name / Company
Individual / Company
Address 1
Address 2
City
State/Province
Zip

Party 2

Name / Company
Individual / Company
Address 1
Address 2
City
State/Province
Zip
What is the effective date for this contract?
"Deliverables" are the tangible goods or intellectual property provided under an agreement for payment. "Services" are not goods or deliverables, which are the tangible results of the services. For example, if a consultant is engaged to meet with and better understand a customer's manufacturing system and then provide a written report summarizing how to improve the system, the meeting and understanding would be the services, while the report itself would be a deliverable.

Party 1:
Party 2:
DELIVERABLES (Party-1 Sells) - What are the Deliverables Party-1 will provide pursuant to this Agreement?
Once a customer takes ownership and title to goods, if the goods are damaged or lost, then that becomes the customer's responsibility. Because of these consequences, the parties usually discuss and agree on the point where ownership, title and risk of loss are transferred to the customer. "Acceptance" is the point after the customer receives the Deliverables and has concluded that the Deliverables comply with the Agreement's requirements.

Party 1:
Party 2:
OWNERSHIP, TITLE AND RISK OF LOSS (Deliverables) (Party-1 Sells) - At what point does ownership, title and risk of loss transfer to the customer?
A "Deadline" is a requirement that the services, goods or deliverables required under the Agreement must be provided within a definite time frame.

Party 1:
Party 2:
DEADLINE (Deliverables) - When will all Deliverables be provided?
Please describe the deadline(s):
Type number of days.
A "Deadline" is a requirement that the services, goods or deliverables required under the Agreement must be provided within a definite time frame. "Assumptions" refer to certain requirements the customer must meet so that the vendor can calculate how much work is involved, when the work can be completed, and how much the fee should be.

Party 1:
Party 2:
DEADLINE - ASSUMPTIONS (Party-1 Sells) - Does Party-2 have to do anything in advance so that Party-1 can meet the deadline?
What must Party-2 do?
A fee in this context can take many forms, including a flat fee, the total of the hours/days incurred times the hourly/daily rates, a guaranteed maximum fee, a per Service/Deliverable fee, a per milestone fee, or other arrangement.

Party 1:
Party 2:
FEE (Services/Deliverables) (Party-1 Sells) - What are the fees?
What is the flat fee?
What is the hourly rate for each member of Party-1's personnel?
What is the daily rate for each member of Party-1's personnel?
What is the maximum flat fee?
Hourly rate fee or daily rate fee?
What is the hourly rate for each member of Party-1's personnel?
What is the daily rate for each member of Party-1's personnel?
Please list each Service/Deliverable and fee.
Please list each milestone and fee.
Please list each fee.
"Payment Schedule" means when the vendor will bill the customer. The customer may prefer not to be billed until after acceptance, which is a concept that gives the customer a short testing period after receiving goods or services to determine whether or not they are satisfactory. The vendor instead prefers to invoice the customer upon receipt of goods or services, so that the vendor can recognize its revenue sooner.

Party 1:
Party 2:
FEE - PAYMENT SCHEDULE (Party-1 Sells) - What is the payment schedule?
Please specify the percentages and dates/milestones.
Please specify each milestone and the fee amount to be invoiced.
Please specify each fee payment schedule.
"Affiliates" means a party's parent, subsidiary, or related business associations that, in future purchases, could receive the same pricing under this contract.
"Most Favored Customer Status" means that a customer is receiving a deal from a vendor which is just as good or better than any other deal the vendor has with any other customer.
"Assumptions" means requirements a customer must meet or the vendor will have to perform extra work and as a result will need to increase the fees.

Party 1:
Party 2:
FEE - CONDITIONS (Party-1 Sells) - Do any assumptions, affiliate pricing, or most favored customer status conditions apply to the fee?
What must Party-1 do?
What are the fee increases?
A vendor may offer a percentage discount off the invoice if the invoice is paid a certain number of days early so the vendor has its money sooner.

Party 1:
Party 2:
FEE - EARLY PAYMENT DISCOUNT (Party-1 Sells) - Does Party-1 receive an early payment discount for early payments?
To earn the discount, customer must pay the fee within how many days?
What is the discount percentage?
Expenses incurred by a vendor are sometimes reimbursed by a customer, and this cost is over and above the fees under the Agreement.

Party 1:
Party 2:
EXPENSES (Party-2 Reimburses) - Will Party-2 reimburse Party-1's expenses?
The "Warranty Length" refers to how long the Services and/or Deliverables will perform as expected.

