Why are Contracts Important?

Why are Contracts Important?

Written By
Joy Cunanan
Updated on
April 6, 2022
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minutes

The Importance of Contracts

Why are Contracts Important?

It is essential to have legal documents ready for any kind of business deal so that the agreement can be upheld in court. These documents can help establish a set of guidelines and regulations, and then used to record a shared understanding of their working relationship or rules for the parties’ future requirements. 

Negotiations typically take place so that all parties have a fair and equal chance to gain from the agreement. It succinctly and clearly describes the contract's terms and conditions, eliminating any misunderstandings between the parties and defining their respective expectations.

Importance of a Contract 

  • Delimits the scope of the agreement. A contract serves as a record of obligations and commitments. Carefully delimiting the terms and conditions in any contract manages parties’ expectations on what shall be performed by the other, when a breach occurs and how to seek relief for contractual violations. 
  • Averts conflict and minimizes risk. Parties study contracts several times to make sure they are happy with the obligations they are legally binding themselves to perform. Negotiations typically follow with the goal of averting future disagreements, laying the groundwork for a solid collaboration moving forward.
  • Mutually protects parties to the contract. Contracts simplify enforcement and ensure compliance since it binds parties to uphold their respective commitments, at the risk of getting sued in the event of a breach. 
  • Expressly provides payment terms. Contracts ensure that payment is made in a timely manner. This makes it easier for the client to pay for the services rendered to them by being offered as many options as possible.
  • Indicative of the company’s principles. Contracts can exhibit how well a company can establish working relationships and fulfill its commitments. A company’s inability to carry out its responsibilities under any contract will reflect poorly on its reputation and can hinder future agreements.  
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

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