What Businesses Should Consider Before Signing a Commercial Contract

Commercial contracts are often signed under time pressure. A deal has been agreed in principle, the other side has sent a draft, and everyone wants to get started. In that moment, it can be tempting to treat the document as a formality. Yet the contract is what the parties will rely on if expectations differ, circumstances change, or the relationship comes to an end.

This article sets out some general questions a business may wish to consider before signing. It is not a substitute for advice on a specific agreement.

Does the contract reflect the deal?

Start by checking that the document describes what has actually been agreed. Are the goods or services clearly defined? Are quantities, standards, and timelines stated? Vague descriptions can lead to genuine disagreement about what each party was expected to do.

It is also worth checking that the correct parties are named. If a business operates through a company, the company, rather than an individual, will usually be the contracting party.

Payment terms

Payment provisions deserve close reading. Consider when payment is due, what triggers an invoice, what currency applies, and whether there are consequences for late payment. Where payment depends on milestones or acceptance, check that those concepts are defined clearly enough to apply in practice.

Liability and risk

Many commercial contracts allocate risk through indemnities, limitations of liability, and exclusions. These clauses can significantly affect a business's exposure if something goes wrong. A business should understand what it is promising, what it may be responsible for, and whether any caps or exclusions apply to both parties or only one.

How the relationship can end

Consider how long the contract lasts, whether it renews automatically, and how either party can bring it to an end. Look for notice periods, rights to terminate for breach, and any obligations that continue after termination, such as confidentiality or the return of materials.

What happens if there is a disagreement

Dispute resolution clauses are easy to overlook, but they determine how disagreements will be handled. Some contracts require negotiation or mediation before formal proceedings; others provide for arbitration. It is useful to understand the agreed process, and the governing law, before a dispute arises.

Questions to ask before signing

• Do we understand every obligation we are taking on, and can we meet them?
• Are there terms we would struggle to comply with in practice?
• What are the financial consequences if we, or the other party, fail to perform?
• Can we exit the arrangement if it is not working?
• Have all the documents referred to in the contract, such as schedules or standard terms, been provided?