Party 1:
Party 2:
WARRANTY LENGTH (Deliverables) - How long should the warranty last?
"Limitation of Liability" is a provision used to limit the kinds of damages a company could be liable for if sued. Parties often want to limit their liability for "Consequential Damages" - these damages can be quite large, might greatly exceed the money actually owed under the contract, and include lost profits and punitive damages. Parties may also want to impose a hard cap on their liability. For instance, a party could state that it won't be liable for more than $10,000, or for more than the fees under the contract.

Party 1:
Party 2:
LIMITATION OF LIABILITY - CONSEQUENTIAL DAMAGES - For consequential damages, do I want to limit liability for both parties or just for Party-1?
For certain egregious acts, you may not want the parties' liability limited. Which of the below acts do you want excluded from the limitation of liability?
For certain egregious acts, you may not want this party's liability limited. Which of the below acts do you want excluded from the limitation of liability?
"Limitation of Liability" is a provision used to limit the kinds of damages a company could be liable for if sued. Parties often want to limit their liability for "Consequential Damages" - these damages can be quite large, might greatly exceed the money actually owed under the contract, and include lost profits and punitive damages. Parties may also want to impose a hard cap on their liability. For instance, a party could state that it won't be liable for more than $10,000, or for more than the fees under the contract.

Party 1:
Party 2:
LIMITATION OF LIABILITY - HARD CAP - Do I want to impose a hard cap on liability for both parties or just Party-1?
Do I want to choose one of the options below, choose a multiple of the contract value, or specify the hard cap myself?
Which option?
What should the multiple be?
How much?
Do I want to choose one of these options, choose a multiple of the contract value, or specify the hard cap myself?
What should the multiple be?
How much?
"Indemnification" and "Limitation of Liability" both focus on parties' responsibilities in disputes. "Limitation of Liability" covers disputes between the parties who sign the agreement. "Indemnification" focuses on a dispute where a third party sues a party who signed the agreement, and the suit was caused by the other signing party's conduct. If this other signing party is required to "indemnify" the first signing party, that means the second signing party will generally pay the legal fees and any damages awarded or settlement amounts. "Claim Elimination" deals with the situation where a third party demands that a customer no longer use a service, deliverable or product because it violates that third party's rights. Under this provision, a vendor is required to eliminate that claim or take other steps.

Party 1:
Party 2:
INDEMNIFICATION (Deliverables) (Party-1 Indemnifies/Sells) - What do I want Party-1 to indemnify Party-2 for?
"Indemnification" and "Limitation of Liability" both focus on parties' responsibilities in disputes. "Limitation of Liability" covers disputes between the parties who sign the agreement. "Indemnification" focuses on a dispute where a third party sues a party who signed the agreement, and the suit was caused by the other signing party's conduct. If this other signing party is required to "indemnify" the first signing party, that means the second signing party will generally pay the legal fees and any damages awarded or settlement amounts.

Party 1:
Party 2:
INDEMNIFICATION (Deliverables) (Party-2 Indemnifies/Buys) - What do I want Party-2 to indemnify Party-1 for?
The "Term" means how long the contract will be in force.

Party 1:
Party 2:
TERM - LENGTH - How long is the term of the agreement?
How many years do I want?
How long?
An "Evergreen" term - also referred to as an "Automatic Renewal" - means that once the term comes to a certain date in the future, it automatically extends for an additional time period or repeated additional time periods until either party sends notice that the term does not renew anymore.

Party 1:
Party 2:
TERM - EVERGREEN - Will the agreement automatically renew or not?
"Termination for Convenience" means a party's right to terminate the agreement at any time for any reason at all (or even no reason), and is usually accompanied by advance written notice.

Party 1:
Party 2:
TERMINATION FOR CONVENIENCE - Do I want to terminate the agreement at any time for any reason or no reason with thirty (30) days prior notice?
A "Subcontractor" is a third party who one of the signing parties wants to perform some of its responsibilities under the Agreement, such as providing a Service or Deliverable.

Party 1:
Party 2:
SUBCONTRACTORS - Can one or both of the parties subcontract any responsibilities?
The "Governing Law" is the particular state or country's laws that you choose to apply to this contract. Often times, the governing law is the state or country within which one or both of the parties have a main office, or where they are conducting business under the contract.

Party 1:
Party 2:
GENERAL - GOVERNING LAW - Which state or country's laws govern this contract?
"Forum", "Venue" or "Jurisdiction" refers to where disputes between the parties must be litigated. Often the parties will still be free to seek injunctions or other temporary relief outside of the forum as they see fit.

