Common Contract Types Every Small Business Should Know

Q: Do small businesses need lawyers for every contract?

Not every routine agreement requires a lawyer. However, legal counsel should review types of contracts your organization isn’t familiar with to prevent costly disputes. For standard transactions, many small businesses use verified templates. This ensures basic protections are in place without the expense of a full legal review.

Q: How to store and manage contracts over time

Effective contract management involves using digital tools to organize and store your documents in a secure, searchable location. Keeping a digital trail of all types of contracts in business ensures you can easily track expiration dates, renewal terms, and historical agreements.

Q: How contracts support invoicing and payment collection

Contracts serve as the foundation for your billing process by clearly outlining payment schedules and late fees. When these terms are documented in examples of contracts between a consumer and a business, it provides the legal leverage needed to ensure timely collection and steady cash flow.

Q: How to choose the right contract type for your business

The right contract depends on the nature of the relationship and the level of risk involved. You should evaluate whether the agreement is for a one-time sale, ongoing services, or a long-term partnership to determine which different types of contracts in business will offer the best protection.

Q: Are non-disclosure agreements required for small businesses?

NDAs are not legally required for every business, but they are highly recommended if you share proprietary information or trade secrets. Using these types of contracts in business is a critical step in maintaining your competitive advantage when working with outside parties.

Q: Do small businesses need legal review for every contract they use?

Not necessarily for every minor transaction, but a legal review is vital for high-value deals or long-term commitments. A quick professional check can help identify "fine print" issues in different types of contracts that might otherwise lead to operational or financial liability.

Summary: This article emphasizes the importance of using diverse business contracts (like sales agreements, service agreements, and employment agreements) to protect small businesses and define professional obligations.

It outlines:

Common types of business contracts
Essential contract pricing models
Common contract mistakes

You will also learn how to use PDCflow for esignatures and integrated payments to reduce costs and accelerate cash flow.

Companies have countless interactions with customers, employees, vendors, and stakeholders in the course of business. Organizations need different types of contracts to finalize these deals and protect everyone involved.

What Is a Business Contract and How Does It Work?

A business contract is a legally binding agreement between two or more parties. Contracts are essential for legal protection, creating a professional relationship, and defining terms, conditions, and obligations.

Some business contracts are long and detailed to cover the specifics of a deal. Others don’t require more than a brief statement of agreement to your terms.

Does your business struggle to manage all the types of contracts needed to function? Are you still using outdated practices to manage contract templates and to store signed agreements?

Read on for examples of contracts between consumer and a business and learn how to choose digital signature software for a better contract management process.

94%

of customers prefer businesses that offer electronic signatures over those that rely on paper-based processes.

Source: Marketsplash

Contract Definitions and General Contract Types

The types of contracts a business uses most will depend on the products or services offered and other aspects of daily operation.

Before outlining the terms and conditions of a deal, identify which kinds of contracts are going to work best. Some general terms and contract types to know are:

Standard contract: A standard contract is a basic contract that cannot be negotiated or amended. There is no customization or need to personalize terms for each signer. It may also be referred to as a boilerplate contract.

Contract amendment: Contract amendments are any official changes to a deal that need are agreed upon and added after a contract has been signed. This requires agreement from both parties and an updated signature to verify everyone is aware of the alterations.

Bilateral contract: A bilateral contract means that both parties involved have made a promise that they must fulfill. The most common business-to-customer contracts include what a company promises to provide, and how much the customer agrees to pay for those goods or services.

Unilateral contract: These contracts are less common in day-to-day business for companies. They are usually an agreement for one party to provide something for the other. The most common example of a unilateral contract is a reward or giveaway.

Implied contract: An implied contract is an agreement based on the actions and intentions of the parties. For example, if a customer orders food at a restaurant, it is implied that they will receive the items they ordered. It is also implied that they will pay the listed price.

Express contract: Unlike implied contracts, express contracts don’t rely on assumptions. Rather, they outline the terms and conditions of a deal either verbally or in writing.

Contract Types with Definitions - Slide 1

Contract Types with Definitions - Contract Amendment

Contract Types with Definitions - Bilateral Contract

Contract Types with Definitions - Unilateral Contract

Types of Contracts for Small Businesses

There are many different types of contracts, and each has its own purpose. Bilateral, standard, or other contract types are general descriptions for the kinds of deals you’re planning to make.

After these details are decided, you need to determine the specific type of contract to use. Some of the most common types of contracts for small and medium-sized businesses are:

Sales agreements/Bills of sale

Used by companies that sell physical goods. An agreement or bill of sale is a basic deal between the customer and the company, listing the goods being sold, price, and any other terms and conditions that apply.

Service agreements and Master Service Agreements (MSAs)

Similar to a sales agreement, master service agreements are for companies that provide a service instead of physical items. This type of contract should describe the service customers will receive, payment responsibilities, and other details.

Enterprise agreements

These are the business-to-business agreements that outline the terms of a deal between two companies. For example, a company would sign an enterprise agreement to enter into a deal with a software vendor or another company they are using for services related to the business.

