Introduction
Contracts are agreements made in writing or orally by two or more persons intending to pursue a similar goal. These agreements manifest in various shapes and are meant to lessen disputes between the parties. Notably, the purchase contract, an agreement between a buyer and a seller, guarantees effective commercial transactions. The agreement requires the buyer and seller to negotiate the specific terms and conditions that must be met. Generally, a purchase agreement is essential for establishing trust between the buyer and seller, ensuring clear terms and conditions, providing legal protection, improving risk and time management, and assuring legal compliance.
Clarity of Terms and Conditions for the Purchase
Foremost, purchasing contracts help the parties to understand the terms and conditions of the buyer-seller agreement. Principally, a purchasing contract reduces the likelihood of conflicts between the buyer and the seller by covering all the aspects of the transaction in simple language that both parties can quickly understand (Han et al., 2022). The contract specifies the seller’s required delivery time frame and the buyer’s payment terms (Han et al., 2022).
Consequently, there is a minimal chance that the two parties will conflict over payment or non-delivery of the goods and services ordered. Principally, a well-written purchasing contract lets both parties clearly understand each other’s expectations during the transaction. As a result, the two can avoid unnecessary misunderstandings and focus on satisfying each other’s needs as outlined in the purchasing contract.
Legal Protection
Purchasing contracts also offer reliable legal protection to the parties in case of a conflict during the transaction process. In a dispute during the sale or purchase, the buyer or the seller may seek legal charges against the offender (Ahmadisheykhsarmast & Sonmez, 2020). Both parties can defend their ground and act accordingly with a written contract.
Ahmadisheykhsarmast and Sonmez (2020) state that a written agreement is adequate evidence to protect oneself. In particular, purchasing contracts can help the offended party to seek justice effectively without prejudice. Fundamentally, a contract provides a legal framework where both parties can legally be held accountable for their contractual duties under the contract (Dwivedi et al., 2021). Therefore, by indicating all the aspects of the transaction, a purchasing contract helps to guide the parties on their obligations and reminds them to act responsibly during the transaction. If either of the two parties breaches the agreement, the other party is guaranteed legal protection and compensation for damages that may accrue.
Risk Management
A contract in purchasing helps the parties manage and mitigate the risks involved in sales transactions. Principally, business transactions may frustrate a buyer from particular risks associated with quality and quantity (Ishida, 2020). On the other hand, a seller may also suffer losses from non-payment or delayed payments for delivered goods and services (Ishida, 2020). However, the two parties can stay risk-averse with a properly written contract during the transaction process.
More specifically, the most common risks in selling and purchasing goods are non-delivery, non-payment, and delivery of inferior goods and services. According to Ketokivi and Mahoney (2020), a purchasing contract specifies how each possible transaction risk will be managed. In particular, each party is aware of the damages that may arise if they fail to fulfill their contractual obligations. Consequently, the buyer and the seller can avoid these risks and financial losses. Moreover, by staying risk-free, both parties can boost their reputation in business dealings.
Time Management
Likewise, contracts in purchasing are vital tools for managing the time taken to complete the transaction. Time management is one of the essential business principles in the contemporary world. Therefore, buyers and sellers must ensure the timely completion of business transactions to guarantee efficiency (Raj et al., 2022). However, it is common to experience a scenario where the buyer delays the delivery of goods and services, while the buyer may delay the payments. This lateness consumes considerable time, making a single transaction unnecessarily lengthy (Raj et al., 2022).
Still, a well-written purchase contract stipulates the maximum time frame required for each party to fulfill their contractual obligations (Ketokivi & Mahoney, 2020). In particular, the contract sets a deadline by which the seller should have delivered the goods and services. Similarly, it also sets the maximum time allowed for the buyer to make payments for the received goods and services. Consequently, both parties can complete the transaction in a timely manner and have evidential support if one party fails to honor the deadlines.
Quality Assurance
Quality assurance is another significant benefit of having a contract when purchasing goods and services. According to Mou et al. (2019), buying contracts provide an adequate framework to guarantee the buyer of receiving quality goods and services. Notably, there are countless instances when the quality and quantity of the delivered goods are entirely different from the descriptions in the order.
In some cases, buyers do not have a return policy, which results in enormous losses. However, a written contract assures the customers of any transaction. In particular, the contract specifies the minimum quality standards that the ordered goods must meet before delivery. A perfect purchasing contract is clear about the quantity demanded and the quality of the goods in question (Mou et al., 2019).
