What is a Sales Agreement? Business Use Cases, Negotiation Tips, How to Write One

What is a sales agreement?

A sales agreement is a contract between a buyer and a seller that outlines the terms and conditions of a sale — this includes key elements such as price, payment terms, and closing date. 

Sales agreements aren’t just limited to tangible goods like real estate or machinery—they also apply to software, services, or a combination of both. These documents delineate information like the scope of work, milestones, and deliverables.

A sales agreement protects the seller by clearly outlining what the buyer is obligated to pay and by when. On the flip side, it also protects the buyer by specifying what they receive in return for their payment and holds the seller accountable for delivering that.

Distinctions between sales agreements and other legal documents

Reviewing legal documents can feel like you’re sifting through the jargon and fine print. Understand the implications of each by the differences between these overlapping agreements.

Here's how they differ:

Sales agreement vs. bill of sale

A sales agreement is a contract that outlines the terms and conditions of a sale before it happens. It's like a promise between the buyer and the seller. 

A bill of sale confirms the transfer of ownership from the seller to the buyer. It's a proof of purchase that ensures that the ownership of any product has been transferred from the seller to the buyer.

Sales agreement vs sales contract

A sales agreement guides the transaction. It's a flexible document you can modify until both parties are satisfied.

A sales contract is the final, legally binding contract. Once it's signed, there's no going back. In an IT setting, for example, this includes not just the sale of goods or software but also any accompanying services like installation, training, maintenance, etc.

Sales and purchase agreement (SPA) vs purchase order

Sales and purchase agreements (SPA) often work hand-in-hand with purchase orders (PO). A purchase order is a one-time authorization that the buyer sends over. It refers to one purchase but might also cover many smaller purchases over time. When the purchase agreement has been signed, the PO will often manifest as an attached sub-document that specifies key details such as quantity and price. 

There is a fine line between sales and purchase agreements vs purchase orders.

As with any legal documents, consult your trusted legal counsel for guidance on which document is the best fit based on state laws and your desired terms.

Why are sales agreements so crucial for businesses?

Sales processes have many moving parts— agreements streamline the process by providing a clear and concise roadmap for both parties to follow. Here’s how:

Prevents miscommunication between buyer and seller

A sales agreement takes all the back-and-forth conversations and puts them into clear, concise terms that everyone can understand. 

This clarity is crucial in a B2B setting where the buying group often involves six to ten decision-makers. When dealing with that many people, it's easy for messages to get lost in translation.

But a sales agreement lays it all out. It defines what the buyer is getting and what the seller is providing. This way, there's no room for miscommunication. And if any disputes arise, both parties can refer to the agreement as the agreed-upon source of truth.

Helps with dispute resolution

A business dispute can feel like you're trapped in a never-ending cycle of he-said, she-said. That’s why sales agreements are helpful—they provide clarity so all parties know the details of any transaction.

But sales agreements provide protection, too. If a dispute escalates to legal action, a sales agreement is evidence. Concrete evidence is essential for high-ticket sales where transactions involve large sums of money and complex deliverables.

And here’s a pro tip: add as much detail as possible. The more specific it is, the easier it is to resolve disputes.

Provides legal protection for both parties

A sales agreement is a legally binding document that acts as a safety net for both the buyer and the seller. 

If a buyer decides they don't want to pay after receiving a product or service, the seller can point to the agreement (and possibly take legal action if needed). Conversely, if a seller doesn't deliver as promised, the buyer has that agreement to back them up.

This way, the agreement creates an insurance policy for your business deals. It also builds trust between the buyer and the seller. It shows that you're serious about your business and value transparency.

Types of sales agreements

When you think about sales agreements, it might seem straightforward. But did you know there are many different types of sales agreements, each tailored to specific needs and scenarios? Let's break down the different types:

B2B

B2B deals manifest as sales contracts between two businesses — think enterprise software sales or business consulting services. These agreements are more complex and require detailed terms and conditions to protect both parties. 

They outline the specifics—product details, payment terms, and delivery timelines. And since businesses often have more complex needs than individuals, B2B sales agreements tend to be more detailed.

Take, for example, a software company selling a tailored solution to a large retail chain. The agreement will spell out the cost, customization details, support levels, and update schedules.

B2C

B2C sales agreements are contracts between a business and an individual consumer. They're the most common type of sales agreement that we encounter in our day-to-day lives.

The great thing about B2C sales agreements is that they're designed to be consumer-friendly. You'll find all the essential info laid out in a way that makes sense – the product details, cost, delivery time, and payment terms. 

Let's take, for instance, buying a smartphone online. The sales agreement outlines the model, color, storage capacity, purchase price, and when to expect it to arrive at your doorstep. It's all there to ensure the buyer knows exactly what they are paying for.

