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What key terms should you use in a sales contract with a high-risk client?

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If you are selling goods or services to a high-risk client, you need to protect your interests and avoid potential disputes with a well-written sales contract. A high-risk client is one who has a history of defaulting, breaching, or challenging contracts, or who operates in a volatile or uncertain market. In this article, you will learn what key terms you should use in a sales contract with a high-risk client to minimize your exposure and ensure a smooth transaction.

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1 Payment terms

One of the most important terms in a sales contract with a high-risk client is the payment terms. You should specify how much, when, and how you will get paid for your deliverables. You may want to use advance payments, milestones, escrow accounts, or letters of credit to secure your payment and reduce your credit risk. You should also include penalties for late or non-payment, such as interest, fees, or termination rights.

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Débora Rosendo

Advogada | Corporate Lawyer | Societário | Contratos |
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Ao elaborar um contrato de venda com um cliente considerado de alto risco, é essencial incluir termos-chave que protejam sua empresa e estabele?am um entendimento claro entre as partes. Isso envolve detalhar os produtos ou servi?os fornecidos, definindo claramente os termos de pagamento, incluindo datas de vencimento e penalidades por atrasos, e estabelecendo garantias ou representa??es específicas para mitigar riscos.

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Débora Rosendo

Advogada | Corporate Lawyer | Societário | Contratos |
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Além disso, cláusulas de resolu??o de disputas, que podem incluir arbitragem ou media??o, ajudam a resolver quaisquer desacordos de maneira eficaz. Garantias de desempenho, como fian?as ou seguros, e uma clara defini??o de direitos de propriedade intelectual podem também ser cruciais para salvaguardar os interesses da empresa ao lidar com clientes de alto risco.

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Courtney Parker

Technology and Privacy Law, Category and Contracts Strategy Specialist
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Collaborate closely with contract owners and business users to strategically establish payment terms for a high-risk client. Tailor a combination of upfront payments, milestone-based evaluations, and performance incentives to the specific arrangement. Engaging contract owners ensures alignment with business objectives, while legal experts can contribute to crafting robust contractual language. Defining clear terms for late payments, interest, and consequences, with input from business users, adds granularity to the agreement. #ContractLaw #PaymentTerms #RiskMitigation ????

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Anayaah Singh

Senior Associate @ LawSikho | Contract Management | Business Development |
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Be cautious not to limit payment terms solely to the amount and due date. Consider other important details such as invoice generation, consequences for late payments, payment milestones, installment schedules for large projects, or any special conditions for payment release. Adding these details provide clarity and prevent misunderstandings between parties.

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2 Delivery terms

Another key term in a sales contract with a high-risk client is the delivery terms. You should define what, when, where, and how you will deliver your goods or services to the client. You should also clarify who bears the risk of loss or damage during transit, and who is responsible for customs, taxes, or duties. You may want to use internationally recognized terms, such as Incoterms, to avoid ambiguity and confusion.

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3 Warranty terms

A third key term in a sales contract with a high-risk client is the warranty terms. You should state what guarantees or assurances you provide for the quality, performance, or conformity of your goods or services. You should also limit your liability for defects, errors, or failures, and specify the remedies or procedures for the client to claim or enforce the warranty. You may want to use disclaimers, exclusions, or limitations to reduce your exposure and avoid excessive claims.

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Courtney Parker

Technology and Privacy Law, Category and Contracts Strategy Specialist
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Warranty terms in contracts are crucial for clarity and protection. Clearly define scope and duration to mitigate disputes. Essential warranties include product quality, fitness for purpose, and compliance with specifications. Disclaimers limit liability, while indemnity clauses provide additional protection. Collaborate closely with stakeholders to tailor warranties, and regularly update terms to align with evolving business needs. Well-crafted warranties foster transparency, trust, and overall contract success. #ContractLaw #WarrantyTerms #RiskMitigation ????

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4 Force majeure terms

A fourth key term in a sales contract with a high-risk client is the force majeure terms. You should address what happens if an unforeseen or unavoidable event, such as a natural disaster, war, strike, or pandemic, prevents or delays either party from fulfilling their obligations under the contract. You should also define what constitutes a force majeure event, how to notify and communicate with the other party, and what options or consequences are available, such as suspension, extension, or termination.

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Courtney Parker

Technology and Privacy Law, Category and Contracts Strategy Specialist
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In high-risk contracts, force majeure terms are paramount for managing unforeseen events that could disrupt performance. Explicitly defining force majeure events such as natural disasters and pandemics provides clarity on the scope of protection. These terms offer parties relief from contractual obligations during extraordinary events beyond their control. In high-risk scenarios, consider comprehensive force majeure clauses that address specific industry risks. Regularly review and update force majeure terms to ensure relevance and alignment with evolving global conditions. A well-crafted force majeure provision provides a safety net, promoting resilience and mitigating potential legal conflicts in the face of unforeseen challenges. ????

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5 Dispute resolution terms

A fifth key term in a sales contract with a high-risk client is the dispute resolution terms. You should anticipate and plan for the possibility of a conflict or disagreement arising from the contract, and how to resolve it amicably and efficiently. You should also choose the governing law and jurisdiction that will apply to the contract, and the method and forum for settling disputes, such as negotiation, mediation, arbitration, or litigation.

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Courtney Parker

Technology and Privacy Law, Category and Contracts Strategy Specialist
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Dispute resolution clauses are vital in high-risk contracts, providing an efficient roadmap for conflict resolution. Clearly specify the method, like arbitration or mediation, ensuring a streamlined and confidential process. Tailor the clause to unique risks, engaging legal experts for industry-standard provisions. Regularly update to adapt to changing circumstances. A well-structured dispute resolution clause protects interests and fosters collaborative resolution in high-stakes conflicts. #ContractLaw #DisputeResolution #RiskMitigation ????

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6 Confidentiality terms

A sixth key term in a sales contract with a high-risk client is the confidentiality terms. You should protect your sensitive or proprietary information that you share or exchange with the client during or after the contract. You should also require the client to keep such information confidential and secure, and not to disclose, copy, or use it for any unauthorized or competitive purpose. You should also include exceptions, obligations, and remedies for any breach of confidentiality.

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Courtney Parker

Technology and Privacy Law, Category and Contracts Strategy Specialist
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Confidentiality clauses in high-risk contracts are vital for safeguarding sensitive information. Clearly define the scope of confidential data, including proprietary technology and financial details. Specify obligations for protection and restricted use during and after the contract. Include secure storage, transmission, and disposal mechanisms. Collaborate with legal experts to craft enforceable provisions, regularly reviewing and updating for ongoing effectiveness. Ensure you address destruction or retention procedures. These clauses play a crucial role in mitigating risks and protecting critical business assets. #ContractLaw #ConfidentialityClauses #RiskMitigation ????

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What key terms should you use in a sales contract with a high-risk client?

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1 Payment terms

2 Delivery terms

3 Warranty terms

4 Force majeure terms

5 Dispute resolution terms

6 Confidentiality terms

7 Here’s what else to consider

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