Commercial contracts are part of everyday business life. Whether you are supplying services, buying goods, licensing software or appointing a consultant, the wording you sign can shape your cash flow, your ability to exit the relationship and the amount you may have to pay if something goes wrong.
Too often, key clauses are treated as boilerplate and reviewed only after a problem has arisen. By then, a missed payment, unexpected liability or disputed termination may already be affecting operations. The following five clauses deserve attention before any commercial agreement is signed. This article focuses on business-to-business contracts governed by the law of England and Wales; the position may differ for consumer contracts or agreements connected with other jurisdictions.
1. Payment terms: when, how and what happens if payment is late
Payment terms should make the commercial bargain operational. They should state the price or charging method, when and how invoices must be issued, the payment deadline, the correct currency and bank details, and whether VAT and expenses are included. Where payment depends on a milestone, acceptance or supporting documents, the trigger should be objective and easy to evidence.
Clear wording is particularly important when an invoice is disputed. The contract should explain how quickly a customer must raise a genuine query, whether the undisputed amount remains payable and what information the supplier must provide. It should also address interest, recovery costs and any right to suspend further work or terminate for persistent non-payment.
Under the current UK statutory regime, qualifying business debts may attract statutory interest and fixed compensation unless the contract provides a substantial alternative remedy. The Government has also introduced proposals to strengthen late-payment rules, including limits on payment periods and mandatory interest. Those reforms are not yet in force, so businesses should check the law and their standard terms at the time they contract.
Practical questions to ask: Is the due date unambiguous? Can the other party delay payment by withholding approval? May you suspend performance without breaching the contract? Does the wording support your cash-flow needs and credit-control process?
2. Limitation of liability: putting boundaries around financial exposure
A limitation of liability clause allocates risk by restricting how much one party may recover, which losses may be claimed or which remedies are available. A contract might impose an overall financial cap, apply separate caps to particular risks or exclude categories such as loss of profit, revenue or anticipated savings.
The headline cap is only the starting point. Check whether it applies per claim, per event or in total over the life of the agreement; whether related claims are grouped together; and whether indemnities sit inside or outside it. Also review any liabilities described as unlimited or excluded from the cap, such as fraud, intellectual property infringement, confidentiality breaches, data protection issues or personal injury. Some liabilities cannot lawfully be excluded, and certain clauses may be subject to a reasonableness test.
The commercial question is whether the risk matches the value of the contract, the party best able to control it and the insurance available. A cap that appears generous may still be inadequate for the customer—or dangerously high for the supplier—once the exclusions and carve-outs are taken into account.
Practical questions to ask: What is the worst realistic loss? Is each major risk capped, excluded or unlimited? Does the clause conflict with an indemnity elsewhere? Will your insurance respond to the liabilities you are accepting?
3. Termination: how the relationship can end
Termination clauses determine when a party may bring the agreement to an end. A right to terminate for convenience allows exit without proving a breach, usually on notice. A right to terminate for breach normally depends on a specified event, such as non-payment, insolvency or a serious breach that is not remedied within an agreed period.
Wording matters. A contract should distinguish between breaches that can be remedied and those that cannot, state how notice must be served and identify when termination takes effect. A business should not assume that every breach gives an immediate right to terminate: ending a contract without a valid right can itself amount to breach.
The consequences of termination are equally important. The agreement may require payment of outstanding charges, return of property, deletion or transfer of data, completion of work in progress or assistance with handover. Clauses dealing with confidentiality, intellectual property, payment, liability and dispute resolution often continue after termination.
Practical questions to ask: Can either party exit for convenience? Is the notice period commercially workable? Is there a cure period for breach? What costs, handover duties and continuing restrictions will apply after the agreement ends?
4. Indemnities: who bears a defined loss or claim?
An indemnity is a promise by one party to protect the other against specified losses, costs, liabilities or third-party claims. In practical terms, it is a contractual mechanism for transferring a particular risk. Common examples concern intellectual property claims, breach of confidentiality, tax liabilities, property damage or claims made by employees and subcontractors.
Small changes in wording can produce very different outcomes. Consider what event activates the indemnity, whose acts are covered, which losses and legal costs are included, and whether the indemnified party must first suffer or pay a loss. The clause should also address control of the defence, settlement decisions, notification requirements and the duty to mitigate loss.
Do not review an indemnity in isolation. Check whether it is subject to the general liability cap, whether insurance covers it and whether there is a matching indemnity from the other party where risks are reciprocal. Broad wording such as “all losses arising out of or in connection with” may create exposure well beyond the contract price.
Practical questions to ask: What precise risk is being transferred? Is the scope proportionate and within your control? Can the other party settle a claim at your expense? Is the indemnity capped, time-limited and insured?
5. Dispute resolution and governing law: where and how disagreements are handled
A dispute resolution clause sets the route the parties are expected—or required—to follow when a disagreement arises. A staged process may begin with negotiation between operational teams, escalate to senior decision-makers and then move to mediation, arbitration or court proceedings. Clear deadlines can prevent the process from becoming an excuse for delay.
Each option has different implications. Negotiation is flexible and can preserve commercial relationships. Mediation uses an independent facilitator but normally leaves settlement in the parties’ hands. Arbitration produces a binding decision in a private process, although it can be costly and appeal rights are limited. Court proceedings offer formal procedures and enforcement powers but may be public, lengthy and expensive.
The governing law clause identifies the legal system used to interpret the agreement. A jurisdiction clause identifies which courts may hear a dispute. These are separate points: choosing English law does not automatically mean that only the courts of England and Wales can decide the case. Cross-border contracts also require consideration of enforcement, language, location and service of proceedings.
Practical questions to ask: Must the parties attempt negotiation or mediation first? Is arbitration mandatory? Which law governs the contract, and which courts have jurisdiction? Would you realistically be able to pursue or defend a claim in the chosen forum?
A practical pre-signing checklist
- Read the contract as a connected whole: payment, liability, indemnity and termination provisions often interact.
- Check that key dates, triggers, caps and notice procedures are objectively clear.
- Compare the contractual risk with the deal value, your cash-flow position and your insurance cover.
- Identify obligations that continue after termination and plan for data, property and handover requirements.
- Keep a complete signed copy, together with schedules, statements of work and later variations.
- Raise unclear or one-sided wording before signing; assumptions made during negotiations may not form part of the final agreement.
Understand the risk before it becomes a dispute
No clause should be judged by its heading alone. The effect depends on the exact wording, the rest of the agreement and the circumstances of the deal. A short review before signature can be far less disruptive and costly than trying to resolve uncertainty after performance has begun.
If your business is entering into a new contract, reviewing an existing agreement or facing a contractual dispute, Fair Result can provide practical, commercially focused legal advice. Our team can help you understand the risks, strengthen your position and identify a proportionate route forward. Contact our team today.
This article provides general information only and does not constitute legal advice. Contractual rights and remedies depend on the wording of the agreement and the relevant facts. Seek advice on your specific circumstances.
