When working hard to get prospective customers to sign on the dotted line and close the sale, it’s crucial to understand exactly what they’re signing.
A well-drafted sales contract helps prevent disputes and establish clear, enforceable agreements between both parties by clearly defining the sale’s terms and conditions.
In this article, you’ll get a clear explanation of what a sales contract is, how it fits in the sales process and some of the clauses you should be aware of. You’ll also learn best practices for creating contracts that benefit you and your customers.
What is a sales contract?
A sales contract is a legally binding agreement between a buyer and a seller that outlines a transaction’s terms and conditions. The contract specifies the price, the details of the goods or services sold, each party’s responsibilities and any other relevant terms.
Any sales transaction is an agreement between two parties. In its most basic form, the seller and customer accept to exchange a product or service for a specified amount. A sales contract formalizes that agreement, ensuring both sides understand and approve the sale’s terms.
By clearly defining expectations and what happens if something goes wrong, both parties can be more confident of a positive transaction.
Sales contracts are different from other similar documents used in a sales transaction. Here’s how they compare:
| Document | Description |
| Sales contract/sale of goods contract | A legally binding agreement detailing the terms of a sale, including goods or services, payment, delivery and warranties. Used for comprehensive, enforceable transactions. |
| Sales agreement/purchase agreement | Often interchangeable with the term “sales contract”. Sometimes describes a less formal document, outlining basic sale terms as a precursor to a detailed contract. |
| Purchase order | A buyer’s offer to purchase goods or services, including quantity, price and delivery. Becomes binding upon the seller’s acceptance but usually lacks detailed legal terms. |
| Bill of sales | A document transferring ownership of products, noting the item, sale price and parties involved. Serves as proof of transaction without extensive terms. |
When do you need a sales contract?
Not every sale requires a detailed contract. Customers may feel overwhelmed if they have to sign a written agreement every time they buy groceries or pay for a meal.
Sales contracts are most commonly used in high-value transactions that require legal protection. Examples include real estate sales or B2B sales involving large quantities of goods.
Sales deal contracts are also useful for complex sales, such as when you’re tailoring products or services to the customer. If you’re selling custom-built machinery or software, a detailed sales contract ensures every detail is correct.
Similarly, sales contracts help when using custom payment plans or outlining payment schedules, interest and consequences of late payments.
How to use contracts within the sales process
Sales contracts are typically associated with the end of the sales cycle and closing the deal. However, you should start thinking about contracts long before that point.
An early contract draft before sales negotiations start ensures awareness of all the potential terms that could affect the sale.
Once you reach the negotiation stage in the sales funnel, the contract becomes a sales tool to help both parties review and revise terms. A draft contract clarifies what each party expects and minimizes misunderstandings.
After you complete the sales process and both parties sign the contract, safely store the document for future reference. Use dedicated business contract management software or document management tools, such as Pipedrive’s Smart Docs, to track key dates, obligations and any amendments made over time.
Common clauses in sales contracts
Whether you’re ready to close a deal and need a new sales contract or you’re reviewing an existing contract, here are some common contract clauses to consider.
Payment terms
Payment terms outline how and when the buyer will pay for the goods or services. By specifying accepted payment methods (e.g., online payment options, credit card, bank transfer, cash) you can reduce complications at the critical payment stage.
This section should confirm whether the customer has to pay the full amount upfront or whether you’ll accept installments. It should also outline penalties for late payments or discounts for early transactions.
Delivery details
When will you deliver the products or services? Who is responsible for any delivery or transport costs? For physical products, the delivery clause should cover the inspection period during which the buyer can report any issues.
Similarly, it should specify when the risk of loss (i.e., the responsibility for covering the cost of any damage or loss) passes from you to the buyer.
Warranties and guarantees
Warranties and guarantees reassure customers that they’ll be happy with the results. A comprehensive guarantee can reduce friction in the customer journey and is often key to closing the sale.
The clause should cover the seller’s promises about quality or performance and specify any exclusions or limitations.