International

International sales agreements occur between parties from different countries. Different countries have different laws — an international sales agreement is designed to address those variances. 

It covers currency, taxes, delivery terms, and sometimes cultural nuances. Multi-language documents are also common so both parties understand the terms. It bridges the gap between two (or more) distinct legal systems.

Imagine you're in the US and buying handmade furniture from Italy. Your international sales agreement specifies the currency (Euros or US Dollars?), delivery terms (Who's handling shipping? Any customs duties?), and even return policies (What if it doesn't fit through your door?). It ensures you and the Italian craftsman are on the same page despite being oceans apart.

Service-based

Service-based sales agreements outline the terms and conditions for one party to provide a service to another. 

A service-based sales agreement focuses on performance specifics. What will be done? When? How often? And (most importantly)—how will the performance be measured? It ensures both parties understand the scope and the deliverables.

Suppose you hire a digital marketing agency. Your service-based agreement might specify monthly reports, a set number of social media posts, and maybe even an increase in website traffic by a certain percentage. You know what you're getting, and the agency knows what's expected.

Use cases for sales agreements

Sales agreements are flexible documents that fit into many scenarios. Here are a few common use cases:

Enterprise

Enterprise sales—which involve selling products or services to larger companies—often require detailed contracts. Why? Because larger companies typically have more complex purchasing processes and stricter compliance requirements. They want to make sure they get what they paid for and that the terms are favorable to them, which can often elongate the sales cycle.

Say a major retailer is purchasing a new inventory management system. The sales agreement spells out the system's exact specifications, the delivery timeline, and the cost structure. It also covers what happens if the system doesn't meet the agreed-upon specifications or if there are delivery delays.

Enterprise sales agreements also often involve negotiations between the buyer and seller. The terms of the agreement may need to be tailored to fit each company's unique needs, which can lead to back-and-forth discussions until both parties are satisfied. This level of detail and negotiation ensures a mutually beneficial relationship between both parties.

SMB

Small and medium-sized businesses (SMBs) may also use sales agreements, which are typically less complex than enterprise agreements. SMB sales agreements may include details about the product or service being sold, payment terms, and any warranties, indemnifications, or guarantees offered.

A small business hiring a freelance graphic designer might have a one-page sales agreement that outlines the scope of work, the price, and the timeline for completion. A contract like this can help both parties feel confident about their expectations and protect them if anything goes wrong.

Government

Government sales agreements involve selling products or services to local, state, or federal agencies. These agreements often have strict regulations and may require additional legal review before finalization. Government sales agreements may also include compliance, confidentiality, and exclusivity details.

An IT company selling its product to a government agency must ensure that it meets specific security standards and complies with relevant laws and regulations. The agreement may also include provisions for protecting sensitive information shared during business.

SaaS

Software as a Service (SaaS) companies rely heavily on sales agreements to outline the terms and conditions of their services. These agreements may cover topics like pricing, usage rights, data protection, and service level agreements (SLAs).

For example, a SaaS company providing project management software may have a sales agreement outlining the features in each subscription tier, the amount of storage and user accounts included, and the level of customer support provided. This type of agreement can help set clear expectations for the company and its customers.

In addition to standard sales agreements, SaaS companies may also use free trial agreements or service level agreements (SLAs) as part of their sales process. These agreements can add an extra layer of protection for the company and its customers by outlining specific terms and conditions for trial periods or service guarantees.

Components of a sales agreement

When you're drawing up a sales agreement, you want to make sure it's comprehensive and clear. Here are the essential components:

• Identification of parties: Clearly state the buyer's and seller's names and addresses. For example, "Buyer: Jane Doe, 123 Main St, Anytown, USA. Seller: John Smith, 456 Elm St, Anytown, USA."

• Description of goods or services: Detail what's being bought or sold, including specifications, quantity, and quality. "100 widgets, blue, 2 inches in diameter."

• Price & payment terms: Specify the cost of the goods or services and how and when payment will be made. "Total cost: $500, payable in two installments of $250 each, due on the first of the month."

• Deposit: Include terms for a down payment, earnest money deposit, or a good faith deposit to secure the agreement and mitigate the risk of loss. Outline the amount, conditions for refund, and how the deposit applies to the total purchase price. "A $50 deposit will be held in escrow as a demonstration of good faith and deducted from the final payment upon sale."

• Delivery terms: Lay out the logistics of how and when the goods will be delivered or the services will be performed. "Widgets will be delivered within 30 days of payment."

• Warranties & guarantees: If applicable, describe any warranties or guarantees that come with the goods or services. "Widgets are guaranteed to be free from defects for one year from the delivery date."

