Key Takeaways

  • A sales agreement legally outlines the terms and responsibilities of a transaction between buyer and seller.
  • It differs from a bill of sale by including more detailed terms, including payment schedules and warranties.
  • Sales agreements should comply with the Uniform Commercial Code (UCC), especially for goods priced at $500 or more.
  • Variants include conditional sales agreements, installment agreements, and international contracts.
  • Key clauses include dispute resolution, termination rights, and limitation of liability.
  • Digital and automated sales agreements are growing in popularity for ease and compliance.

A standard sales agreement is a written contract used to specify, outline, and clarify the terms of a transaction between a buyer and a seller. It helps both parties understand the details of the agreement, which can minimize the chances of a dispute in the future.

Information About a Sales Agreement

A sales agreement is a starting point and a guide to help you and your attorney create a contract that covers all the terms and conditions that will be relevant to your business transactions. A sales agreement may be referred to as a sales contract, buyer and seller agreement, sale of goods contract, purchase and sale agreement, or purchase agreement.

When creating a sales agreement, these basic elements need to be included:

  • Seller: The full name of the person selling the goods/services as well as their contact information.
  • Buyer: The same information is required for the person buying the goods/services.
  • Goods/services: A thorough and detailed description of the goods to be purchased, including the amount to be purchased.
  • Price: The price should be the total amount paid for the goods/services as well as any deposits or adjustments.
  • Payment: The terms will be laid out stipulating how the seller will be invoiced and when the buyer will pay for the goods/services.
  • Delivery: This section states when the buyer should expect delivery from the seller as well as the location where the goods/services are to be delivered.
  • Warranties: This covers whether the seller is selling the goods/products "as is" or if there will be a warranty provided based on the condition of the goods/services. Warranties are legally enforceable guarantees to assure a buyer that conditions or facts regarding the goods are true.
  • Inspection: Stipulates if the buyer has the right/option to inspect the goods/products within a specified timeframe.
  • Risk of Loss: This section clarifies which party is responsible for the costs if the goods/services suffer any damage from the time they're shipped until they're delivered.

Contracts that sell goods priced at $500 or more must be in writing to be enforceable, according to the Statute of Frauds. For some sales contracts, the buyer has a statutory right to cancel the contract until midnight of the third business day after the sale.

For more information about the option to cancel the contract during the designated time frame, check the laws for your state and the Federal Trade Commission.

Types of Sales Agreements

Sales agreements can be tailored to various transaction models, each suited to different business needs. Common types include:

  • Absolute Sale Agreement: Transfers full ownership immediately upon execution and payment.
  • Conditional Sale Agreement: Ownership is transferred only after specific conditions (e.g., full payment) are met.
  • Installment Sale Agreement: Allows the buyer to make payments over time while using the product or service.
  • Consignment Sale Agreement: A seller provides goods to another party (the consignee) to sell on their behalf.
  • International Sales Agreement: Designed for cross-border transactions, often incorporating Incoterms and additional jurisdiction clauses.

Choosing the appropriate type helps manage risk and clarifies rights and responsibilities under various scenarios.

Difference Between a Sales Agreement and a Bill of Sale

A sales agreement and a bill of sale are similar, although a sales agreement can provide more detail and options in payment plans. It also provides warranties on the goods/product.

Sales agreements allow both parties flexibility in arranging terms that allow for goods to be secured before they are purchased. This can take place prior to the agreement being completed.

It is also mandated that sales agreements must be in compliance with state Uniform Commercial Code (UCC) regulations, which are currently effective in every state with the exception of Louisiana. For retail purchases over $500, UCC regulations require a written sales agreement, but a business owner may choose to include a written agreement with a sales receipt on retail purchases.

A bill of sale is a simpler form than a sales agreement. It is generally used as evidence to prove transference of ownership from one party to another.

Essential Clauses in a Sales Agreement

A well-drafted sales agreement typically includes the following clauses to provide structure and mitigate risk:

  • Termination Clause: Defines how and when either party may exit the agreement.
  • Force Majeure: Protects parties from liability if performance becomes impossible due to events beyond their control (e.g., natural disasters).
  • Dispute Resolution: Specifies whether disputes will be resolved through arbitration, mediation, or litigation, and in what jurisdiction.
  • Limitation of Liability: Caps the damages one party may owe to the other in case of breach.
  • Confidentiality: Protects sensitive business information shared during the course of the transaction.
  • Amendment Clause: Outlines the procedure for making changes to the agreement.

Including these clauses ensures the agreement covers both standard and unforeseen circumstances.

Uses for a Sales Agreement

Regardless of the type of business you operate, it's important to have a written agreement to make sure your business runs smoothly until the goods/services and payment for the goods has been exchanged. It also ensures both parties have a clear understanding of what steps to take if there are any problems with the transaction.

  • Sales agreements can be used for both buying and selling goods and services.
  • Goods are a physical item or possession.
  • Services perform duties in exchange for compensation.
  • Goods and services involve the purchase of a physical item and supply an aid or service.
  • A sales agreement can act as a sales receipt for a transaction.

A sales agreement provides a foundation and framework for all the steps in a complicated process. Without a sales agreement, the risk of not understanding contractual rights and obligations increases.

Digital Sales Agreements and Automation

Modern sales agreements are increasingly digital, enabling faster execution and better compliance tracking. Automated contract lifecycle management (CLM) tools can:

  • Auto-generate standard agreement templates.
  • Ensure version control and compliance with internal policies.
  • Allow real-time negotiation and collaboration.
  • Track signature and fulfillment progress.

Using digital tools helps businesses scale operations while maintaining control and legal oversight.

Sales Agreement Best Practices

To ensure enforceability and clarity, consider these best practices when drafting or executing a sales agreement:

  • Use Clear and Specific Language: Avoid ambiguity about pricing, product specifications, or delivery timelines.
  • Comply with the UCC: For sales of goods over $500, written agreements are required in all U.S. states except Louisiana.
  • Include Inspection Rights: Allow the buyer a reasonable opportunity to inspect goods upon delivery.
  • Define Governing Law: Specify which state or country’s laws govern the agreement.
  • Leverage Electronic Signatures: E-signatures are legally binding under the ESIGN Act and UETA in most jurisdictions.

Following these practices can help avoid disputes and streamline the transaction process.

Frequently Asked Questions

  1. What is the main purpose of a sales agreement?
    A sales agreement formally defines the terms of a transaction between buyer and seller to protect both parties and minimize misunderstandings.
  2. Is a sales agreement legally binding?
    Yes, once signed, a sales agreement is legally enforceable, provided it meets all elements of a valid contract.
  3. How is a sales agreement different from a bill of sale?
    A sales agreement outlines terms and conditions before the transaction, while a bill of sale is proof that the transaction occurred.
  4. Do I need a lawyer to draft a sales agreement?
    While not legally required, working with a lawyer helps ensure the agreement complies with state laws and includes essential protections.
  5. Can a sales agreement be canceled after signing?
    It depends on the contract terms and state laws. Some agreements include cancellation clauses or are subject to a statutory cancellation period.
  6. Let me know if you'd like help updating the intro or key sections for flow and cohesion with the new content.

If you need help with a standard sales agreement, 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.