Therefore, when the quantity and quality of the goods and services delivered mismatch the descriptions given when placing the order, a buyer must demand a refund or delivery of the right products. Most importantly, a written purchase contract will also provide remedies or penalties for non-compliance with the correct standards.
Cost Control
Additionally, contracts in purchasing ensure appropriate cost controls for both parties. Principally, some business transactions are prone to confusion and errors, especially where the businesses involved are not keen on maintaining proper business records. In particular, there may be scenarios where the prices of goods change before delivery, and the buyer must pay extra costs for the previously placed orders.
Likewise, the quantity delivered may differ from the initial order, which may also require additional payments from the customer. However, a well-written and detailed contract of purchase covers such mishaps and helps the parties maintain the transaction’s financial viability (Mou et al., 2019). Consequently, if the prices in the invoice do not match what was agreed upon, the buyer can decline the transaction and seek fair play in completing the transaction. Remarkably, the purchase contract specifies the costs involved, the quantity of goods in question, and the exact amount to be paid by the customer. Therefore, any deviations can be legally challenged with the contract’s evidence.
Building Positive and Strong Relationships Between Buyers and Sellers
Lastly, a purchasing contract helps to build positive and strong relationships between buyers and sellers. Mou et al. (2019) state that the clarity of issues established by a working purchasing contract creates openness and responsibility for the buyers and sellers. In particular, it specifies the roles and responsibilities of each party and provides a remedy and penalty section where the parties can learn the consequences of breaching the contract. Eventually, the two parties are dedicated to fulfilling their contractual obligations to avoid the damages that may accrue.
Consequently, there is enhanced trust and confidence in each other during and after the transaction. Moreover, a contract ensures proper service delivery to buyers, frequently encouraging them to use the same vendor for future transactions (Sharifi et al., 2020). Moreover, satisfied buyers are more likely to recommend a seller to other potential buyers, boosting their customer network. Indeed, a contract in purchasing helps foster positive and long-lasting buyer-seller relationships vital for business growth.
Conclusion
In conclusion, contracts are essential for managing the relationships between two or more parties. More specifically, contracts in purchasing play a crucial role in providing a legal framework that pushes for compliance with the terms specified in the agreement. Moreover, the purchasing contract ensures that the transactions do not unnecessarily take a lengthy duration, which may cause inconveniences to either party. Likewise, they ensure that the buyers receive quality goods and that the prices do not fluctuate mid-transaction.
Additionally, the contract establishes long-lasting relationships between the buyers and sellers, which boosts business growth. Similarly, purchasing contracts help the parties involved manage and mitigate risks effectively. Principally, every party knows its contractual obligation and understands the consequences of failure to obey the agreement. Overall, contracts in purchasing provide a sense of security to both parties and ensure clarity of each party’s expectations and benefits.
Reference List
Ahmadisheykhsarmast, S. and Sonmez, R. (2020) ‘A smart contract system for security of payment of construction contracts’, Automation in Construction, 120, p. 103401. Web.
Dwivedi, V. et al. (2021) ‘A formal specification smart-contract language for legally binding decentralized autonomous organizations’, IEEE Access, 9, pp. 76069–76082. Web.
Han, Z. et al. (2022) ‘Effects of power use in buyer–supplier relationships: the moderating role of Communication’, Industrial Marketing Management, 102, pp. 45–57. Web.
Ishida, Y. (2020) ‘Identifying fundamental breach of Article 25 and 49 of the CISG: the good faith duty of collaborative efforts to cure defects – make the parties draw a line in the sand of substantiality’, Michigan Journal of International Law, (41.1), p. 63. Web.
Ketokivi, M. and Mahoney, J.T. (2020) ‘Transaction cost economics as a theory of supply chain efficiency’, Production and Operations Management, 29(4), pp. 1011–1031. Web.
Mou, J. et al. (2019) ‘International buyers’ repurchase intentions in a Chinese cross-border e-commerce platform’, Internet Research, 30(2), pp. 403–437. Web.
Raj, P.V. et al. (2022) ‘Procurement, traceability, and advance cash credit payment transactions in the supply chain using blockchain smart contracts’, Computers & Industrial Engineering, 167, p. 108038. Web.
Sharifi, S. et al. (2020) ‘Symboleo: towards a specification language for legal contracts’, 2020 IEEE 28th International Requirements Engineering Conference (RE). Web.