Party 1:
Party 2:
GENERAL - FORUM - Which state or country is the forum for this contract?
"Assignment" means the right to transfer the contract, or a right or obligation under the contract, to a third party. Usually, this is prohibited or limited to a third party buying the shares or assets of a party to the contract.

Party 1:
Party 2:
GENERAL - ASSIGNMENT - Do I want both parties to be able to assign this Agreement, just Party-1, or not allow any assignments?

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Sales Agreement: Close the Deal! Read our great article below on how to negotiate a Sales Agreement. 

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Complete Description. This Sales Agreement covers vendors selling goods, and explains deliverables, deadlines, ownership, title, risk of loss, fees, invoices and taxes, warranties, disclaimers, limitation of liability, indemnification, term and termination, force majeure, and general boilerplate for a sales agreement.

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SALES AGREEMENT EXPLAINED

Most sales directors don’t take responsibility for their own sales contract. I’ve even spoken with heads of sales and quizzed them as to how well they understand the key contracting issues that arise over and over again during most sales agreement template negotiations. Usually, they know few issues, and almost none of the different negotiating permutations. This means that they can’t form an effective negotiating strategy to close the deal over and above the price. The purpose of this article is to provide sales professionals and their attorneys with a blueprint for tackling a typical sale agreement template.

What Are You Selling? This is the central issue for all sales contract template discussions, and needs to be answered up front. If you sell a consulting service, then you include a comprehensive description of every aspect of that service in a clear and straightforward manner. If you sell a good (or “deliverable”), then describe that good in detail so that the customer completely understands exactly what you provide. Remember the whole purpose of working on a written contract: you want to establish a basis of trust with your customer so she knows exactly what she buys and you know exactly what she pays. Upon delivery, many salespeople find customers from time to time extremely upset because the goods or services did not live up to expectations. Smart salespeople avoid this risk in the first place by inserting a strong description at the time of contracting. This does two things. First, it informs the customer at the start as to exactly what the good consists of so that the customer won’t be shocked later. Second, it forces unreasonable customers who constantly change their expectations to refer to the contractual description as the “bible” of the deal going forward so any unreasonable demands can be checked as the deal moves along. Failing to include a strong description increases the risk that sales managers and their customers might soon have expectation headaches.

Beware “Tuition Payers.” Too often, sale agreement descriptions include a cursory phrase, a short sentence, or, worst of all, the dreaded words “To Be Decided.” Some litigators call these kinds of descriptions “tuition payers.” Why? Well, talented trial attorneys look for any opening in the contract language that allows them to make an argument that the salesperson didn’t execute properly and live up to the agreed upon deal’s expectations. The looser the description is, the more room there is to make this kind of argument, even if the seller vociferously feels otherwise. And the more room there is to argue that the seller didn’t live up to the deal, the more likely the customer’s trial attorney will win, earn a lot of money, and be able to pay his daughter’s college tuition. The bottom line is that a salesperson can’t convincingly argue at a later date that the lawyer is wrong and the sales contract was fulfilled if no one clearly understands what the sales contract template description fully required because it is incomplete.

Fee Types. There are many ways to strike a deal on compensation. You can charge:

  • Flat Fee.
  • Fee Per Service.
  • Fee Per Deliverable.
  • Fee Per Milestone.
  • Hourly Rate.
  • Daily Rate.
  • Guaranteed Maximum Fee (this is the lesser of a flat fee or the total of the rate fees in hours or days).

Payment Schedules. Customers follow a wide range of payment schedules:

  • 1/3 Percentage:
    • 1/3 payment on Effective Date, 1/3 on Deliverables receipt date, and 1/3 on Deliverables acceptance date.
    • 1/3 payment on Effective Date, 1/3 on Deliverables shipment date, and 1/3 on Deliverables receipt date.
  • 1/4 Percentage:
    • 1/4 payment on Effective Date, 1/4 on Deliverables specifications date, 1/4 on Deliverables receipt date, and 1/4 on Deliverables acceptance date.
    • 1/4 payment on Effective Date, 1/4 on Deliverables specifications date, 1/4 on Deliverables shipment date, and 1/4 on Deliverables receipt date.
  • Monthly: Monthly payments for Services based on hourly rate.
  • Acceptance/Receipt: Payment of overall flat fee upon Deliverable acceptance or receipt.
  • Milestones: Payment upon milestone achievement.

