Many small business owners and entrepreneurs run into fraud and don’t know how to deal with it. One of the most common issues that can lead to fraud is “verbal agreements” between partners, colleagues, and clients.
Frankly speaking, a verbal agreement is not enough for making a deal and we cannot prevent a fraud, in case the other party backs out on a verbal agreement.
Although trust is essential in every kind of business, we should always bear in mind that we are dealing in money and sometimes verbal agreements are just not enough to protect the interests of either party when it comes to money.
Business matters require careful preparation and documentation. No matter how trustworthy the client or partner is, I would suggest you have “written contracts” clearly mentioning each clause in the terms of the contract and duly signed by each party – something that can really prevent fraud.
And if writing contracts looks cumbersome and a waste of time, here are some of the things that make written contracts important for any business.
1. Good faith cannot be trusted all the time
Let’s face it, we are all living in a modern world where trust is build and destroyed in the field of business. We are not living in the period where good faith is the primary basis for concluding contracts. It is important to provide a written copy of the agreements and policies that both parties have to follow as part of the contracts.
A written contract helps us avoid being taken advantage by others, for the appropriate actions are implied on the provisions and the terms included in the written contract. This piece of document could be used as a weapon in terminating the agreements, in case any of the parties try to violate some of the agreed-upon provisions laid out in the written contract.
2. A written contract can be used as legal evidence in court
Breach of contract is quite common nowadays and these are usually settled in court depending on the nature of the contract. This makes the written contract even more relevant. A written contract is a binding document where the parties who attached their signatures on it are held liable whenever fraud and subsequent breaches are committed by any party.
Since a written contract is considered as a legal document, it is commonly used as evidence in courts most importantly when contracting parties try to settle their disputes by seeking legal action. I have seen many court cases that were concluded based on written contracts alone.
3. A written contract serves as a tool for deterrence.
Just like the weapons used by policemen to deter potential criminals, a written contract serves as a tool for deterrence. A contract that is duly signed by the parties involved in it makes the signatories behave.
Since the purpose, possible sanctions, and even legal liabilities are usually included in this written document, the parties to the agreement try to stick to dos and don’ts that are directly and indirectly stated in it. Each party try not to go beyond what the contract stipulates not because of fear of breaking the trust of other party but because of the fear of the outcomes whenever anyone is found violating the things that were agreed upon.
In sum, a written contract clearly lays out the terms of the agreement, and is legally binding; failing which serious actions can be taken against the violating party.
Contracts may be misinterpreted as a sign of lack of trust, but the risks involved could cost a great amount of fortune. Writing contracts does not only provide us with security but it is also a form of incorporating legality to whatever transactions that involves money.
In business, trust isn’t everything and you need to safeguard yourself from possible frauds and tricks used by other businessmen. So, I suggest everyone to take time to make a written contract, for the efforts exerted in doing this could possibly reap greater rewards in the long run.
As a legal advisor, I would highly recommend that businessmen use written contracts instead of verbal agreements in their business practice, simply because these written contracts can be used as legal proof of agreement and can be produced in court.
Remember: For a trust that is easily given is also a trust that is easily broken.