Opportunities & Contracts: Clear contracts that reduce risk and create value

Rachel's manufacturing business had been growing steadily for two years. She'd built strong relationships with three major clients, each contributing around £100,000 annually to her revenue. The arrangements worked smoothly - until one client suddenly stopped paying.

"We had a dispute about quality," Rachel explained. "But when I looked at our contract, I realised it was just a two-page document I'd downloaded from the internet. It said nothing about quality standards, inspection procedures, or payment terms if there was a disagreement."

The dispute dragged on for nine months. With no clear contract terms, Rachel had no leverage. She eventually settled for 60% of what she was owed, just to get something back and move on. The legal fees consumed most of that.

"I learned the hard way that a contract isn't just about having something in writing," she told us. "It's about having the right things in writing."

Why contracts are your competitive advantage

Most SME owners view contracts as a necessary evil - legal documents that slow down deals and create barriers with customers. But strong contracts do the opposite: they accelerate sales, improve cash flow, and create certainty that lets you scale confidently.

Consider what happens when contracts are weak or missing:

• Payment disputes drain cash flow and management time

• Scope creep turns profitable projects into loss-makers

• Liability exposure leaves you vulnerable when things go wrong

• Slow negotiations as every deal requires starting from scratch

• Lost opportunities because you can't move quickly enough

The businesses that grow fastest have standardised, well-drafted contracts that protect their interests while remaining attractive to customers and partners.

The ROI of getting contract right

Strong contracting processes deliver measurable business benefits:

• 35% faster contract cycles: Standardised terms eliminate lengthy negotiations

• Improved cash flow: Clear payment terms and late payment clauses get you paid faster

• Higher win rates: Professional contracts signal credibility and reduce buyer risk

• Reduced disputes: Well-drafted terms prevent 80% of common commercial disagreements

• Better margins: Scope management and variation clauses protect profitability

The average UK SME loses £17,000 annually to contract disputes. Most of these losses are preventable with proper contract foundations.

Essential contract foundations every growing business needs

Terms of Business: Your commercial rulebook

Your terms of business (sometimes called "standard terms and conditions") are the foundation of every customer relationship. They should cover:

Core commercial terms:

• What you're providing (products, services, deliverables)

• Pricing and payment terms (when payment is due, late payment interest)

• Delivery timescales and what happens if you're delayed

• What happens if the customer cancels or changes their mind

Risk allocation:

• Liability limits (typically capped at the contract value)

• What you're responsible for and what you're not

• Insurance requirements

• Force majeure (what happens during events beyond your control)

Intellectual property:

• Who owns what you create

• License terms if you're granting access to your IP

• Confidentiality obligations

Dispute resolution:

• How disagreements get resolved

• Whether you'll use mediation before litigation

• Which country's law applies (critical for international contracts)

Practical implementation:

• Reference your terms in every quote, proposal, and invoice

• Publish them on your website with clear notice

• Include them in order confirmation emails

• Get explicit acceptance for high-value contracts

• Review and update annually

Customer contracts: Balancing protection and commercial reality

Not every customer will accept your standard terms. Major corporates often impose their own terms, which typically favour the buyer. When reviewing customer contracts, watch for:

Payment terms:

• Aim for 30 days; push back on 60-90 day terms if possible

• Ensure payment triggers are objective (e.g., "within 30 days of invoice date" not "within 30 days of satisfactory completion")

• Include late payment interest at statutory rates (currently 8% + Bank of England base rate)

Liability caps:

• Never accept unlimited liability

• Push for liability capped at 12 months' contract value minimum

• Exclude indirect losses (loss of profit, business interruption)

• Ensure adequate insurance coverage for any liability you accept

Termination rights:

• Avoid "termination for convenience" clauses where customers can exit without cause

• If unavoidable, negotiate notice periods and payment for work completed

• Include your own termination rights for non-payment or breach

Indemnities:

• Watch for broad indemnities that shift all risk to you

• Limit to specific, controllable areas (e.g., your IP infringement, not customer misuse)

• Ensure mutual indemnities where both parties share appropriate risks

Supplier contracts: Protecting your supply chain

Your business depends on suppliers delivering on time and to specification. Strong supplier agreements should cover:

Performance standards:

• Clear specifications and quality requirements

• Delivery timescales and penalties for delays

• Right to reject non-conforming goods/services

• Warranty periods and remedies

Pricing and payment:

• Fixed pricing or clear escalation mechanisms

• Payment terms that align with your cash flow

• Volume discounts or rebates if applicable

Business continuity:

• What happens if the supplier goes into administration

• Rights to appoint alternative suppliers

• Access to materials, tools, or IP needed to continue production

SaaS and IT agreements: Managing digital dependencies

Most businesses now depend on cloud software and IT services. These contracts have unique considerations:

Service levels:

• Uptime guarantees (typically 99.5% or higher)

• Response times for support issues

• Remedies if service levels aren't met (credits, refunds, termination rights)

Data protection:

• GDPR-compliant Data Processing Agreement

• Data location and security measures

• Your rights to export data

• What happens to your data on termination

Pricing:

• Per-user or usage-based pricing

• Price increase caps and notice periods

• What happens if you reduce users/usage

Exit rights:

