Reviewing commercial contracts before you sign

Why a careful read pays off

Signing a commercial contract without checking the key terms is a common but costly mistake. The clauses you agree to will shape your cash flow, your risk, and your ability to exit if things change. A focused review before you sign can save thousands of pounds and many sleepless nights. This article highlights practical areas to check: payment terms, liability, termination, and dispute resolution. It is general guidance only, not legal advice. For any significant agreement, always seek advice from a qualified solicitor who can review the specific document and your circumstances. Even a short conversation with a legal professional can prevent a problem.

Payment terms: get the money straight

Cash flow is critical, so payment terms deserve close attention. Look beyond the headline price and ask when you will actually be paid.

• Payment period: Is it 30, 60, or 90 days from invoice or acceptance? Who confirms acceptance, and how quickly?
• Invoicing: What format and references are required? A missing detail can delay payment indefinitely.
• Late payment: Does the contract include interest? UK law provides a default right to statutory interest, but the contract may change it.
• Set-off: Can the other party deduct disputed sums before paying you? This can erode your cash flow.
• Price changes: Are increases allowed? Are they capped or tied to an index?

If you are paying, check what triggers your obligation and whether you can dispute an invoice first.

Liability clauses: know your exposure

Liability clauses determine how much you could pay if something goes wrong. A poorly drafted clause can leave you facing unlimited liability, which is rarely a risk worth taking.

• Cap on liability: Is there a financial cap? Is it a fixed sum or a multiple of fees? Is it mutual?
• Exclusions: What losses are excluded? Common ones include indirect loss, loss of profit, and loss of data. Check the wording is clear.
• Indemnities: These are promises to cover the other side’s losses, often uncapped. Ask exactly what you are indemnifying.
• Insurance: Does the contract require cover? Does your policy actually cover the liabilities you are accepting?
• Carve-outs: Watch for breaches excluded from the cap, such as fraud or intellectual property infringement.

A cap is only useful if the other side can pay. Consider guarantees for high-risk deals.

Termination rights: exits matter as much as entries

You hope every contract runs smoothly, but you need a clear exit if it does not. Termination clauses set out when and how either party can end the agreement.

• Term and renewal: Is it fixed term? Does it auto-renew? Diarise the notice date to stop renewal immediately.
• Breach: Can you terminate for breach? Is there a cure period? What counts as material?
• Insolvency: Can you terminate if the other side becomes insolvent? Check the trigger events.
• Convenience: Can either party terminate for any reason on notice? Are there exit fees?
• Consequences: What happens after termination? Return materials, pay outstanding sums, provide transition assistance?

Read termination alongside payment and liability clauses. An early exit may still leave you owing money.

Dispute resolution: plan for when things go wrong

Disputes happen even with the best intentions. The dispute resolution clause tells you where and how a disagreement will be resolved.

• Governing law: Which country’s law applies? This matters greatly for overseas contracts.
• Jurisdiction: Which courts can hear a claim? Exclusive foreign jurisdiction can be a serious problem.
• Arbitration or mediation: Is there a mandatory step before court? These can be quicker but may delay.
• Escalation: Must senior managers meet first? Follow the steps exactly or you may lose the right to claim.
• Costs: Who pays legal costs? The loser usually pays in England and Wales, but other forums differ.

A well-drafted clause keeps you in control. A poor one does the opposite.

Getting legal advice before you sign

This article gives general guidance, not legal advice. Every contract is different, and the risks depend on your business, your bargaining power, and the deal’s value. Before signing anything important, instruct a solicitor who specialises in commercial contracts. Ask them to review the payment, liability, termination, and dispute resolution clauses in particular. A fixed-fee review can be surprisingly affordable compared with the cost of a dispute or an unlimited liability claim. If the other side pressures you to sign quickly, remember that a short delay for legal advice is almost always cheaper than a long dispute. Trust your instincts: if a clause feels unfair, it probably is. Get it checked, negotiate if needed, and only sign when you understand exactly what you are agreeing to.