For example, you might cover a physical product for normal wear and tear. You can include a clause that the warranty won’t cover deliberate misuse or any unauthorized modifications.
Dispute resolution
The clauses already covered should minimize disagreements, but a dedicated dispute resolution clause can reduce their impact if they do occur.
For example, an arbitration or mediation clause increases the chance of resolving issues and reaching a settlement without resorting to costly litigation.
If you can’t reach a resolution, your dispute clause should also specify the state or country’s governing law that will cover the contract. It should also indicate where disputes will be resolved.
Termination clauses
Your contract should include conditions under which either party can terminate the agreement. It should specify what happens when there is a breach of contract and how to conclude the contract when neither party is at fault.
For example, say you can’t keep manufacturing a product or the customer no longer requires your services. A “termination for convenience” clause allows you or the customer to end the contract for any reason (typically with an agreed notice period).
Your contract should also outline the obligations of both parties after the contract ends, such as paying outstanding sales invoices or returning goods.
Confidentiality and non-disclosure
Whether it’s manufacturing specifics, a patented services framework or some other proprietary information, the contract may contain details you’d prefer to keep confidential.
Similarly, your customers may give you information they don’t want their competitors to see. For example, if you offer consulting or training services, you might learn about a client’s challenges or plans for future growth.
Your contract should clearly define what constitutes confidential information and how both parties handle it. This includes how long the information will remain confidential (typically beyond the life of the contract).
Force majeure
On some rare occasions, events beyond your or your customer’s control will mean one or both parties won’t be able to fulfill the contract.
A force majeure clause frees you from liability or obligation when an extraordinary event or circumstance occurs – think natural disasters, war, pandemics, strikes and government action.
Note: A force majeure clause should also include details on what to do in such an event, such as notifying the other party and taking reasonable steps to mitigate the impact.
Severability clause
Even the simplest sales contract can include pages of clauses and sub-clauses. If any individual part is unenforceable, a severability clause allows you to remove or modify the problematic clause without affecting the rest of the contract.
4 sample types of sales contracts
Sales contracts come in many forms depending on the industry, the nature of the transaction and the products or services you’re selling.
Here are some different types of sales contracts, along with their most important clauses.
1. Real estate sales contracts
A real estate sales contract is a legal agreement for selling residential or commercial buildings and land.
Real estate transactions usually require the following contract clauses:
Purchase price. The agreed-upon amount the buyer will pay for the property
Inspection period. The time allowed for the buyer to inspect the property and request repairs or negotiate
Contingencies. Conditions necessary for the sale to proceed, such as obtaining financing or a satisfactory home inspection
Closing date. The date when property ownership gets transferred from seller to buyer
The complete guide to real estate sales
2. Goods and services sales contracts
For high-value and complex products and services, a sales contract confirms the specific terms of a transaction. Contracts are common in B2B sales, car sales, manufacturing and any other business selling goods or services in large volumes.
Important clauses to consider include:
Description of the goods or services. Detailed specifications of what’s being sold
Payment terms. How and when the buyer will pay for the products or services
Delivery details. The method, location and date of delivery
Warranties. Any guarantees regarding the quality or performance of the goods or services
Risk of loss. Who’s responsible if items are damaged or lost during transit
3. SaaS and software sales contracts
Unlike traditional sales contracts that often involve a one-time transaction, today’s SaaS sales contracts are subscription-based. Contracts must account for customers who pay recurring fees (monthly, annually, etc.) for ongoing access to the software.
Key clauses include:
License terms. Defines how the customer can use the software, including any restrictions
Subscription fees. Details the cost of the software service, including payment schedules and renewal terms
Service level agreements (SLAs). Specifies the software’s expected performance and uptime (and what happens if these levels aren’t met)
Data security and privacy. Outlines how you’ll use and protect your customer data
4. Intellectual property sales contracts
Intellectual property (IP) sales contracts are unique because of the intangible nature of the product. IP transactions cover a wide range of industries and businesses, from creative projects to high-tech research and technology.
