Suppose you could reduce the amount of time it took from agreeing a deal in principle to getting the legal contract actually signed by, say, 2, 3 or even more weeks. What might that do over a year to improve your cash flow and turnover? Whilst I can't tell you the precise gains for your particular business, I'm sure your finance director would be delighted to work them out for you.
Generally speaking, commercial lawyers tend to justify their existence by pointing out the costly legal disputes that they avoid through their tightly worded, risk free legal contracts. This is quite true but take that argument to the extreme and you can equally ensure a zero number of legal disputes by not entering into any contracts at all. However, your business would be finished pretty quickly.
The problem is that most contracts, including standard terms and conditions, start off as entirely favouring one party. This is because the lawyer drafting it looks to de-risk the legal contract as much as possible for the client. Consequently, instead of the deal getting done quickly, the other party has to run off and take legal advice, more lawyers then get involved, expensive negotiations take place, the deal takes far longer to get signed, everyone feels frustrated and the bottom line is that these delays will hit your cash flow and turnover.
My favourite, or perhaps I should say least favourite, are IT contracts. I'm not particularly getting at the IT sector here, as other sectors are just as guilty in their approach. However, a typical IT project can be used to illustrate how everyone loses when an overly risk adverse legal contract approach is taken. The IT supplier may spend 12 months demonstrating the software, scoping a project, tendering and generally getting to know its customer. A "deal" is at last agreed in principle and IT supplier and customer breathe a huge sigh of relief. But wait, the IT supplier then presents its contract. It is full of exclusion and limitation of liability clauses and, quite frankly, means that, if the IT supplier fails to deliver or perform, the IT supplier does not suffer any financial consequences. Quite rightly the customer says, "Mr IT supplier, you've just spent the last 12 months telling me how wonderful you and your software are and now you refuse to stand behind what you've been saying". What then follows is sometimes weeks and weeks of fraught negotiation and a fairer position is finally agreed (hopefully) and the contract signed.
Had the IT supplier presented a fair contract in the first place, the deal could have been signed weeks earlier and goodwill preserved. More to the point, the IT supplier, by taking that approach, has lost out financially. The date it starts to get paid has been pushed back by all that time its customer has been reviewing and negotiating the contract.
I am certainly not advocating the use of weak legal contracts here or indeed no contracts at all. I am merely suggesting that the use of fairer contracts has its benefits. I would even go so far as to say that, at stage one, the right approach for a business contractually is to look to de-risk its legal position as best as possible. However, after a period of time, at stage 2, it should revisit its legal contracts, terms and conditions and contracting process and look to see how it can make improvements and thereby improve its cash flow and turnover. The problem is that many businesses simply stick at stage 1.
As specialists in corporate and commercial law, we can help you with stage 2. Our solicitors have plenty of practical experience as to where legal risks really lie and how contracts can be made fairer without putting your business at unnecessary legal risk. That process isn't nearly as cumbersome and panic-inducing as business owners often tend to believe it can be.
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