Discounts. You might want to increase your cash flow by offering customers an overall discount on the sales agreement if they pay the entire amount up front. Typically, vendors offer a 2% discount if the customer pays the entire fee within 10-15 days of signing the sale agreement form.

Expenses. The sales contract should always clearly state the exact types of expenses incurred by the seller that the customer must reimburse.

Deadlines. Many vendors skip including a schedule for delivery and completion of the goods and services. They usually omit the schedule because they want to preserve maximum flexibility for their own needs. This can create a twofold problem. First off, your customers might expect the schedule to be completed by a date that you didn’t know about, so you end up with an unhappy customer because you never reached agreement on this key issue. Second, a deadline gives your employees discipline and a goal that they have to meet which can increase productivity and keep your business running smoothly. Not including a deadline means you miss out on this improved level of focus.

Assumptions. Remember, much of what you promise as a vendor depends on whether the customer performs certain actions as well. You can promise a fast delivery date, but if the customer won’t be there to receive the goods, or won’t properly set up its premises to install the goods correctly, you can’t meet your delivery date obligation. You can promise a terrific fee, but if the customer won’t sign off on a final version of the project schedule or goods description, and constantly requires additional changes, then your competitive fee swings to being highly unprofitable. As a result, always include in the sale agreement form a list of assumptions that the customer must complete in order for you to have to meet your duties regarding deadlines and fees. The sales agreement template should also state that the delivery schedule increases on a day for day basis for each day the customer fails to fulfill its assumptions, and that the fees increase (typically under your hourly rate) for each extra hour incurred for the same reason.

Regardless of your choice of fees, payment schedules, and discounts, you should definitely make these clear within the contract itself, and not in separate emails, spreadsheets or presentations. Most contracts include a clause called the “entire agreement” or “merger” clause stating that anything outside of the contract is unenforceable, so if you want your pricing to stick, be sure to put it in the right place: the sales agreement.

Ownership, Title and Risk of Loss. Once a customer takes ownership and title to goods, if the goods are damaged or lost, then that becomes the customer’s responsibility. Because of these consequences, the parties usually discuss and agree on the point where ownership, title and risk of loss are transferred to the customer. “Acceptance” is the point after the customer receives the Deliverables and has concluded that the Deliverables comply with the Agreement’s requirements. So there won’t be arguments later as to which party is on the hook when shipments go wrong, you want to specify in the sales agreement template the point at which ownership, title and risk of loss pass from the seller to the buyer. This point is usually one of the following:

  • Acceptance by Party-2.
  • Receipt by Party-2.
  • Shipment to Party-2.

Warranty Length. Be sure to decide how long the goods perform according to the sales contract description. Usually, the warranty lasts for one of these three time periods:

  • 30 day warranty.
  •  90 day warranty.
  •  1 year warranty.

Limitation of Liability. Vendors usually want to include a limitation of liability clause; customers do not. Why? Because vendors have to follow most of the obligations under a sales agreement, vendors face more reasons to be sued than customers. As a vendor, you want to think long and hard about limiting your liability by excluding very large damages (called “consequential damages”) and imposing a total hard cap on your liability. Check out our previous posts on limitation of liability here, here and here.

Indemnification. On the flip side, customers usually want an indemnification clause; sellers don’t. Why? Unlike limitation of liability, which focuses on a possible dispute where one party (e.g., the customer) to the deal sues the other party (e.g., the seller), indemnification concerns a third party not involved with the sales agreement suing the customer or seller. Typically, that third party lawsuit is the seller’s fault, mainly because the seller, in creating the goods or services, wrongfully misappropriated that third party’s own proprietary technology, patents or copyrights. Alternatively, the seller’s employees might negligently cause some damage that injures a third party. In either case, if that third party then turns around and sues the customer, the customer quite rightly feels that the vendor should pay for the lawyers to defend the case and pay for any settlements or damages awarded. An indemnification clause requires sellers to perform this exact kind of obligation. That’s why customers want to include indemnities. Check our out previous posts on indemnification to learn more here, here and here.

Termination for Convenience. Sellers, beware the termination for convenience clause. Customers love to include this clause because it basically allows them to kill the sales contract at any time, for any reason (or even no reason). If your sales contract structure includes scheduled payments over time such that early termination would destroy your expected profits, than this clause can be dangerous for your bottom line. If a customer insists on including this provision, then you should ask for a termination for convenience fee. This fee might vary, as you might set it higher early in the sales agreement term, and lower for any terminations later on, but calibrate it to ensure that the sales contract always remains profitable.

These are the key issues you care about for sales contract template. Have fun using WhichDraft!

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