Employment agreements

Employment agreements can include onboarding paperwork, employee contracts, annual company policy renewals, or other paperwork between a company and its employees. Employees may sign these papers once during hiring, or periodically, depending on HR requirements.

Contractor agreements and retainers

Contractor agreements or retainers are a consent between two parties, where one agrees to perform work for another during a set period of time. These are often used for freelancers, consultants, and law offices to outline the scope of the work and other details of the arrangement.

Partnership and Joint Venture Agreements

Partnership and joint venture agreements are used when two or more parties decide to work together on a specific project or run a business as co-owners. These agreements allow small businesses to outline the percentage of shared ownership, how profits and losses will be distributed, and the specific rules for making business decisions.

Contract Pricing Models Used by Small Businesses

Small businesses use different pricing models to define how they will be compensated for work or products. Choosing the right structure is essential for managing financial risk and ensuring profit.

Fixed price contract

With fixed price contracts, a company includes a set price for goods or services. There is no opportunity to change the pricing later. In this type of agreement, a company accepts the cost risks for any added materials or time that come up after the contract is signed.

Cost reimbursement contracts

With this type of contract, a company gives an estimate for how much a service will cost with the understanding that the price is subject to change. Customers agree to pay for extra expenses incurred if they are necessary to finish the project.

Cost plus contract

Just as with a cost reimbursement contract, the customer who signs a cost plus contract agrees to pay for extra costs that may come up during a project. In addition, customers who sign a cost plus contract agree to pay an additional amount of profit to the business.

Protection and Operational Contracts

Beyond service and sales, different types of contracts in business focus on protecting a company's intellectual property and managing its physical spaces and equipment.

Non-Disclosure Agreements (NDAs)

Non-disclosure agreements are essential for protecting confidential data and proprietary information. These types of business contract should be used with staff, contractors, and vendors to ensure that sensitive details about your operations or clients remain private.

Lease Agreements

When securing office space or specialized equipment, lease agreements define the terms of the rental. These contracts outline the rent amount, the length of the term, and the responsibilities of both the lessee/tenant and the owner.

Common Contract Mistakes Small Businesses Should Avoid

Errors in small business agreements and contracts can lead to legal issues and broken deals. Avoid these common contract pitfalls:

Using the wrong contract type: Selecting the wrong contract means certain deal terms or obligations might be left out of the agreement.

Missing scope or payment terms: Sometimes contracts fail to clearly disclose what work will be done or when payments are due, leading to confused, dissatisfied customers.

No written agreement: Relying on "handshake deals" can cause misunderstandings or disputes later.

Not updating contracts: Using outdated templates may not address current laws or your latest business terms.

The adoption of eSignature technology leads to significant efficiency gains, with up to 80% of contracts completed in less than a day and 44% concluded in less than 15 minutes, resulting in a natural boost to ROI.

Source: Marketsplash

Digital Contract Management for Small Businesses

Business norms have changed considerably in the past several years. Most companies have moved away from traditional signatures on paper contracts because it’s expensive, slow, and inconvenient compared to electronic signatures.

Instead, adopting contract management tools is the new professional norm for sending digital contracts. Digital signatures lower operating costs by cutting out paper, postage, and labor.

The faster turnaround times for a contract via esignature also mean shorter cash flow cycles. For example, a payment and contract request provides immediate approval and revenue in one message.

PDCflow for Contracts

PDCflow’s document, payment, and esignature software features provide everything your company needs to manage contract workflows. Send documents, contracts, and invoices, or request photos, files, or payments — all in one platform. With PDCflow, you get:

Unlimited template creation: Create unlimited contract templates, so you have workflows ready for every type of customer interaction.

Multi-Recipient Flows: Send contracts to more than one recipient for signing. Can be sent in a specific order, or sent to all recipients at once. Customize what each recipient will receive in their request.

Email and SMS: Send contracts digitally, through both email and SMS, to cater to customer preferences and improve engagement rates.

Personalized bulk messages: Upload an Excel or CSV file and send messages to up to 5,000 recipients at one time.

Integrated payments: Get more flexibility in choosing your payment processor. Because payments are a central part of our software, businesses can access better reporting, processing choices, and payment options for customers.

Insights report: In-depth reporting gives you a better understanding of financial performance.

Event notifications: Event notifications help staff members or whole teams keep track of deal stages, without requiring manual check-ins. Simply sign up and get automatically notified as the customer goes through each stage of the process.

Frequently Asked Questions

▸Do small businesses need lawyers for every contract?

▸How to store and manage contracts over time

▸How contracts support invoicing and payment collection

▸How to choose the right contract type for your business

▸Are non-disclosure agreements required for small businesses?

▸Do small businesses need legal review for every contract they use?

Want to learn more about how PDCflow’s document, signature, and payment tools can help you manage all kinds of contract and payment workflows? Request a meeting with a PDCflow Sales Executive today.

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- ABOUT THE AUTHOR -

Hannah Huerta - PDCflow Marketing Specialist

Hannah Huerta, Marketing Specialist

Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.