• How much notice to terminate

• Data export assistance

• Format of exported data

• Transition support period

Partnership and collaboration agreements: Structured growth

Joint ventures, partnerships, and collaborations offer growth opportunities but require careful structuring:

Essential elements:

• Clear scope and objectives

• Financial contributions and profit sharing

• Decision-making authority

• IP ownership (who owns what's created)

• Exit mechanisms (how and when parties can leave)

• Dispute resolution procedures

Red flags to avoid:

• Vague objectives without measurable outcomes

• Unequal contributions without fair value exchange

• No exit strategy or termination rights

• Unlimited duration without review points

Quick wins: Five contract improvements you can implement this month

1. Standardise your terms of business: If you don't have standard terms, create them this month using template terms appropriate for your industry. If you have them, review and update them.

2. Create a contract approval process: Document who can approve contracts and for what amounts:

• Under £10,000: Department heads

• £10,000-£30,000: Director approval

• £30,000+: Board or two-director approval

• Non-standard terms: Always require legal review

3. Build a contract library: Create templates for your most common contract types:

• Standard terms of business

• Non-disclosure agreements

• Supplier agreements

• Service agreements

• Contractor agreements

Store them in an accessible location with version control. Update annually.

4. Implement payment terms discipline: Review all current contracts and identify payment term issues:

• Chase late payments systematically

• Add late payment interest to overdue invoices

• Consider credit checks for new customers over certain thresholds

• Use progress payments or deposits for large projects

5. Audit your key supplier relationships: List your top 10 suppliers by spend or criticality. For each, check:

• Do you have a written contract?

• Is it fit for purpose?

• Have you identified alternative suppliers?

• When does it expire?

Address gaps within 60 days, starting with your most critical suppliers.

Contract negotiation strategies that work

Know your non-negotiables: Before entering negotiations, identify your red lines:

• Payment terms you can't accept

• Liability levels you're not insured for

• IP ownership you must retain

• Termination rights you need

Trade strategically: If you must compromise, trade items rather than simply conceding:

• Longer payment terms → higher prices or volume commitments

• Broader liability → higher fees or liability insurance requirements

• Exclusive arrangements → minimum volume guarantees

Use time strategically: Don't rush negotiations under artificial deadlines. If a customer says "we need this signed by Friday," ask why. Often, internal deadlines can flex.

Document everything: Keep notes of verbal agreements and follow up in writing. Email confirmations create evidence of what was agreed.

Know when to walk away: Some contracts aren't worth winning. Red flags that suggest walking away:

• Unlimited liability without appropriate pricing

• Payment terms that would break your cash flow

• Termination rights so broad the contract is meaningless

• Indemnities that are impossible to insure

Red flags in contracts: Your warning checklist

Use this checklist when reviewing any significant contract. If you tick 3 or more boxes, seek legal advice before signing.

Commercial red flags:

☐ Payment terms exceed 45 days with no late payment interest

☐ Customer can terminate "for convenience" without notice or payment

☐ Pricing fixed for multiple years with no increase mechanism

☐ Unlimited liability or liability exceeding your insurance coverage

☐ You must indemnify the other party for things outside your control

☐ No clear scope definition (risk of scope creep)

☐ Automatic renewal with difficult cancellation terms

☐ Exclusive arrangements without minimum volume commitments

Legal red flags:

☐ Unfamiliar governing law (especially non-UK law for UK operations)

☐ Jurisdiction clauses requiring litigation in inconvenient locations

☐ IP ownership terms that give away your core assets

☐ Confidentiality obligations that are too broad or too long

☐ Non-compete clauses that restrict your future business

☐ Personal guarantees required from directors

☐ Unusual or onerous insurance requirements

Process red flags:

☐ Pressure to sign immediately without time to review

☐ Other party unwilling to negotiate any terms

☐ Key commercial points left "to be agreed later"

☐ Verbal promises that contradict written terms

☐ Missing schedules or appendices that are referenced but not attached

Your action plan if you spot red flags:

1. Don't sign under pressure - legitimate parties will give you time

2. Get specific about vague terms before signing

3. Negotiate the most critical issues first

4. Document verbal promises in writing

5. Seek legal advice for anything you don't understand

Found red flags in your contracts? Book a free 30-minute legal health check with BRAVE: Legal. We'll review your contract red flags, explain the real risks, and suggest practical negotiation strategies or amendments.

What's coming next?

In Article 5, we'll explore Workplace & People - how employment practices aligned with your culture attract talent, boost retention, and keep you compliant as you scale.

Because great contracts enable great partnerships, but great people build great businesses.

Author

Carrie Stephenson, Founder, BRAVE: Legal

About BRAVE: Legal

From founder to funded, we grow with you.

At BRAVE: Legal, we know that traditional legal support is often reactive, expensive, and fragmented. We do things differently.

We give scaling businesses a connected legal framework that grows with you - covering governance, contracts, compliance, people, and risk. From your first product launch to raising investment or expanding into new markets, we align legal planning with your strategy so you can scale with clarity and confidence.

👉 Ready to assess your legal readiness? Book a free 30-minute legal health check and discover the gaps that could be holding back your growth.
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