This article discusses typical issues and provisions of UK sales and supply contract templates for outbound transactions. Many names describe contract templates that cover similar situations.  The purpose of this article is to clarify this terminology and outline the components of a typical sales agreement.

Standard legal terms in a UK-based business can be titled in many ways:

• Heads of Terms
• Terms and conditions of Sale
• Sale and Supply Agreement
• Supply Agreement
• Purchase Agreement
• Distribution Agreement
• Master Purchase Agreement
• Sales Agreement
• Services and Supply Agreement
• General Terms and Conditions of Supply

All of the above concerns more or less the same concept, so before downloading or using an agreement with one of these titles, it’s necessary to review each one.

Please note that it is likely customisation will be needed to address your specific situation.  Factors that are key to identifying the appropriate terms include the type of product/service at issue, the industry and market segment (consumer or business), the route to market approach and the maturity of the business.  For example, when selling over a platform, such as Amazon or eBay, the platform TCs will heavily impact business practices.  An early-stage tech business may be working from their customer’s procurement terms instead of their own sales document.  Finally, regulatory requirements in many industries, such as financial services, will dictate some or all of the necessary terms.

For this reason, while the downloadable Terms of Sale are available at no charge for your use, we highly recommend scheduling a free consultation or contacting us to verify that they will be appropriate for your situation.

Umbrella Terms that Govern the Relationship

The purpose of Terms of Sale is to establish a written agreement between a seller and a buyer on key aspects of the relationship.  At the most basic level, the legally binding contract provides certainty and sets expectations between client and provider.  It is definitive evidence of what the parties agreed on, so if there is a deviation, a party can simply refer to the contract.   Given this purpose, deciding what outcomes are most important about the overall business relationship with the customer is a key task.  The key commercial and legal provisions to include in a Heads of Terms are described below.

Details of the Offer Not Outlined During the Sales Process

A written agreement clarifies the offer or proposal by explicitly detailing terms and conditions that might not be fully addressed during the sales process.  For the supplier/provider, this would include limiting the seller’s liability if something goes wrong. For the customer/buyer, the terms of sale provide for predictable warranties and other standards of performance.  In both cases, the ‘sales pitch’ is distilled to a mutual understanding.

Standardisation of Key Business Practices

A good example of a clause that benefits from standardisation is the ‘payment terms’ clause (described below).  In an informal, verbal engagement, payment timing is often fluid, some customers will pay ‘on the day’ or delivery, others will wait, or there may be a payment required before services.  Another example from the services industry is the scope of work.  If provided with a fixed price, a customer may have one understanding of the outcome while the provider has another, resulting in uncertainty and possibly disputes.

When and How is A Supply Agreement Concluded

Terms of Sale can be formatted and completed in several ways depending on the sales channel and sales process:

• Manual pdf download with e-signature of terms one by one
• As an attachment to an invoice
• Available for review on a website with a click accept
• Custom drafting with a signing event

Commercial Points in the Heads of Terms/Supply Agreement Template

As explained, the commercial terms of a business offer are dependent on the route to market strategy and the product involved.  A manufacturer of goods with no plans to sell directly to consumers will need conditions and prioritise issues differently than a local web development business.  For the examples in the article on Intellectual Property [link], a food photographer or content creator will use a series of engagement terms or may be required to accept client contracts.  The Brownie Experience offer could be contracted via terms available through her website.

With that in mind, below are the most important commercial and financial points to consider in virtually any ‘outbound’ agreement where a business is supplying to a buyer.

Description of the Product or Service

In supply agreements, the description of goods, products or services (or combinations) is one of the most critical components.  (In fact, by law, an unclear description can render the contract void.)  It defines the exact nature, quality, and specifications of the products or materials being supplied, ensuring that both parties have a clear understanding of what is expected.

Clarity and Precision

An accurate description of goods in a supply agreement eliminates ambiguity, ensuring that the buyer knows exactly what they will receive, and the supplier knows exactly what they are obligated to deliver. This clarity is essential in preventing misunderstandings that could lead to disputes. For instance, if a contract merely states that the supplier will deliver “widgets,” without specifying size, colour, material or other essential characteristics, the buyer might end up receiving goods that do not meet their needs, resulting in dissatisfaction and potential legal action.

Best Practices

The Digital Legal Forum Terms of Supply template [link] provides a placeholder to attach a description of the goods or services provided with fillable fields to specify quantities, colours materials, part numbers (for goods) or the parameters of services provided.   When dealing with complex services and products, it would be a best practice to review a draft description with the end user/customer before signature to avoid mistakes (another possible means of voiding a contract).

