Sales Contracts: Elements, How to Create One, and Best Practices

In my experience, salespeople tend to overpromise in their pitch. You’ve heard the adage about salespeople telling a customer, “Of course, we can do that!” to close a sale. But back at the office, they’ll ask their delivery or product team in a panic, “We can do that, right?” In too many cases, they can’t.

A written sales contract is how both sides — prospect and seller — are protected, ensuring that verbal agreements match what’s in writing. Without it, you risk the buyer backing out of the deal or having a potentially litigious client after the deal is done.

The good news is, sales contracts don’t have to be complicated. They need the basics of the deal — the scope of work/product, the conditions of the sale, and, as needed, legal protection if a disagreement between the two parties ever goes to court.

This guide will teach you how to draft an ironclad sales contract.

What you’ll learn

• What is a sales contract?
• Why is a sales contract important?
• Where can one use a sales contract?
• Sales contract vs. bill of sale
• What should I include in a sales contract?
• Best practices for drafting a sales contract

What is a sales contract?

A sales contract is a legally binding agreement between a buyer and seller that outlines the mutually agreed upon terms of a transaction. These written agreements describe the goods, services, or property that will be exchanged, and the payment terms.

Why is a sales contract important?

A well-written sales contract is important because it sets clear expectations for both the buyer and seller and can prevent disagreements down the line. It also limits liability for your business, partners, and vendors.

That clarity is dependent on using simple language. A strong sales contract is written with simple copy so that anyone who reads it, including contractors, manufacturers, and delivery people, can clearly understand its terms and conditions.

Some contracts are made with just a handshake, but these can prove difficult to enforce, especially in a court of law. If your exchange of goods or services is for more than $500, it’s recommended that you get everything in writing to save yourself grief down the road.

Where can one use a sales contract?

Short answer: Always. Even if you’re dealing with a small amount of money or engaging a trusted, longtime client, having a written contract can create goodwill between parties and preserve relationships and livelihoods.

More in-depth answer: If your product includes complex components, terms, or services such as installation, maintenance, or 24/7 customer service, it should only be sold via a written contract.

Sales contracts are common for these assets:

• Real estate: Land and any permanent structures attached to that land, whether natural or manmade.
• Vehicles: A machine with an engine that transports people or things from point A to B.
• Equipment: This can include machinery, accessories, apparatus, instruments, components, manufactured articles, and parts.
• Recurring sales: Predictable, ongoing revenue that comes from the sale of goods or services.
• Stock sales: The purchase of an owner’s shares of a corporation.

Sales contract vs. bill of sale

It’s easy to confuse a sales contract with a bill of sale, as they both serve the same purpose: They describe purchased goods, services, or property. There are subtle differences, however.

Typically, a sales contract offers more details about the terms of the transaction than a bill of sale. It includes things like warranty information and delivery arrangements, and is drafted before any goods are exchanged.

A sales contract is typically used for major purchases like real estate, appliances, electronics, and vehicles. Sales contracts are also used for services like media subscriptions, insurance policies, and software as a service (SaaS).

In contrast, a bill of sale takes place after a deal closes to prove that ownership has transferred from the seller to the buyer.

What should I include in a sales contract?

These eight items are commonly included in most sales contracts:

1. Information about the buyer and seller: The basics: the names, addresses, and contact information for all concerned.
2. Description of goods or services: Here, accuracy counts. For physical products, include the model number, size, and weight along with the quantity purchased. For services, outline the scope of work and length of time needed to complete the project.
3. Price and payment schedule: Be transparent with your pricing. Include taxes, payment terms, and late fees or any other types of additional fees. You may also want to list the accepted methods of payment and always include when to expect payment.
4. Delivery instructions: Include the name of the delivery company or service, where the product should be delivered, and the expected delivery date. Also, note who is responsible for the cost of delivery. Thorough contracts include clauses to address late or missing deliveries and any associated fees or penalties.
5. Warranty information: Before anything is written in a contract, there is an implied warranty about the quality of goods. This means that the sold product is guaranteed to work as claimed. An express warranty is a written agreement by the seller to offer repairs or replacement of a defective product within a specified time period.
6. Inspection period: Otherwise known as a refund or return policy, this allows a fixed time for the buyer to inspect the product and make sure that it meets expectations. This prevents a buyer from returning a product and demanding a refund months — or years — after purchase.
7. Confidentiality: Adding a confidentiality clause to your sales contract is a good idea if your product or service includes the transfer of sensitive information.
8. Breach of contract: If either party fails to fulfill its side of the agreement, this section outlines the potential consequences. For example, a contract may state that if the buyer fails to make a payment on time, they must pay a late fee along with the missed payment.

Best practices for drafting a sales contract

Here are some best practices for putting together a solid, binding sales contract based on my experience:

1. Use clear, simple language — and consult with a lawyer for guidance

Write contracts in a way that’s easy for someone with a high school education to understand. If you’re reviewing a contract and there’s language that’s unclear or confusing, don’t be afraid to ask an attorney for advice.

Also, avoid the “DIY pitfall.” Some inexperienced salespeople will try to rewrite the terms and conditions, which can lead to trouble. Trying to draft “legalese” that is actually legally binding is hard enough, but if you change even one word written by an attorney, it could potentially change the entire meaning of a contract. In short: Ask an attorney if you need to make changes.

2. Review past contracts to see what you can improve

If you’re not sure where to start, take a moment to consider exactly what you want to get out of the sale. Take a careful look at your company’s past contracts. Are there areas where a deal fell short of your expectations? This will give you an idea of areas you could improve. You may want to include more details in the warranty, for example, or add specific penalties for a breach of contract.

3. Carefully consider customizations

Clients may ask for special considerations in a contract. And as a salesperson, you want to do whatever it takes to get them to sign on the dotted line. But it’s important to remember that once you add something to a contract, you need to deliver.

An example of a nonstandard request is when a client asks for a specific person to manage a project for the duration. If that project manager leaves the company, for example, it can become a thorny legal issue. For this reason, many companies limit, if not eliminate, contract customizations like this. Consider this when drafting your own sales contracts.

4. Be prepared for negotiation

Sales contracts can involve a lot of back-and-forth between you and your buyer. Using a shared digital document can save time and avoid frustration by allowing both parties to negotiate in real-time. Tools like Salesforce CPQ can help with the process, quickly and accurately configuring quotes and contract terms.

At the bargaining table, clear communication is essential. Listen to the other side, stay calm, and make the concessions necessary to close the deal.

Once both parties agree to the terms of the sales contract, have members of your team review it and redline any sticking points before the deal is closed.

5. Be ready to deliver — and keep contracts up-to-date

After the sales contract is signed, the real work begins: You need to deliver on the terms of the agreement.

It’s crucial to have a process in place to manage contract expirations and renewals. With Salesforce CPQ, contract updates are automated, offering instant renewal quotes and mid-term change notifications. This can prevent future revenue loss and avoid compliance problems.

6. Sign after a lawyer reviews all changes

When both parties agree to the terms of the contract, you’re ready to sign. But before you break out the bubbly, it’s wise to have an attorney review the contract for any problematic language or other “gotchas.” It’s much easier to make changes in the contract before the ink meets paper.

Create your own sales contracts

Now that you know the ins and outs of contract creation, you can start creating your own. Just remember: Make sure a lawyer reviews throughout the drafting and negotiation process, and don’t sign until you’re comfortable with all terms and conditions. This will go a long way to protecting you — and the buyer — in the months and years after the sale.