When you draft an agreement of sale, you want to make absolutely sure that you figure out the payment schedule, delivery schedule and customer obligations that need to be fulfilled first before you can successfully complete the sale. Tackling these issues is a key ingredient in properly setting your customer's expectations so you can avoid later disappointments, buyer's remorse, or hassles over budget and timing matters.
Payment Schedule. It's vital to make sure that the timing of all payments is completely agreed to by both you and your customer and set forth in the agreement. There are many questions you want to ask and converse with your customer about, such as, how long does the customer have to pay you after being invoiced? Typically, payment terms vary between 10, 30, 60 and 90 days. What triggers this time frame, the date of the invoice or the date the customer actually receives the invoice? Sellers prefer that the date of the invoice is the trigger, because they know that date will be the time when they send out the invoice, and don't necessarily know when exactly the customer will receive it.
Also, if the customer never receives the invoice, the seller quite rightly still feels that payment should be promptly made without having to wait even longer after resending the bill. For ongoing arrangements, such as supply deals, vendors usually want to make sure that they are paid regularly to reimburse them for the burden of always maintaining sufficient productive and inventory capacity to fulfill customer demands from time to time. To do so, the seller might insist on a monthly minimum payment. Is that amount to be paid on the first, or the last date of the month? Does this minimum fee need to be invoiced, or is it simply the customer's responsibility to send it in on a timely basis? These are issues that the parties need to sort through and specifically agree on in the agreement of sale.
Delivery Schedule. This provision is usually left unclear, which sets up a situation where the customer can feel hurt and disappointed with the level of service provided by the seller. As a result, smart vendors try to specify as much as possible when all goods and services sold will be delivered, installed, configured and fully available in a production environment for the customer's use. Sometimes customers will tie the payment terms to the delivery schedule, holding back a certain percentage of the overall fee until the seller completes various milestones.
For instance, an equipment buyer might insist on paying only 25% of the fee upon signing the contract, 25% more upon delivery, an additional 25% once the vendor fully installs the equipment, and the final 25% after the vendor configures the equipment and it passes the buyer's acceptance test. Alternatively, the payments could be simply divided up by days, particularly if the customer and the seller feel that they have a good enough business understanding of the situation and execution capability to trust each other to make payments regardless of milestone achievements. In this arrangement, the customer might pay 10% upon contract signing, 20% more 30 days later, and additional 30% 15 days after the second payment, and the final 40% 15 days after the third payment. That way the seller receives the entire fee within 60 days.
Assumptions-Customer Obligations. Many times the vendor simply can't fulfill the sale because the customer blocks the vendor from doing so. Typically, this occurs when the customer has to provide key information, resources or access to facilities as a necessary condition preceding the vendor taking a particular action. A good example would be an equipment installation, where certain electricity, cabling, temperature, clearance and width requirements must be met at the customer's facilities or the equipment cannot be installed properly.
Another example would be when a software vendor designs a custom application for a customer's finance needs, but the customer never signs off on a final specification describing exactly what the software will and will not do. As a result, vendors must make absolutely clear in their contracts what conditions customers need to meet first before the vendor will fulfill the terms of the deal. Without this kind of provision, a seller can be left on quite shaky ground, subject to the whims of a demanding and unreasonable customer who is making life quite difficult when attempting to provide the goods or services desired.
Fortunately, you can now navigate around these common obstacles and prevent payment schedules, delivery schedules and customer obligation assumptions from derailing your future success by properly dealing with these issues in your agreement of sale.
Jason Mark Anderman is President of WhichDraft.com, where a Q and A wizard allows users to create, collaborate, and customize legal documents simply and easily.
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