Contracts are essential for companies and customers who need to agree on a deal. But they’re only effective if all the elements of a contract are included in the document.
Properly structured agreements protect everyone and withholding elements of a contract could invalidate the deal.
What are the Elements of a Contract?
Contract elements are the different requirements that make up the terms and conditions of a deal.
They ensure both parties involved have the information they need to come to a signed agreement, including sections about how to move forward in the event of an issue later on.
These elements are essential for a legally binding agreement.
The Basic Elements of a Contract
It’s important to include all the elements of a contract in your business agreements so customers fully understand:
- What you’re offering
- What customers will pay
- When and how to pay
- Any details that invalidate the contract
- How to proceed if problems arise (mediation, how to alter the contract terms, etc.)
The basic elements of a valid contract are:
Offer
An essential element of a contract is the explanation of what is being offered, and what is expected in return. In terms of a business contract, this includes what goods/services you will provide and how much the customer will pay.
An offer should include:
- Terms of the contract: an explanation of your proposal to the customer. What you will provide and what you expect in return.
- Clear language: the agreement shouldn’t have jargon or hard-to-understand legal phrasing. Should be plain and clear, so customers know what they are agreeing to.
Acceptance
The contract element of acceptance is the indication a customer wants to move forward with a deal. Without this component, everything you do could be in question.
If the terms of your offers are negotiable, you may expect customers to ask for changes to the terms of a deal or to propose a counter offer before you finalize.
A legally binding signature is the best proof all parties understand and agree to your terms. A traditional signature or esignature also protects you in the event of a dispute.
Don’t change the terms of a deal after it has been accepted. If the need for a change comes up, you will need to get an updated authorization from all parties.
Awareness
Consideration
Capacity
Legal capacity refers to the ability of the signer to consent to the contract. Your customer needs to have the ability to agree to your terms. Otherwise, the contract will not be valid. Some of the essentials that qualify a signer’s capacity to consent are:
- Legal Age: Any customer who signs contracts for your business must be old enough to legally sign.
- Not Under Duress or Undue Influence: Companies can’t demand a signature from customers. Make sure customers don’t feel undue pressure to enter into an agreement.
- Authority: The individual signing the contract must have the authority to sign on behalf of themselves or others they’re representing. For example, in business-to-business contracts, the signer must have permission within their role at a company to enter into the deal.
Legality
There are several things that can impact whether a contract is legally binding.
- If you omit key elements of a contract, it may not be valid and enforceable.
- If the basis of your agreement isn’t legal, you can’t hold parties accountable.
- If your esignature software doesn’t offer legal wet signatures, the authorization may not hold up.
The best way for your business to ensure your contracts are legal, enforceable and accurate, is to have all items reviewed by your company’s attorney.
This gives you peace of mind knowing you’ve taken the right steps for a good relationship between your company and your customers.
Digital Contract Signatures
With secure digital communication and electronic signature software, it’s faster and easier than ever to facilitate business agreements.
Most companies that use esignatures for contracts see major benefits in their organization:
- Save money: Electronic signatures help companies save money in postage, paper and envelopes, certified mail, and other costs associated with sending a physical contract.
- Simplify workflows: Send contracts in minutes with a pre-built template. Track the status of a contract to know when it was sent, opened, or signed, for more control over the process.
- Easy for customers: Most customers expect to communicate with companies through email and SMS. Digital signatures make it easier to interact with customers the ways they prefer.
PDCflow for Contracts
Most companies rely on digital signature software to send contracts to prospective customers. Businesses that use digital signatures need to look for the essential elements that simplify workflows, satisfy customers, and speed up deals. The features companies ask for most are:
- Signatures with payments: many companies that have customers sign contracts need to take a payment at the same time. PDCflow lets companies get a signature and request a payment from a customer in the same message.
- Multiple signers: many contracts require two signatures. PDCflow makes contract management easier by letting you send contracts to every recipient in one workflow. Multi-Recipient Flows let you customize each request, so you can personalize the request for each recipient.
- Wet signature: companies need electronic signatures to be legally binding, just like they would be if a contract is signed in person. PDCflow’s signature tool is a wet signature equivalent, so your esignatures are legally binding.
- Event notifications: employees need to know when contracts are signed. PDCflow lets individuals or teams sign up for notifications on their important workflows, so they can stay on top of each step of the process.
- Robust reporting: companies need tools to analyze their deals. PDCflow’s Insights Reporting gives you all the information you need to understand your business.
- Admin controls: Part of contract management is controlling which of your employees can access contract templates or other information. PDCflow’s administrative controls let you manage access for employees to reduce human error.
Do you want to learn more about how PDCflow helps you manage contract esignatures? Schedule a demo today.
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- ABOUT THE AUTHOR -
Hannah Huerta, Marketing Specialist
Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.
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