5 B2B Contract Mistakes That Can Bankrupt You

B2B contract mistakesDid you know that if you’re sued in a B2B contract dispute, you should plan on spending at least $100,000 in legal fees?

And a lot more if the other side is a large company with resources to drive you into the ground through litigation and appeals of trial court decisions.

What about commercial liability insurance? That’s fine if your policy covers the claims and your insurer decides to pay for your defense. Want to gamble your company’s future on either?

With costs like these, even if you win, you lose. And if the court rules against you, imagine how much you’re likely to pay in damages.

Although there are no fool-proof methods to prevent this from happening when it comes to B2B contracts, here are five mistakes you can easily avoid in order to reduce the risk of ending up in a lawsuit that leads to bankruptcy.

Mistake #1 – Doing Business with Someone You Don’t Trust

The top mistake entrepreneurs make is doing deals with someone who is dishonest. If your gut tells you there’s something wrong, even if you can’t exactly identify why, walk away from a proposed deal. Trust your instincts when you start doubting the other side’s honesty. There’s a reason for that distrust even you can’t explain it.

Related Article: Business Contracts – 5 Mistakes To Avoid As An Entrepreneur

Remember that there are truly no must-do deals. You can walk away and get what you want from another party who you do trust.

Mistake #2 – Verbal Agreements

“A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.” – English Justice Harry Vaisey

Particularly in ecommerce, parties agree orally to a business deal for sake of speed and convenience. After all, it takes time to negotiate and put a deal in a legally binding written B2B contract.

Another reason that verbal contracts occur is that one party appeals to the other through flattery. There will be references to being a “good Christian” (or other religion), a self-described “expert” who doesn’t need to stoop to having written contracts, and/or person of integrity (you’re an honorable person, aren’t you?). The implication is that you’re a bad Christian, an amateur, or a person who lacks integrity if you insist on getting the deal reduced to writing.

It’s also effective for scoundrels to play the “wounded bird” card. They act personally insulted if you insist upon a written agreement. “Don’t you trust me,” they ask with a hurt look on their face. If you want to do a deal with such a person (see Mistake #1 above), your response should be “I trust you and I still want our deal as a written B2B contract to prevent misunderstandings between us as we do business.”

Mistake #3 – Avoiding Titles

To protect yourself from personal liability in your business transactions, chances are you’ve had your business contracts lawyer set up a corporation or limited liability company (LLC) to shield you from many potential legal dangers.

Yet it’s very common for entrepreneurs to mistakenly sign a business agreement with just their names without making it clear that the document is being signed as the President, Managing Member, or other authorized representative on behalf of the business entity.

Related Article: Breach of Contract – 5 Steps To Avoiding A Costly Lawsuit

This can lead to situations where you’re sued personally in a business dispute so that the other side can go after your personal assets (home, bank accounts, vehicles etc.) in addition to business assets.

Mistake #4 – Winging It With A B2B Contract

Even if you’ve got a good written business contract in place, it’s common to ignore what’s actually in the contract and informally adjust your performance of the business deal as circumstances change.

When one or both parties to an agreement are winging it when performing their obligations, invariably disputes arise that lead to bad feelings at a minimum and often expensive lawsuits.

If circumstances change, or you can’t perform as promised in the contract, negotiate a written amendment to the original agreement, or a written termination of the contract on terms that let you walk away without looking over your shoulder for retaliation by the other party.

Mistake #5 – Pretending to be a Business Lawyer

If you’re not a dentist, do you fill cavities in your own teeth?

Not a neurosurgeon? Do you perform brain surgery on yourself?

This may seem silly but if you’re not an experienced business lawyer, why are you trying to draft your own contracts? The damage you will inflict is far worse than any benefit of do-it-yourself lawyering.

Plan to “borrow” your competitor’s contract to use in your business? How do you know the agreement is any good or fits your unique needs?

Even if there is a good fit, who owns the copyright for the contract?

Are you planning to infringe upon the copyright for a legal document owned by someone else (often a lawyer or a law firm) and face up to $150,000 in damages and attorney’s fees per infringement if/when you’re caught pirating the agreement?

Invest in getting the right legal protections in place for your venture, including written business contracts prepared by a qualified legal professional. If you’re doing an ecommerce deal, retain an experienced Internet lawyer. Don’t end up in bankruptcy by taking shortcuts pretending to be something you’re not.

If you need a B2B contract or want your agreements reviewed by an experienced professional, set up a telephone consultation with Business Lawyer Mike Young.

Author Mike Young, Esq.

Internet Lawyer Mike Young provides contracts and other efficient legal solutions to business owners and C-level executives of privately held companies. To get legal advice from Mike, click here to set up your phone consultation with him.

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