7 Common Retail Contracts and When to Use Them

From a simplified consumer perspective, the idea of a retail contract seems quite simple. You find items on a shelf, rack, or online store, put them in your physical or digital shopping cart, and make a cash, debit, or credit card payment.

Refund and return policies vary by retailer, however, most transactions result in wins for both parties. If you are in a big-ticket retail segment like automotive or home furnishings, you undoubtedly work with a handful of sell-side agreements, and several buy-side and operational contracts, which we explore below.

Retailers competing and surviving on a global or regional scale face fierce competition no matter how specialized or broad their product mix is. They constantly need to find creative ways to protect their margins, foster customer loyalty, and manage their risk. Some retailers offer services or extended warranty contracts to increase their transaction values. Others bundle slow-moving products with fast-selling ones to accelerate their inventory turnover and increase the perceived order value.

Are you ready to explore the types of retail contracts that exist, and how they can mitigate your risk and protect your business interests? Read on.

What is a Retail Contract?

A retail contract is a binding agreement between multiple parties that outlines the terms and conditions of a sale by a supplier to a retailer, or a retailer to a customer. Retail agreements, meaning the terms of sales to businesses or consumers within a brick-and-mortar store or online. These sales vary from simple for low-cost transactions to complex for high-value purchases in the thousands or tens of thousands of dollars and beyond.

What Kinds of Terms Does a Retail Contract Typically Include?

Retail contract terms usually cover when and how a customer will pay for their purchase, such as pre-delivery, post-delivery, or on credit over-time. These terms often cover how a customer will pick a product up from a retail store, or if it will be shipped to them within a defined time period. They also describe the conditions under which a customer can return or exchange the product they purchase, or have it repaired under warranty within a defined time period.

Warranty terms may include where a product can be repaired, or if a product should be returned to the manufacturer. For “floor models” or demonstration products sold at less than the manufacturer’s suggested retail price, warranty timelines might be reduced, or pro-rated from the time the retailer initially took ownership of the unit.

For agreements where services are bundled with products, a retail contract may include termination clauses to protect a consumer if the services aren’t delivered as promised, or if they are no longer required.

7 Common Retail Contracts

Need to refresh your memory on some frequently used retail agreements? You can likely easily find retail contract sample clauses and terms of these agreements to build your template library. 

Bill of Sale

A bill of sale is an agreement for transferring ownership of a product (usually a high-ticket item) from one business to another business or to a consumer. Usually, the kind of terms and information you will see on this retail contract include:

• Order origin and delivery destination information like address and contact information
• Product data including the number of units, vehicle identification number, (VIN) make and model
• Terms and conditions like warranty, return, and replacement policies
• Payment terms
• Signature block including date of execution
• Service deliverables and termination terms

Bills of sale don’t change hands until title transfers, and should usually be kept for the life of the product sold.

Lease and Finance Agreements

Authoring a lease or finance contract for capital equipment or vehicles like cars, trucks and trailers typically involves detailed clauses about maintaining its value for resale at the end of the lease agreement. Excessive and irresponsible use by the lessee can significantly depreciate the asset value. The lessor must create thorough wording to mitigate risk should the asset be damaged or the lessor chooses not to buy out the asset at the end of the lease term, or fail to meet their monthly payment responsibilities.

Adopting a contract management system (CMS) to create a library of templates for different lease scenarios and a repository to store them can save your retail business:

1. Money
2. Time
3. Liability
4. Reputation
5. Customer loyalty

Using an artificial intelligence (AI) powered CLM system can also accelerate the review of the finance and lease contracts that are put in front of your decision makers, such as property leases and equipment finance agreements. Ensure it offers robust analytics capability to track data points like contract renewal dates, obligations, and supplier performance.

Non-Disclosure Agreements

Manufacturers and suppliers could have many reasons for requesting that a retailer sign a non-disclosure agreement (NDA), such as a new product launch, or to protect their intellectual property, such as food recipes or new vehicle model engineering designs. A retailer may ask their suppliers to do the same in case they are involved in a merger or an acquisition of another business.

NDAs are essential documents to have in your contract repository, or if you are signing another party’s confidentiality agreement, it’s important to know what you are committing to.

Promissory Note 

If your brick-and-mortar, click-and-mortar, or online retail business needs to raise capital when you launch or expand into new markets – your business may sign a secured or unsecured promissory note with private or institutional investors. If you run a group of car dealerships, your clients may sign a promissory note. If you are ordering a large shipment of goods, that may be a reason to enter into a promissory note-governed loan.

Types of promissory notes include:

• Simple promissory note: for small lump sum amounts, such as $2,500 for a one-time repayment
• Secured promissory note: for large amounts where the debtor puts up collateral
• Unsecured promissory note: for arrangements where multiple payments can be made to repay the loan, but no collateral is required
• Demand promissory note: when a creditor can “call in” full repayment of the loan given a reasonable notice period

Having a contract lifecycle management (CLM) application to store templates for these agreements and review them before physically or digitally signing them can make this process much simpler for you, your customers, and your supplier partners.

Purchase Order

A purchase order (P.O.) is an agreement where your company or another business submits a signed agreement to procure goods in a specified quantity and configuration for an agreed-upon price. It also authorizes the vendor to ship the goods and invoice them based on certain terms. A purchase order is usually the formal approval of negotiated terms.

Purchase orders are often used by government organizations and large businesses for the purposes of audits, financial tracking, and confirming details like the quantity and logistics details of an order. Often, departments will send a purchase requisition to their procurement department once the terms of a sale are agreed upon, and then a procurement officer issues the P.O. to the supplier.

Retail Vendor Agreement

These retail contracts describe the terms of a relationship between a retailer and a wholesaler, or a retailer and an inventory supplier. These agreements include the quantity and frequency of order shipments, pricing, and any circumstances related to quality or delivery timeliness that could result in the termination of the agreement.

Website Terms of Use

The meteoric rise of e-commerce transactions – combined with rising concerns over retail website security – have made it critical that businesses that market and sell goods and services via the internet publish clear website terms of use. Many popular e-commerce platforms offer terms of use and privacy statements that disclose:

• How personally identifiable information (PII) will be saved, used, and sometimes shared with customer consent. Also, how a consumer can request their data be deleted or their saved data be sent to them based on standards like PIPEDA or GDPR.
• How a retailer tracks, monitors, and analyses website visitors and registered users through cookies and web content analytics platforms.
• Terms of payment returns or exchanges
• Protections in the cases of website errors or technology malfunctions, or how a customer will be notified should the retailer have a security breach.
• Copyrights, trademarks, and intellectual property information pertaining to the retailer and supplier-manufactured merchandise.
• Any domestic or international

These terms of use limit a retailer’s liability and protect their business interests while establishing trust and transparency with clients.

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