SaaS Contract Terms Glossary
Get to know the basics of your SaaS contract terms so that you can negotiate better and know what to look out for along the way to protect your business.
SaaS Contract Terms Make Contracting Difficult
When you’ve got your product up and running you need to start building relationships with customers. Contracts are a key facet of this. Anyone that is involved with selling to, renewing or billing a customer can learn the basics about contracts to help them build better relationships and close more deals. Here are some definitions to get you up and running.
Legal Counsel Can Guide You
Every legal agreement that your business enters into has ramifications for you. Understanding the basics of contracts and their interpretation is a great skill but where there is risk it is always good to have an expert involved.
Know Your Risk Tolerance
Every business runs at a different level of risk tolerance. This tolerance also changes over time as your business grows and develops it’s product offering. Know what you’re willing to accept and communicate this to your legal team.
Know What Is Essential For Your Business
Each product is different. You’ll be selling to customers that use your product in a unique way with different business and data needs. With this comes contract negotiations. Before you get to the negotiation table ensure you know what your business must have in your contracts, what is nice to have and what the key levers you can use to negotiate are.
Watch For Red Flags
Contracting is full of risk and things to watch out for. Keep a list of the things you never want to accept in a contract. This might be as simple as transferring ownership of intellectual property all the way down to not providing refunds on termination for convenience.
What’s the worst that can happen? I’m glad you asked.
Force majeure is a term that refers to a situation in which an extraordinary event or circumstance beyond the control of the parties involved prevents one or more of the parties from fulfilling their obligations under a contract. This could include natural disasters, wars, acts of terrorism, or other events that are unforeseen and uncontrollable. The purpose of including a force majeure clause in a contract is to provide a mechanism for the parties to suspend or terminate their obligations if such an event occurs.
Liability in SaaS Contracts
One of the most hotly negotiated contract clauses.
In the context of a contract, liability refers to the legal responsibility of one or more parties for the performance of their obligations under the terms of the contract. This means that if a party fails to fulfil their obligations, they may be held liable for any damages or losses suffered by the other party as a result. The specific liabilities of each party under a contract will depend on the terms of the contract and the laws governing the agreement. In general, however, a party may be held liable for failing to perform their obligations in a timely manner, failing to perform their obligations to a certain standard, or failing to perform their obligations at all.
Reducing risk for growing startup companies.
A limitation of liability in a software contract is a provision that limits the amount of damages or losses that a party can be held responsible for if they fail to fulfill their obligations under the contract. This is commonly included in software contracts to protect the developer or provider of the software from being held liable for any unforeseen or uncontrollable events that may prevent them from fulfilling their obligations. For example, a limitation of liability clause may state that the developer of the software is not responsible for any damages or losses that result from the use of the software, or that the developer’s total liability is limited to the amount paid for the software. The specific terms of a limitation of liability clause will vary depending on the contract and the laws governing the agreement.
Know your rights and your obligations under the contract.
In the context of a business contract, a provision is a specific term or condition of the contract that sets out the rights and obligations of the parties involved. A provision may be a specific clause or section of the contract, or it may be implied by the terms of the contract or by the applicable laws. The provisions of a contract are intended to provide a clear and detailed understanding of the expectations and responsibilities of the parties involved, and to provide a framework for resolving any disputes that may arise. Some common provisions in business contracts include provisions related to the delivery of goods or services, payment terms, warranties, indemnification, and limitations of liability.
What happens if things go wrong with the service you provide.
Indemnification, in the context of a software as a service contract, refers to a provision in the contract that requires one party (usually the provider of the software) to compensate the other party (usually the customer) for any losses or damages that the customer may suffer as a result of using the software. This provision is intended to protect the customer from any unforeseen or uncontrollable events that may prevent the provider from fulfilling their obligations under the contract. For example, if the software malfunctions and causes the customer to lose data or incur other damages, the provider may be required to indemnify the customer for those losses. The specific terms of an indemnification clause will vary depending on the contract and the laws governing the agreement.
Warranties in SaaS contracts
Keep in mind what you’re delivering to a customer and at what standard.
In the context of a software as a service contract, warranties are promises made by the provider of the software regarding the quality and performance of the software. These promises, which are typically included in the contract, are intended to provide the customer with assurance that the software will meet certain standards or requirements. For example, a warranty may promise that the software will be free from defects, or that it will perform certain functions in a certain way. If the provider fails to fulfil the warranties, the customer may be entitled to certain remedies, such as a refund or a credit, depending on the terms of the contract. The specific terms of the warranties included in a software as a service contract will vary depending on the contract and the laws governing the agreement.
Service Level Agreement
Your promise to keep your product and service running and what happens if it doesn’t.
A service level agreement (SLA) is a contract between a provider of a service and a customer that sets out the specific terms and conditions for the delivery of that service. In the context of software as a service, an SLA is a contract between the provider of the software and the customer that outlines the terms and conditions for the use of the software. This may include details such as the availability and performance of the software, the level of support provided by the provider, and the remedies available to the customer if the provider fails to fulfill their obligations under the contract. The purpose of an SLA is to provide the customer with a clear understanding of the expectations and responsibilities of both parties, and to provide a framework for resolving any disputes that may arise.
Exclusions of Liability
What aren’t you liable for in your customer contract?
Exclusions of liability, in the context of a software as a service contract, are provisions that specify the types of losses or damages that are not covered by the contract. This means that if the customer suffers these types of losses or damages as a result of using the software, the provider of the software will not be responsible for compensating the customer. The specific exclusions of liability included in a software as a service contract will vary depending on the contract and the laws governing the agreement. Some common exclusions of liability in these types of contracts include losses or damages resulting from the customer’s own actions, losses or damages that are not foreseeable, and losses or damages that are not directly caused by the software.
When and how are you customers going to pay you?
Payment terms are the conditions under which a party to a business contract is required to pay for the goods or services provided under the contract. These terms may include details such as the amount to be paid, the payment schedule, the method of payment, and any applicable discounts or incentives. Payment terms are an important part of a business contract, as they provide a clear understanding of the financial obligations of each party and help to ensure that the contract is carried out as agreed. Payment terms may be negotiated by the parties involved and may be subject to change based on the performance of the parties and other factors.