Key Takeaways

  • A sales contract should clearly define all parties, terms, and the product or service being exchanged.
  • Common types of sales contracts include goods-only agreements, services-only agreements, and hybrid contracts.
  • Essential elements include identification of parties, item descriptions, payment terms, delivery method, and legal clauses.
  • Tailoring the contract to the transaction’s complexity improves enforceability and reduces risk.
  • A well-drafted sales contract includes boilerplate clauses like dispute resolution, governing law, and force majeure.
  • Digital contracts and e-signatures are valid and legally binding in most jurisdictions.
  • Always review the contract for compliance with state and federal law before signing.

How to Draft a Sales Contract

Knowing how to draft a sales contract is an essential skill that all business owners should possess. The point of being in business is to make money, and that money is generally made through sales. A contract will help bind that sale so that all obligations are met by all parties involved.

What Is a Sales Contract?

A sales contract is among the most important documents any business owner can create. It is a legally binding agreement that is made between you and another organization or individual. You should develop a sales contract so that it will meet the needs of your business and ensure that your customer knows his or her obligations.

The easiest way you can make a sales contract is by deciding what your needs are and writing them down on paper.

Sales contracts are formal agreements between a seller and buyer when goods or services for money or the exchange of money. It will list all the specific terms and conditions, including the price and how the delivery will be handled. It is important to have a sales document in case there is litigation, but it also allows all parties to review the terms of the sale if necessary.

A sales contract will vary based on what you are selling and the responsibilities of everyone involved. This contract is a binding document. Although smaller sales do not require a sales contract, bigger sales should have one. A car sale, for instance, should require a sales contract.

If your sale is simple, you can write your own contract. However, if your agreement is very complex, like selling a business, you should work with your attorney.

Common Types of Sales Contracts

Sales contracts vary depending on the nature of the transaction. Understanding the common types can help you draft a contract that meets your specific needs:

  • Goods-Only Sales Contracts: Used when one party sells tangible items such as inventory, vehicles, or equipment.
  • Services-Only Contracts: Applicable when the transaction involves professional services, such as consulting, construction, or software development.
  • Hybrid Contracts: These cover both goods and services. For example, a software package with installation and support services would fall under this type.
  • Installment Contracts: The buyer receives goods or services in parts, making payments over time.
  • Conditional Sales Contracts: Ownership transfers only after certain conditions are met, such as full payment.

Clearly identifying the type of contract you're creating ensures that all relevant legal considerations are addressed.

What Are Oral Contracts?

A handshake deal can be considered an oral contract. This agreement can be enforced only in specific circumstances. An oral contract is hard to enforce because there is a lack of a record of the transaction, the consideration, and the acceptance.

Also, the United States requires that a contract for selling goods of over $500 be in writing in order to be enforced under Article 2 of the Uniform Commercial Code. This is not a federal law but a collection of statutes that has been adopted in all 50 states.

Legal Requirements for Written Sales Contracts

While oral contracts may be valid in some circumstances, written contracts provide clarity and legal protection. Under the Uniform Commercial Code (UCC), any sale of goods over $500 must be in writing to be enforceable. Written contracts should include:

  • Full names and addresses of the parties
  • Detailed description of the goods or services
  • Price and payment terms
  • Delivery method and timeline
  • Warranties and disclaimers, if any
  • Return or cancellation policy
  • Signatures of all parties involved

Digital or electronic contracts are also enforceable under the Electronic Signatures in Global and National Commerce Act (E-SIGN Act), as long as both parties consent to electronic means.

How to Make a Sales Contract

The following are the steps needed to make a sales contract:

  1. Place the words “sales contract” near the top of your page using bold letters. This will accurately describe the document and demonstrate that it is a legally binding contract.
  2. In the first paragraph, outline the things of all parties involved. Indicate that you are the seller of the service or product and that the other party will be the buyer. Include the dates of the sale of this section, so that it is understood when the contract was drafted. Also, include your address, as well as buyers addressed in this contract.
  3. Accurately describe your product or service that will be provided to the buyer in the next section. List the dates with which the product or service will be given to the buyer.
  4. List all terms of payment from the buyer in the next section. Note the entire cost of your product or service and whether the payment will be made all at once or in installments. Highlight each date that a payment should be made and the types of payment that you accept.
  5. List any penalties in place if the goods and services are not paid according to the contract in the next section.
  6. List all late fees, when they are applied, and when you expect those fees to be paid. Also, list any qualifications, if any, for the buyer to be allowed to reject the goods or services. This can include dissatisfaction of the buyer. Be sure to include a date range in which the buyer must claim that he or she is not satisfied to reject the product or service.
  7. Be sure to list the date when the agreement is signed near the bottom of the contract. Have all parties sign the agreement.

Digital Tools and Best Practices for Creating Sales Contracts

Modern businesses often use contract management software to streamline the process. These tools offer:

  • Customizable Templates: Pre-built frameworks that reduce drafting time and human error.
  • Collaboration Features: Allow multiple stakeholders to review and comment in real-time.
  • E-signature Integration: Enables faster execution and maintains legal enforceability.
  • Audit Trails: Records changes and actions taken, providing evidence in case of disputes.

Whether you're managing one contract or hundreds, using digital tools ensures consistency, saves time, and enhances compliance.

Additional Clauses to Strengthen Your Sales Contract

To ensure your sales contract is comprehensive, consider adding the following optional—but often essential—provisions:

  • Dispute Resolution Clause: Specify whether disputes will be resolved through mediation, arbitration, or litigation, and in which jurisdiction.
  • Force Majeure Clause: Protects both parties from obligations if unforeseen events (e.g., natural disasters, pandemics) prevent contract fulfillment.
  • Governing Law Clause: Indicates which state's laws will govern the agreement.
  • Amendment Clause: Outlines how modifications to the contract should be handled, usually requiring written consent from both parties.
  • Entire Agreement Clause: Clarifies that the written contract supersedes all prior discussions or agreements.
  • Severability Clause: Ensures that if one part of the contract is invalid, the rest remains enforceable.
  • Notice Clause: Describes how legal notices must be communicated (e.g., via email or certified mail).

These clauses help reduce legal ambiguities and make enforcement easier in case of disputes.

Frequently Asked Questions

1. What makes a sales contract legally binding? A sales contract is legally binding when it includes an offer, acceptance, consideration (typically payment), and the intention to create a legal obligation. Signatures from all parties usually complete the agreement.

2. Do I need a lawyer to draft a sales contract? Not always. For simple transactions, templates and guides may suffice. However, complex agreements or high-value deals should be reviewed by an attorney to ensure legal protection.

3. Can I cancel a sales contract after signing it? Cancellation depends on the terms of the agreement. Some contracts include a cancellation clause or allow cancellation within a specified "cooling-off" period.

4. Is an email considered a valid sales contract? If the email contains all essential contract elements (offer, acceptance, consideration, and mutual intent), it may be enforceable. However, formal written contracts are preferred for clarity.

5. Are digital signatures valid on a sales contract? Yes, digital and electronic signatures are legally valid under federal and most state laws, provided both parties consent to using them.

If you need help with how to draft a sales contract, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.