What is a vendor contract?
A vendor contract is a legal business document intended to regulate the exchange of goods or services in return for compensation. It establishes the conditions under which a vendor provides goods and/or services to a purchaser and are crucial if you want to protect yourself from disputes down the road.
Vendor contracts help the seller (vendor) determine revenue and also helps track the budget for a startup. These contracts establish the business relationship conditions between the parties involved, and they include details on each party's obligations under the contract.
How does a vendor contract work?
The goal of a vendor contract is to clearly define the obligations of the vendor and those parties with whom it will interact in the service of the buyer.
This is true of every phase of a transaction, from the quality of the products or services being purchased through to the repercussions if such standards are not satisfied. Businesses should establish contracts at the outset of every vendor relationship to help them avoid legal complications later on.
What does a bad vendor contract look like?
The best way to avoid conflict in a vendor relationship is to make sure you know what you're getting into from the start. Let's discuss the worst blunders in a vendor contract that only become evident after you've run into a problem.
A bad vendor contract…
…doesn’t include an exit strategy.
The lack of a well-thought-out termination segment and a proper exit strategy is a major mistake. Many startup founders have found themselves trapped in contracts they didn't understand, until they realized that their contracts would renew without their consent or contain terms unfavorable to their business. If you want to end a partnership but don't know what your next move is, you'll waste time and energy (and often, money) trying to figure it out.
…doesn’t protect your stakeholders.
Another common pitfall in vendor contracts is when an agreement is drafted that does not adequately protect all parties, or is unclear about how the two parties will work together to fulfill their contractual duties.
…doesn’t protect confidential information
When selecting a vendor for a business relationship, it pays to understand how that vendor will handle sensitive data once the partnership ends. It’s particularly important to confirm what happens when your contract with the vendor expires.
…uses vague language.
A contract needs to be clear and precise. A contract with vague and ambiguous language around crucial elements only leads to confusion and frustration down the line.
Rushing through a contract or an agreement with a vendor is a common error that founders make. Terrible stories are abundant in which founders, with the best of intentions, try to sign generic one-size-fits-all contracts with vendors without analyzing them thoroughly first.
What does a good vendor contract look like?
Vendors and customers reach agreements in many different ways, but most written vendor contracts include the same provisions and are usually presented in a similar order.
1. Clearly defined scope of work.
A vendor contract typically outlines the products and services that will be provided as well as how they will be delivered. The potential for error can be greatly reduced by clearly outlining what each party involved expects of the other.
2. Timelines and deadlines are shared and understood.
A good contract details exactly when the vendor will be compensated, when the products/services will be delivered, and when the business arrangement will begin and end. This leaves no room for dispute or confusion during the relationship.
3. Price and payment is clear.
The amount and the payment method for vendor compensation, whether in the form of cash, in-kind contributions, debt relief or any other type of financial agreement, should be explicitly stated in all vendor contracts.
4. Termination specifications (when the contract ends) is clear.
A vendor contract should specify when and how the engagement ends, as well as any actions either side can take if the work specified in the contract is not completed on time.
5. If it doesn’t work out, here’s what happens.
Unfortunately, sometimes bad vendor relationships can’t be helped. Contracts between vendors and clients must address the potential for conflict and outline the steps and repercussions if conflicts arise. Vendor contracts also include penalties for failing to meet various obligations.
An Excellent Example of a Proposify Vendor Contract
The good news is, you don’t have to start from scratch. Make it easier on yourself—start with a template. And it just so happens, that at Proposify, creating and managing contracts that close is our expertise.
Besides saving you a headache, starting with a template also:
Ensures you don’t miss any important sections.
Gives you a starting point based on industry standards.
Helps prevent legal problems by including all of the necessary provisions required by law.
A great place to start is by viewing Proposify's Statement of Work template here. Use this as a general guide, and involve a lawyer before making your work official.
Don’t just create the best vendor contracts—manage them.
Creating vendor contracts isn't the only thing Proposify does. (Click here to view other cool docs you can make with Proposify that aren't proposals). With our platform, you can manage your contracts as well.
What does that mean? It means that once you've created your vendor contract on Proposify, you can easily track it from initiation to approval to expiration. You can even receive notifications when certain events happen—like when a renewal is due or when someone has signed off on it.
You can also create reminders for yourself and other users so that everyone knows who's responsible for what at different stages in the process. And if you ever need to update a contract, all you have to do is click an edit button, make the changes, and hit submit again!
It’s super easy.
What we’re seeing is that this process saves you time and money by streamlining processes around vendor contracts. And not just you, your users (and vendors!) as well— Proposify is designed to be user-friendly and easy-to-use so that anyone can use it with no training required. Learn more about us here, and good luck writing those vendor contracts!