Price and Payment Terms

In addition to being a requirement in a contract for enforceability, financial provisions impact cash flow, revenue targets and sales commissions.  At a minimum, the terms should specify the price of the goods or services to be supplied and quantities. The payment terms should specify the method of payment, the currency, and the payment schedule. The agreement should also specify any discounts or penalties that may apply.  As usual, variation by industry and product is common, so understanding the nature of the business is the starting point here. Finally, due to their commercial impact, best practices in payment terms are often set, and enforced, by the finance function of a company.

Standards of acceptance, rights of return and warranties

The description of goods and services also plays a crucial role in quality assurance.  Services descriptions can reference

By specifying the required standards, grades, or certifications in the supply agreement, the buyer ensures that the products meet their operational or commercial requirements. This is particularly important in industries where the quality of materials directly impacts the safety or performance of the end product, such as in manufacturing or construction. If the goods supplied do not match the described quality, the buyer can reject the delivery or seek remedies as outlined in the contract.

Clearly defined descriptions help prevent breaches of contract. If the goods supplied do not conform to the specifications outlined in the agreement, the supplier can be considered in breach of contract. This could lead to the buyer seeking damages, terminating the agreement, or pursuing other remedies. Conversely, if the description is clear, the supplier knows exactly what is required, reducing the risk of inadvertently supplying non-conforming goods.

Customization and Special Requirements

In many supply agreements, the goods involved may need to be customized or meet special requirements unique to the buyer’s operations. A precise description allows for these special conditions to be clearly articulated, ensuring that the supplier understands and can fulfill these specific needs. This is especially important in industries such as technology or pharmaceuticals, where even minor deviations from the specified requirements can have significant consequences.

Other Important Commercial Terms

The importance of the description of goods in supply agreements cannot be overstated. It ensures clarity, enforces quality standards, provides legal protection, helps avoid breaches of contract, and accommodates customization needs. Both parties must give this aspect of the agreement careful attention, ensuring that the description is accurate. Other issues:

• Duration
• Delivery and Risk of Loss
• Cancellation of Orders
• Termination
• Volume Requirements and Exclusivity
• Change Order Management

Legal Points in Typical Business Sale Agreements

Additional legal provisions will support the commercial approach detailed above.  As usual, licensing or conveying intellectual property is the first consideration.

Intellectual Property Rights

When drafting a business sale agreement, it is essential to explicitly state the seller’s intellectual property (IP) rights. These rights typically include patents, trademarks, and copyrights, which the seller must identify and retain unless otherwise agreed upon. The buyer must respect these rights and cannot use, reproduce, or alter the intellectual property without prior written consent from the seller.

A robust agreement will include a termination clause, specifying that any breach of these rights, such as unauthorised use or infringement, can result in immediate contract termination. The agreement should also outline the potential consequences of such infringement, including the possibility of financial penalties or legal action. This ensures the buyer fully understands the importance of compliance with IP terms and the risks involved in violating them.

Incorporating these elements protects both parties, providing clarity and legal recourse in the event of a dispute while safeguarding the seller’s intellectual property and business interests.

Confidentiality and Non-Disclosure

In a business sale agreement, the buyer is obligated to maintain confidentiality and non-disclosure of any sensitive information received from the seller. The seller warrants that all disclosed information is accurate and necessary for the buyer to perform their due diligence. This includes trade secrets, proprietary data, client lists, financial details, and other confidential business information. The buyer must not disclose, misuse, or distribute this information to third parties without prior written consent from the seller.

The consequences can be severe if the buyer fails to uphold these obligations. The agreement should specify that any breach of confidentiality or non-disclosure can result in immediate termination of the agreement, potential legal action, and the possibility of financial penalties. Furthermore, the seller may seek compensation for any damages or losses incurred due to the breach.

Additionally, the agreement must include a clause regarding the return of confidential information. Upon termination of the agreement or completion of the transaction, the buyer is required to return or destroy all confidential materials, ensuring that the seller’s proprietary information remains secure.  Additional guidance is available on IP and confidentiality.

Governing Law and Jurisdiction

Establishing the governing law and jurisdiction in a business sale agreement is essential to ensure clarity and predictability in any legal matters that may arise. The applicable law should be clearly stated, typically the law of the country or region where the parties conduct business. This governs how the agreement is interpreted and enforced, including key areas such as the intellectual property clause.

In the event of a dispute, the agreement should outline a straightforward process for resolution. Parties are often encouraged to attempt negotiation or mediation before resorting to more formal processes like arbitration. Arbitration is a commonly preferred method as it is less formal than court litigation and typically faster and more cost-effective. Both parties must agree to notify each other of any disputes in writing, ensuring that all concerns are formally addressed.

The agreement should also include an enforceability clause, ensuring that if any provision of the contract, such as the intellectual property clause, is deemed invalid, the rest of the agreement remains enforceable. This protects the integrity of the contract and ensures that minor issues do not render the entire agreement void. Written notice requirements further safeguard the parties, establishing clear communication protocols in case of disputes or enforcement issues.

