Essential Contract Review Tips for Sales Professionals: Read Client Contracts with Confidence

Ensuring you understand client contracts is crucial for sales success—don't let legal jargon trip you up.

Occasionally, you encounter a prospective client that gives you their contract. You are always better starting with your paper (your contract), but winning the deal may require you to accept their contract. There are a number of things you should be aware of when you read a contract.

The following list of potential problems will explain why you may not be able to agree to the client’s contract or agreement. You may see one or more areas that will lessen your chances of being able to sign the contract.

Notice: This article is not being proposed as legal advice. It is being published only to help salespeople and sales leaders to better understand the contracts they must read. If you have a client who provides you their contract, our advice is to hand it off to your legal team.

Common Contractual Pitfalls and How to Handle Them

1. No Edits Clause: The first problem you might encounter is the demand that you make no edits to their contract. Your contact wasn’t the person likely to have proposed this strategy of not allowing you to make any changes. Two things are true when you see these clauses. First, you have some evidence they may treat you as a vendor. Second, the person who will read the contract will find a number of things that must change for you to be able to agree to their contract. Don’t be afraid to address this clause and explain you need a number of edits to be able to help them with the better results they need.
2. One-Sided Indemnification Clauses: You will always see an indemnification clause in your prospective client’s contract. You will also notice that almost every time, you will find that you are responsible for any harm you and your company you create. What you won’t often find in your client’s paper is a clause offering you the same indemnification you agree to with your client. Your company will likely want to even this out by editing the client to ensure both you and the client are responsible for anything that causes harm to the other party.
3. Indemnification II: Your client’s contract might suggest you will pay for reasonable attorney fees should you cause them to be sued. Because a lawyer wrote the client’s contract, you will see a list of words like: suits, actions, legal proceedings, demands, damages, costs, reasonable expenses. What you need to know is that your company’s insurance isn’t going to pay for your client’s attorneys. Your legal folks may want to edit the contract to remove the mention of reasonable attorney’s fees. You may also want to put a cap on the liability to limit your downside should there be a problem.
4. Insurance Requirements: Different industries and companies have different requirements. You will find different numbers and different types of insurance and coverage on your prospective clients’ contracts. Your company may or may not have certain types of insurance. But what you need to know is that your umbrella policy is often enough to cover any shortfall. You will always have to provide proof of insurance and a clause that requires your company to maintain your coverage.
5. Payment Terms: If you are working on your client’s contract, your client is often a much larger-than-average client. The larger the client, the longer the payment terms. Even though they have plenty of money, they want to hold onto all of it for as long as possible. You won’t find a penalty for late payments on your client’s paper. You may also need to edit in milestone payments or payments for performance. Your legal team may need to make edits to payment terms.
6. Termination and Exit Terms: This isn’t as scary as it might look. These terms may come with obligations should you and your client part ways. You are likely to see that you can be removed with 30 days’ notice. It’s becoming more and more common to see clauses that require the sales organization to keep records or something the client needs. In one of my businesses, we have to keep documentation for years.
7. Dispute Resolution: Your legal folks will have a preference on mediation, arbitration, or litigation. They may have a preference for the governing law and jurisdiction, as well the venue, should a dispute end up in litigation.
8. Scope of Work: Your client’s scope of work may include things you don’t normally, so you should read the scope of work to ensure you can do what the client requires. If you are not already doing what is in the scope, you may need to negotiate with the client or work with your company to be able to agree to the terms.

This short guide summarizes some of the most common challenges you will find with your clients’ contracts. You don’t have to have to go to law school to understand most contracts. Read what the client gives you, then you can hand it off to your legal team and whoever is going to read and sign the contract. You might also want to give them notes about whatever you identify that must change for you to be able to sign your client’s contract.

Before leaving this article, you may want to bookmark this post should you need it in the future. You might also start a collection of contracts. I had one client that shared with me a clause they used for indemnification that I was able to share with seven other companies that I might not have been able to work with otherwise.

As always, do good work and we’ll see you tomorrow.