The most common type of contract businesses enter into are bilateral contracts. This is because businesses provide a product or service in exchange for money from their suppliers or customers.
These agreements are incredibly vital for small businesses, especially those in the retail industry. That’s because you’re agreeing to provide a good or service to a customer in exchange for an agreed upon price.
What Is a Bilateral Contract?
So, what exactly is a bilateral contract? A bilateral contract is an agreement between at least two people or groups. Within a bilateral agreement, the people or groups involved promise a certain action will take place in exchange for something else.
How a Bilateral Contract Works
Within a bilateral contract, each party agrees to offer something or get something in return, such as offering compensation in exchange for a service.
Any sales agreement is a bilateral contract. An example would be a person buying a car. When you buy a car, you agree to pay the seller a specific amount of money. In exchange for payment, the seller agrees to deliver the car title to you.
When this happens, you both are making a mutual obligation to carry out your end of the contract. Not carrying out your end of the bargain will result in a breach of contract.
Another example is the contract for the sale of a house. The owner of the house agrees to deliver the title of the house in exchange for an agreed sale price.
The person buying the house agrees to pay the specified sales price in exchange for the title to the house. Both parties will sign a document showing that the transaction took place, making it a valid contract.
A legal bilateral contract is legally binding, which means it will hold up in court if there’s a breach of contract. A legally binding bilateral contract shows a record that all parties agreed to the terms, usually coming in a signed document.
How Does a Bilateral Contract Differ From a Unilateral Contract?
A bilateral contract is different from a unilateral contract because it involves an agreement between two or more people or groups. However, a unilateral contract involves an action only one person or group performs.
So, in other words, only one person or group makes a promise or agreement. For example, within a unilateral contract, a first party issues a payment only if the second party completes a given task. Legally, the second party isn’t obligated to actually perform the task. This means they won’t be breaching the contract.
However, in a bilateral contract, performance of the task is important. Each party has a legal obligation to carry out the agreement.
Whether you’re involved in a bilateral contract or a unilateral contract, you must prove a few things to show that there was a breach of contract.
You’ll have to establish that:
- The contract ever existed in the first place.
- The contract was broken.
- You suffered a loss.
- The person or group you’re challenging was responsible.
Why Bilateral Contracts Are Important
Bilateral contracts act as a foundation for your business. You’re entering into a bilateral contract each time you hire an employee, make a sale, or work with other businesses or suppliers.
So, chances are, your business has created several bilateral contracts. And depending on the type of transaction you’re carrying out, the nature of each bilateral contract will vary.
Whether you’re entering into an agreement with a consumer or another business, a bilateral contract is crucial to your operations, ensuring your business continues to grow and maximize success.
Creating a Bilateral Contract
As you run your business, there will be countless times when you’ll need to have a contract in place to document any agreement you need to make. You can create a bilateral contract for the sale of products or goods, or for services.
If you’re offering a product, be sure to include details like:
- Payment details
- The date of the order
- Quantities ordered
- Any warranties
- Acceptance and delivery requirements
For a service, specify dates of performance, the scope of work, and payment terms.
Bilateral Contracts for Your Small Business
While definitely necessary for operating your business, creating bilateral contracts can be a complex and time-consuming process.
This is why it’s a great idea to automate the process. Procurement software with contract management built in is an excellent way to create, manage, and keep track of contracts made between your business and other parties.
That way, you can save tons of time and avoid hassle. As a business owner, you’re already busy with other things, from managing employees to overseeing operations.
So, consider leveraging tools and technology to help you tackle administrative tasks so that you can focus on the bigger picture—running your business.