• Dispute resolution: Specify how any disputes arising from the agreement will be resolved. "Any disputes will be settled through binding arbitration in Anytown, USA."

And remember, you'll want to have a legal professional review the agreement to make sure it's all in order.

How to write a sales agreement

Below, you'll find info on what a typical sales contract includes. Please note that this is not legal advice — consult a lawyer if you need help creating a legally binding sales agreement.

1. Identify the parties involved.

Decide who officially represents your organization in this sale.  It might be just you or a few people. Define the seller and buyer reps, and make space for their names and contact information, like emails and phone numbers. For instance, if you're selling custom software, you'll list your sales manager and the buyer's IT manager as the main contacts. This keeps communication clear and straightforward, and you know who to contact.

2. Describe the goods and/or services being sold.

Make a list of every item up for sale. And if there's a service attached to that product – say, a free repair or installation – add that in, too.

Now, the kind of goods you're listing matters:

• Existing goods: Products that already exist when you make the deal. They come in two types:

  • Specific goods: Specific items that both parties agree to in the contract – think "this dark gray MacBook Pro right here."

  • Unascertained goods: Goods that aren’t explicitly defined (for example, a contract for “1000 screws” or “100 lamps”)

• Future goods: Goods that don’t exist yet but might soon. For example, products that aren’t ready yet, tomatoes that haven't popped out of the ground, or a pie that's still a recipe in the baker’s head.

• Contingent goods: These are the tricky ones. They're the items that might never exist unless certain things happen. Imagine you're growing strawberries, but you're not sure they'll survive that cold snap coming next week. If they do, you'll sell them—if not, no deal. These agreements are helpful in those situations.

3. Include details about payment.

Figure out how the money side of things will work for your sale. Include details like the payment amount(s), due dates, and accepted methods.

Consider these points when setting up this section:

• Who's sending the invoice, and when? Before or after the buyer gets the goods?

• What's the deadline for payment once the invoice lands in the buyer's inbox?

• What happens if the buyer misses the deadline? Is there a late fee?

• Will you accept payment in installments or prefer a single, tidy sum?

• What forms of payment are you willing to take? Cash, check, wire transfer?

• And finally, who's picking up the tab for any taxes or fees linked to the sale?

4. Include details about the delivery or implementation.

Describe exactly how the sale will take place. If you’ve included onboarding, installation, or maintenance services as part of your sales package, this is where you can elaborate on those. You’ll want to define:

• When the goods will be delivered (Does the seller ship them or will the buyer pick them up?)

• Who will pay for any shipping costs?

• How and who will inspect the goods

• Does the package include additional onboarding, installation, or maintenance services?

  • If so, what exactly are these services?

  • Specify the expected business days and a delivery method

5. Account for each party’s liability.

Any legal contract must define and limit liability. Include clauses to define who will be responsible for loss, damage, and delivery failure in your sales agreement. Describe when the buyer becomes responsible for lost or damaged goods.

6. Establish warranty information (if applicable).

A seller usually guarantees against defects after a sale. For example, if you buy a new computer, the manufacturer might offer to repair it for up to three years after your purchase. This type of warranty is called an explicit warranty.

Make sure your contract contains these details if you plan to offer an explicit warranty:

• Does the product come with a warranty?

• Are there any warranty terms?

  • When does the warranty expire?

  • Under what conditions does the warranty apply?

• What happens if the warranty is breached?

Default implied warranties may also protect consumers in some jurisdictions, such as a legal requirement that all products must be "merchantable" (fit for purpose) before sale. Modifying a warranty is possible if it’s explicitly stated in the sales agreement. 

7. Address potential breach of contract & dispute resolution 

It's always possible that something might go wrong, resulting in one party breaching the sale contract. Set clear expectations.

If the seller and buyer are in different legal jurisdictions, specify which country, state, or region’s laws apply as governing law. Also, clarify which type of dispute resolution resolves the disagreement.

Some common types of dispute resolution include:

• Litigation: A trial in court

• Arbitration: A process where a neutral third party (the “arbitrator”) settles the dispute. This process is legally binding and is privately governed by international conventions like the New York Arbitration Convention

• Mediation: A process where a neutral third party (the “mediator”) tries to help both parties settle the dispute. Mediation is typically not legally binding

8. Define when & how the agreement may be canceled.

Maybe at some point, one or both parties decide to cancel the agreement and not go through with the sale. To avoid misunderstandings (like canceling an order after it has already been shipped), define when and how (verbal or written notice) either party can cancel the sale.

Understanding the legal implications of sales agreements

Sales agreements are legally binding. There could be legal consequences if one party doesn't uphold their end. 

