As a small business owner, there are a number of important legal documents you should familiarize yourself with. One that is especially key to business operations is a Sales of Goods agreement. But what is a sales of goods agreement, and how can it be useful to you and your business? Let’s find out.
What is a Sales of Goods Agreement?
As the name suggests, a Sales of Goods Agreement is a legally binding contract that outlines the terms of a sale of a good, service or property to the buyer and seller. It serves to establish a clear framework for all the necessary terms of the sale. This includes the goods being exchanged, timelines of payment and delivery of goods, conditions for defective goods or if payment timelines are not met, as well as other important details of the sale.
A Sales of Goods Agreement will clearly state the obligations of the buyer and the terms and timelines on which the seller transfers or agrees to transfer the goods. Without this in place, legal disputes can potentially arise when making commercial purchases for your business.
Sales of goods agreements can be used for any type of sale. Examples include:
- Commercial lease agreements
- Purchase orders
- Sales contracts
- Distribution agreements
In short, any time a sale involves more than just the direct exchange of money for goods (a typical consumer sale), it is best practice to use a Sales of Goods Agreement. The terms detailed in this document serve to protect both the buyer and seller in the case of any legal disputes. These agreements are most often used when making larger one-off purchases, like commercial property, equipment or raw materials, but it can also be used regularly for businesses that make a large volume of commercial transactions.
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Key elements of a Sale of Goods contract
In any contract or agreement, there must be at least two parties involved. In the case of a sales of goods contract, these are the buyer and the seller. A Sales of Goods contract can be extremely simple or a complex document containing multiple pages full of complicated terms and clauses. The contract’s main elements to include are:
Buyer and seller details
The agreement should include contact information including address, phone number and how each party agrees to be contacted.
Description of goods
A clear and detailed description of the goods, including quantities and condition. It may also be helpful to include any exclusions for clarity. As a buyer, you should pay close attention to this section to ensure that any purchased goods meet your expectations and business needs.
Payment terms
Undoubtedly, the most important element for sellers is payment. Details of payment should include the price of the goods, whether or not a deposit is required, the method of payment, and date or dates that payment is due.
Taxes
The taxes may be included in the actual sale price or listed separately for clearer accounting purposes. These details should be made clear in the contract.
Delivery
The agreement should include details about the transfer of ownership including the method and delivery schedule. Any costs related to the delivery of physical goods should also be included. Here is where you can also include whether the buyer has a right to inspection upon delivery of the goods, and if there is protection for goods lost or damaged during delivery.
Warranties and liabilities
The liability of each party, if the terms of the agreement are not met, should be outlined to avoid potential future disputes. It is wise to also include how disputes can be resolved. If there is a warranty on the goods, include the term length, condition of the goods and if the buyer has an opportunity for inspection prior to receiving or upon delivery. If there is no warranty, it should be specified that the goods are sold “as is”. You may also include how both parties can terminate the contract if they’re not satisfied, including the notice period in order to do so.
Other
Other optional details include a Non-Disclosure Agreement, the governing authority for the agreement and more.
Pros of a Sales of Goods Agreement
A Sales of Goods Agreement is a mutually beneficial contract for both the buyer and seller as it serves to protect both parties by clearly outlining all the need-to-know details for the sale.
Further, a Sales of Goods Agreement:
- Provides a clear legally-binding record of the sale
- Helps prevent disputes and legal action against both parties
- Is simple and cost-effective to execute, and can easily be customized to meet your business needs
- Ensures timely delivery of goods needed for business operations
- Protects from fluctuating prices during peak times
- Allows forecasting of purchasing costs
- Provides recourse for deals gone bad
- Ensures that goods arrive in the condition expected
- Helps establish trust and good relationship between business partnerships
Cons of a Sales of Goods Agreement
While there are clearly many benefits to having a Sales of Goods Agreement in place, it is not needed in every situation. For straightforward sales, an invoice or purchase order may suffice and save time and resources associated with setting up the agreement. One way to make the process of creating an agreement easier? Try Ownr’s legal document templates – we can even walk you through how to use one.
Some other pitfalls to consider when using a Sales of Goods Agreement are:
- May be difficult to enforce
- Does not cover all contingencies
- Internal approvals for legal paperwork can potentially bottleneck workflows
What is covered under a Sales of Goods Agreement?
What is covered in the agreement can be customized to your business needs. In general, a strong agreement should cover:
- The goods in question
- The delivery method and dates
- The payment details
- Inspection and condition of goods
- Any warranties and liabilities
- Remedies for breach and ability to terminate the agreement
Key takeaways
A Sales of Goods Agreement is an easily customizable legal contract that helps protect the interests of both a buyer and seller. Using one in your business dealings provides additional protection and certainty, and it’s well worth investing the time to create one for larger, complex commercial purchases.
If you want to get started creating a Sales of Goods Agreement for your business, find out how Ownr can help make it easier.
Sales of goods agreement FAQs
What is an example of Sales of Goods agreement?
Some examples of a Sales of Goods Agreement that small business owners may come across in their daily operations are:
- Commercial real estate lease
- Sales of vehicles
- Sales of equipment
- Sales of commercial supplier goods (ie. any supplies essential to doing business that come in large and/or regular shipments)
What is the purpose of an agreement of sale?
The purpose of a Sales of Goods Agreement is to provide a clear and well-documented record of a particular sale. It outlines the complete terms of sale and protects both the buyer and seller if the agreement terms are not met.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.