Limitation of Liability

To manage risk effectively in a business sale agreement, it’s important to establish clear limitations on the seller’s liability for damages or losses. This includes limiting responsibility for personal injury or property damage. The seller’s liability should be restricted to prevent exposure to significant claims, with liability capped in accordance with applicable laws. These limitations help provide certainty for the seller, ensuring that only certain types of damages, such as direct damages, are within their responsibility.

Additionally, the buyer must indemnify the seller for any claims arising from the buyer’s conduct, including negligence or misuse of the products or services. The agreement should specify that the buyer will cover legal costs and any damages incurred by the seller due to such claims, granting the seller the sole discretion to handle legal proceedings in such cases.

A specific clause must also address the consequences of breaching these obligations. For example, failure to comply with the indemnification provisions or terms in the end user license agreement may result in legal repercussions and contract termination.

Privacy, Security Technology

Terms and Conditions Customisations by Industry

Services industries

IT Managed Services / Maintenance, Time And Materials

Key issues include uptime or availability, prioritisation of problems, service level agreements, deliverables requirements, expense-related issues – what is included and what is invoiced to the customer, level of customisation or special treatment by customer.  Data privacy obligations.

General Services or Consulting, or Professional Services Agreements

These can be hybrids of deliverables-based engagements and/or hourly billing. Tax and employment terms need to be correct (one of the cautions against using a US contract in the UK). Other key issues: intellectual property, is there ‘retained’ IP or is it a work for hire, deliverables based, unexpected events, dependencies from the customer, where services are located and tax implications, travel and expenses, etc.

Time and Materials in Tech and Digital

Even straightforward hourly billing services contracts may need tweaking depending on the model (off shoring, near shoring, agency), and the customer need. Vendors that have specialty skills in data migration or cloud, for example, will differ from ‘body shop’ resource supplementation providers.

Supply of Technology Hardware/Goods

Although cool user interfaces and graphics get a lot of attention and ‘sell’ the user, it’s the hardware that provides the guts of the function, speed and longevity.  Hardware supply agreements can be categorised into component manufacturing and supply or end-user (business or consumer) devices. Regardless, key issues include delivery terms such as shipping, transfer of risk (Incoterms are often used), intellectual property rights and licensing, and pre-/post-installation services and support.

Digital Product Development

A technology development agreement governs the relationship between parties involved in new technology or products.  Where acting as a supplier, various commercial models exist depending on the personnel expertise and needs of the buyer.  Often the form of agreement would be a master services agreement with statements of work attached.  Joint venture or other risk-sharing structures can also be considered.  Key issues are broadly, intellectual property ownership and confidentiality, deliverable definition and financials.

Intellectual Property (IP) Rights: This provision is crucial in determining the ownership of any intellectual property created during the development process. It specifies whether IP will be jointly owned, or if one party retains full ownership, and includes details on licensing rights, royalties, and usage restrictions.

Start-ups and Incubators

Start-ups are most often focused on development and investment for growth, but quickly hit key contract and digital issues early on, such as privacy.  A couple of issues that can come up as the business is navigating it’s first customer and counter-party agreements:

• Pricing and Payment Terms: Establish clear pricing structures, including any recurring fees, discounts, or special offers. Payment terms should be specified, including deadlines, acceptable payment methods, and consequences for late payments.
• Warranties and Disclaimers: Startups should specify any warranties provided on their products or services, including the duration and coverage. Disclaimers may be necessary to limit liability, particularly for issues like software bugs or hardware malfunctions that are common in tech products.

Health-Tech and Fin-Tech

In the past ten years, wearable tech and crypto trading platforms brought digital legal issues to the forefront in a big way. These areasinvolve extensive legal review very early in the process, so any offer requires up-front investigation and vetting of legal constraints (or, may well shape the actual product before roll out).

Graphic Design, Virtual Design (Architecture/Interiors & Horticulture)

Contracts for graphic design, virtual design (architecture/interiors), and landscape design / horticulture installations can entail a combination of services and IP terms depending on the business offer.  As in any service engagement, scope of work is key to set expectations, e.g.,. defining the deliverables, the number of design concepts, revisions, and final outputs. In virtual design, detail the specific elements to be designed, such as floor plans, 3D models, or landscape layouts, to avoid scope creep.

Service provider contracts often convey all rights in their designs to the customer, but where the model is scaled (for example using templates that can be customised), retaining rights to previously owned designs or works is key.  Interior designers, garden designers and architects involved in materials specifications may also wish to protect the confidentiality of their suppliers and unique combinations (such as plant lists that cannot be replicated at a typical garden centre).