Here's the tricky part: laws differ from local to state to federal levels. These state laws vary widely—what might be fine in one place could land you in trouble in another. For example, some states have specific rules about warranty disclaimers and return policies that you must follow.

But it's not just about avoiding legal trouble. A solid sales agreement protects your rights and interests. 

That's why having a legal professional review your agreement before you sign on the dotted line is so important. They ensure everything's in order and you're not leaving yourself open to any unpleasant surprises down the road.

Tips for successfully negotiating sales agreements

Negotiating a sales agreement can sometimes feel like a battle of wits. But remember, the goal is to create a win-win situation where both parties are happy. Here are some tips:

• Understand the other party's needs: Take the time to understand the other party's needs and interests. Identify areas where you can make concessions that are low cost for you but high value for them.

• Know what you want: Be clear on your objectives before negotiating. What are your must-haves, and where are you willing to compromise?

• Do your homework: Understand the market conditions and the other party's position. Information on the external environment guides you to an informed decision. 

• Be flexible: Agreements can often be customized to meet the specific needs of both parties. For example, payment terms, delivery schedules, and other details can often be adjusted to suit your needs.

Know when to walk away: Knowing where your thresholds are is equally important. If you can't reach an agreement that meets your needs or even needs to compromise your values, it might be best to look elsewhere.

Addressing common challenges in sales agreements

Addressing common challenges with sales agreements means staying ahead of the curve and being flexible. Issues often arise due to ambiguous terms, slow legal processes, or misunderstandings about deal specifics. Here’s how to address these:

• Ensuring precise product descriptions. Unclear product descriptions lead to confusion and dissatisfaction. Delineate every item with exactness. For example, an agreement to purchase "office furniture" should specify whether it includes desks, chairs, or cubicle partitions to avoid ambiguity.

• Articulating payment terms. Payment details often become a battlefield—you need terms that make sense for both sides. Lay them out with transparency and mutual understanding. Say you sell bespoke machinery. Aligned with milestones, progressive payments provide a steady cash flow and satisfaction.

• Planning for delivery contingencies. Deliveries don't always go as planned. Logistics break down, goods can be damaged or lost, or external factors out of your control present themselves. What then? Plan for contingencies. Your agreement should have a plan B for delays and non-delivery. Include a clause that allows for a grace period or alternative fulfillment options.

• Defining Liability with Foresight. Liability clauses often get skimmed over—until there's a problem. Who's on the hook? You need a fair liability clause that won't leave you in a financial crunch to cover the costs.

• Flexibility with amendments & adjustments. Markets change, and consumer needs shift. Incorporating a clause that allows for amendments, subject to mutual consent, introduces the necessary flexibility to adapt to changing conditions.

Clear termination conditions. Know when to end a deal gone bad. Define the circumstances under which you can terminate a sales agreement. Termination and severability conditions should be clear, whether they relate to non-payment, non-delivery, or other breaches of contract.

Ways to templatize your sales agreements and streamline your processes

A sales agreement adds a layer of protection for buyers and sellers and also serves to strengthen their business relationships. Well-designed, attractive, and easy-to-read formatting makes it easy for both parties to understand and agree to. 

Creating these agreements, though, is time-consuming. It eats up many already-limited sales timelines to send information back and forth to your legal team. High-volume companies often have sales agreements stuck in "legal review," which is a severe roadblock.

Templates are your saving grace. With a sales agreement template, your legal team must only create and review one initial document. The sales team can then simply “fill in the blanks” with the details of each sale.

Some tips to streamline your process:

• Set core terms. Define and solidify the constant core terms across all agreements – payment terms, delivery schedules, and guarantees. Your template starts with these elements.

• Use flexible modules. Design your template with flexibility in mind. Create interchangeable sections for specific conditions or services. Modularity lets you make tweaks without rewriting the whole thing.

• Identify variables. Use clear placeholders when variables change between agreements, such as client names or specific dates. Highlight them in a different color so they're easy to spot.

• Use auto-fill functions. Automate repetitive data entry such as company details, client information, and standard product descriptions. Let it populate automatically if your data management system can predict it.

Make readability a priority. Keep your template simple and clear. Make sure it's concise and straight to the point, without any unnecessary complexity.

Leveraging a CRM to create sales agreement templates

Template creation is a breeze with a CRM platform. CRMs automate the sales workflow, resulting in a quicker cycle and boosted revenue.

Integrating a CPQ tool within a CRM like Freshsales makes creating and distributing branded, polished documents easier. It streamlines the entire process, from accurate inventory management to seamless transaction documentation.

Fill out deal specifics and forward them to your buyers with ease. Organize documents, eliminate common errors, and reduce needless back-and-forth with Freshsales. The result? A sales process that slashes your typical closing time.