Common Contract Types for Small Business

Common Contract Types for Small Business

Companies have countless interactions with customers, employees, vendors, and stakeholders in the course of business. Any time a company makes a deal with one of these entities, it’s important to use the appropriate type of contract to protect the parties involved.

Some business contracts are long and detailed because they need to cover all 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 Are you still using outdated practices to manage contract templates and to store signed agreements?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 to learn about basic business contract types and how to choose a digital signature software for better contract management.

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 is also sometimes referred to as a boilerplate contract.
  • Contract amendment: Contract amendments are any official changes to a deal that need to be agreed upon and added to a contract after it has been signed. This requires agreement from both parties and an updated signature to verify everyone is aware of the alterations.
  • Bilateral contract: 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 only 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 that is 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, and 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

Business-Specific Types of Contracts

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 you should be using. 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. It is a basic agreement between customer and company, listing the goods being sold, price, and any other terms and conditions that apply.

Enterprise agreements

These are the business-to-business agreements that outline 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 other company they are using for services related to the business.

Employment agreements

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

Contractor agreements and retainers

These are agreements made 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.

Service agreements

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

Fixed price contract

With fixed price contracts, a company includes a set price for the goods or services being provided. There is no opportunity to change the pricing later. In this type of agreement, a company takes on 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 typically provides an estimate for how much a service will cost with the understanding that the price is subject to change. Customers agree that they will 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.
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

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 by digitizing document delivery and signature management.

The faster turnaround times for a contract via esignature also mean shorter cash flow cycles. Digital contracts give you faster revenue recognition from deals closed or services delivered.

PDCflow for Contracts

PDCflow’s document, communication, and payment software provides all the tools 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 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 preference 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 experience 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.

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 call from a PDCflow Sales Executive today.

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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.

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