Due to the nature of IP, any sales contract needs to address:
Scope of work. Detailed description of the IP being sold or licensed
Usage rights. Specifies how the buyer can use the IP and any restrictions
Royalty payments. How royalties will be calculated and paid (if applicable)
Duration and renewal. How long the IP rights are transferred or licensed for, including renewal terms
Dispute resolution. Procedures for resolving any disputes related to the IP and its usage
6 sales contract best practices
Sales contracts are more than legal documents – they are strategic tools that, when properly managed, can drive business success and mitigate risk. By following these best practices, you can create contracts that protect your business and forge stronger customer relations.
1. Use clear language
Many people associate sales contracts with long, complicated documents filled with obscure legalese, but that shouldn’t be the case. Writing your sales contract in a plain, clear style helps avoid misunderstandings or disputes.
Use simple, straightforward language instead of legal or industry jargon and clearly define any terms that could have different interpretations. Ensure everyone fully understands the contract terms before signing to improve transparency and foster customer trust.
2. Regularly review and update contracts
Another common mistake is for sales teams to use contracts only at the point of sale and then file them away for good. Circumstances change, meaning your sales contract should evolve throughout the customer relationship’s lifetime.
Regularly review and update your contracts, especially when business practices, laws or market conditions change. Ensure your contracts follow the latest legal requirements and industry standards.
While you’re renewing your contracts, use the opportunity to reassess all the terms and check that they’re still relevant and beneficial to both parties.
3. Use sales contract templates
Putting together a sales contract from scratch can feel intimidating at first. Leveraging sales contract templates can help you get past the blank page and save you time. Templates also ensure that all your contracts are consistent and compliant.
Customize templates that integrate with your existing customer relationship management (CRM) and sales management software to streamline the process.
For example, the Pipedrive Marketplace contains useful software for managing contracts. Apps like PandaDoc, Click2Contract and Qwilr all offer powerful features for creating sales documents and templates using CRM data.
You can also find resources online for free sales contract templates to use as starting points.
Note: If you opt to use free sales templates, look for ones vetted by legal professionals. You want to confirm they cover all necessary terms and comply with legal standards.
4. Seek legal advice when necessary
Sales contracts are legally binding, so it’s highly recommended you seek legal advice when drafting, reviewing or negotiating contracts – especially for high-value or complex transactions.
Even the best sales contract templates can’t account for every unique aspect of your business and solutions. When you customize them, be sure to consult a legal expert.
Use a trusted law firm to identify and mitigate potential risks before they become legal issues. Professional legal guidance ensures critical clauses like indemnification or limitation of liability are enforceable.
5. Verify all parties are authorized to sign
When creating a legally binding sales contract, ensure all signatories are authorized to enter the agreement. Otherwise, the contract may be deemed invalid.
Verifying authorization is especially important in B2B transactions, where you might deal with several stakeholders. By checking all parties are authorized to sign, you protect your business from future disputes and ensure the agreement is legally enforceable.
6. Use contract management software
Keeping track of multiple sales contracts can be challenging, especially as your business grows. Contract management software helps you organize and track all your contracts in one place, making it easier to manage deadlines, renewals and compliance.
Pipedrive’s Smart Docs add-on has several features to streamline your contract process. You can create contract templates that automatically pull information from your Pipedrive CRM database, reducing the need for manual data entry and minimizing errors.
The eSignatures feature allows customers to sign documents electronically, speeding up the sales cycle.
Document management tools like Smart Docs reduce administrative burdens, increase efficiency and ensure all your contracts are up to date and enforceable.
Final thoughts
While the sale might be complete after your customer signs the contract, the quality of that agreement will affect the long-term success of your business relationship.
A well-drafted sales contract provides a solid foundation for every deal, ensuring clarity, compliance and mutual understanding between parties. By specifying the exact terms of the agreement, addressing potential issues and regularly reviewing your contracts, you can minimize risks, avoid disputes and protect yourself and your customers.
