Sunday, July 4, 2010

Rock, Scissors, Contract

You’ve heard it said that “good fences make good neighbours”?  Well, there’s a commercial analogy: “Good contracts make good biz relationships.”

Does this come as a surprise to anyone?  I doubt it.  I think that every vendor business worth its salt understands that, ideally at least, there needs to be some form of document outlining who’s going to do what for whom, when, where and at what price.  It doesn’t need to be “constitutional” in length or complexity.  And while it’s never a bad idea to run a contractual format by a commercial lawyer to make sure that you’re crossing the “T”s and dotting the “I”s, most small businesses with simple product or service propositions can construct their own common-sense, holographic contracts.  Cover the bases, embed the details, obtain signatures and file diligently so that the papertrail can be found if/when needed.  To employ the tired but serviceable vernacular: “not rocket science”.

We know what the “ointment” is: documentation.  But don’t forget the “fly” in that ointment.  We heard the beat of fly-wings in the proviso in the previous paragraph: “…ideally at least…”  Entrepreneurs may have a best-of-all-possible-worlds appreciation of the importance of a standard contract in frontend operations, but too many fail to take the “ideal” and make it real.  Too many businesses provide products or services on credit without haven taken prophylactic measures and secured even the simplest contractual proof of their commercial arrangements with their customers.  That’s highwire work – and no net below.

So why is that?  Where are the constraints, the blockages?  And what creates them?  Since ignorance is never a good excuse, I discount as a matter of principle the “rationale” that entrepreneurs don’t know or understand that a contract (or reasonable facsimile) is a necessary safety net for supplier and customer alike.

So let’s move on…

Suppliers ignore the vicissitudes of a contract because…

  • …they can’t be bothered
  • …they have no ability to execute a standard contract
  • …they’re devoted to “easy” sales with no “negatives”

Let me deal with these one by one…

  • Can’t be bothered?  Too much work?  Hel-looo out there on the rim of the Galaxy of Creditors!!  How’s that no-cash, no-oxygen atmosphere?!!  Contracts – even minimalistic, holographic ones – are an integral part of the business process.  They’re not “extra” or “unnecessary”.  Lose a few thousand bucks because your papertrail was non-existent or just too thin, and you’ll see how “extra” they are!  Working without contractual safety net due to laziness or a lack of interest is not smart business.  There’s no nice way to say it.  It’s just plain dumb.  Would any supplier be that lazy or disinterested regarding product or service safety?  Well, it’s the same order of magnitude.  Contracts reduce risk and enhance predictability.  Being commercially safe is always good practice.

  • Don’t know how to board the contractual choo-choo?  A standard contract template for your industry may be available on-line.  Alternatively,  your competitors’ or vendors’ contracts may provide you with a decent template or a set of basic ideas you can pilfer.  Or you can draw up your own basic contract in your own words and have it vetted and standardized by a commercial lawyer, contract-savvy paralegal or anyone experienced in contract admin.  Fact is, you have viable options here.  No one has to play the “party-of-the-first-part” game.  This isn’t a Marx Bros. sketch.  A legally binding contract can be short, sweet, un-evasive, simply drawn and still do its job.  And remember, the cost in time and money is nothing compared to the time and money costs of disastrous no-contract “misadventures”.


  • The contract as sale impediment…We all want easy, breezy sales with no negatives, hiccups or roadblocks.  Right, and I also want to win the next Lotto Max mega-jackpot!  Look, I’ll be uncategorical and unsympathetic about this.  Any supplier of goods or services who thinks that vendor sales potential will be jeopardized by the formality of asking a customer to sign-off on a print rendering of the details of the proposed sale is in desperate need of an attitude change.  Think about it.  If you’re going to become my customer, it’s because you value the product or service I’m going to supply.  If I ask you to confirm and sign a clear, simply-executed, non-controversial quote, deal memo or contract that articulates what’s being supplied, at what price, when, where and governed by which industry-standard terms and conditions, are you really going to balk?  Are you going to refuse my confirmation request and take a long walk, seeking out a different vendor who “can’t be bothered” with businesslike certainties?  I don’t think so, and the reason I say that is because you already understand that the prophylaxis offered by a contractual process cuts both ways.  It protects supplier and buyer.  But, and I mean this, if you do take that long walk, then I’m going to let you.  I’m not going to run after you as your stride toward the exit.  I’m not going to compromise my requirement for a contractual safety net just to make you a non-compliant “customer”.  Instead, as you walk out my door, I’m going to breathe a sigh of relief because I’ve just had a narrow escape with someone who, from the very get-go, showed every indication of becoming a problem client somewhere down the road.  In this scenario, the contractual process becomes a potent customer-qualifying tool.