Digital Media, Film and Video

This is the final area involving significant licensing terms for outbound contracts. Contracts that sell or license film and media works outline the terms under which rights are licensed by (or transferred from) the original owner (such as a writer, producer, or publisher) to another party, often a production company, distributor, or streaming platform.

Agreements need to detail the specific rights being sold or licensed, such as the right to produce, distribute, or broadcast the content. It may cover various formats, including theatrical release, television, streaming, or digital platforms.  Also under consideration are exclusivity, territory, duration and milestone payments.

Enforcing Your Terms of Sale Agreement

To ensure the enforceability of your Terms of Sale agreement, both parties must sign the document, demonstrating mutual consent to the terms and conditions. Without signatures, the conditions agreement lacks legal compliance and may not be enforceable in the event of a dispute. The agreement should also be communicated and agreed upon, ensuring each party understands their rights and obligations.

Maintaining detailed records of all communications and transactions related to the agreement is equally important. These records indicate the other party’s understanding and compliance with the terms. Such documentation may include emails, receipts, and any other formal exchanges that relate to the sale. In the case of a dispute, these records can be invaluable in supporting your claims.

Monitoring the buyer’s compliance with the conditions of the agreement is crucial. Reviewing the buyer’s adherence to payment terms, delivery schedules, and other obligations helps you identify potential issues early. If the other party fails to comply with the terms, swift action should be taken, including sending a written notice, seeking mediation, or pursuing legal remedies. By staying vigilant, you protect your business and ensure both parties meet their legal commitments.

Common Mistakes to Avoid

One common mistake when drafting a Terms of Sale agreement is failing to clearly define key terms that are required for the business to be successful. Ambiguous language can lead to misunderstandings between the parties, resulting in disputes over obligations and rights. Clear definitions ensure that both parties are solely responsible for fulfilling their respective duties, reducing the risk of future conflicts.

Another error is not establishing a clear payment schedule. Without a well-defined schedule, payment delays may occur, impacting cash flow and leading to unnecessary disputes. A precise schedule, including but not limited to payment dates, methods, and consequences of late payments, helps prevent financial issues from arising.

Another pitfall is not addressing the risk of loss or damage during transit. The agreement should specify which party is responsible for any loss or damage to the goods in transit. This protects the seller from being held liable for issues outside their control and ensures that the buyer understands their obligations.

Protecting the seller’s intellectual property rights is crucial but often overlooked. The agreement must detail the scope of protection for trademarks, patents, and other intellectual property rights. Failing to do so leaves the seller vulnerable to misuse or infringement by the buyer or third parties.

Last, not establishing a transparent dispute-resolution process can lead to lengthy and costly legal battles. Including a clause that outlines the steps for informal mediation or arbitration ensures that both parties know how to handle disputes efficiently, which can reduce the chances of litigation.

Best Practices for Creating a Terms of Sale Agreement

When creating a Terms of Sale agreement, it is essential to tailor the contract to fit your specific go-to-market approach and sales strategy. This means evaluating how your products or services are sold and ensuring the terms align with your business model. For example, a direct-to-consumer business will need different terms than a wholesale distributor, and the chosen contract template should reflect these differences accurately.

A clear payment schedule is also critical for ensuring smooth transactions. Establish due dates, accepted payment methods, and consequences for late payments. A well-defined schedule helps maintain consistent cash flow and sets clear expectations for the buyer.

Addressing the risk of loss or damage during transit is another best practice. Specify which party is responsible for the goods at each stage of delivery to avoid disputes. This can help protect the seller from being held liable for damages that occur after the product leaves their control.

Protecting the seller’s intellectual property rights is equally important. Ensure the agreement specifies the rights being retained, whether it’s trademarks, patents, or other intellectual property. This prevents the buyer from using the seller’s intellectual property without permission.

Establishing a clear process for resolving disputes is crucial to avoid lengthy legal battles. Including mediation or arbitration clauses ensures that both parties have a structured method for addressing disagreements before escalating to litigation.

Additionally, include a clause that outlines the consequences of breaching the agreement. This reinforces the importance of compliance and provides a clear path for recourse if the other party violates the terms.

Finally, have the agreement reviewed by a lawyer before signing to ensure legal compliance and that all terms protect your business interests effectively.

Conclusion

A well-drafted Terms of Sale Agreement is essential for protecting the interests of both the buyer and the seller.

By including key components such as definitions and interpretation, the basis of sale, order acceptance and cancellation, price and payment terms, delivery and risk of loss, protecting your business assets, intellectual property rights, confidentiality and non-disclosure, governing law and jurisdiction, limitation of liability, and term and termination, businesses can avoid costly lawsuits and reputational damage.

By following best practices and avoiding common mistakes, businesses can create a comprehensive and enforceable Terms of Sale Agreement that protects their interests and promotes a successful transaction.