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When Do I Use Contract Redlines?



When Do I Use Contract Redlines?

If you’re a startup selling B2B software, you might wonder, ‘When do I use contract redlines?’ It’s a great question. You have to choose between going down the route of having standard terms and conditions and making every contract custom. So when do I use contract redlines? The simple answer here is ‘when customers ask for them’. But it is a bit more nuanced than that. The complexity of contract negotiations and redlines can be a massive burden on your business. Can you avoid this and push for standardization?Let’s have look at when it’s appropriate.

Customers – When Do I Use Contract Redlines

The type of customers that you have will have the biggest influence on whether or not you use contract redlines. This is very contextual and you should be aware of your position in the market.

B2B Enterprise Contract Negotiations

If you’re selling B2B and you’re selling into enterprise customers redlining contracts will be almost mandatory. Why? Think of this from the perspective of an enterprise customer. Purchasing a product from a small startup involves a significant risk, even if you already have 80 customers. For this risk they need to mitigate the risk with a custom contract. This custom contract might include negotiating liability, jurisdiction, termination for convenience or a number of other clauses that you need to track.

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B2B SME Contract Negotiations

If you’re selling B2B software to small to medium companies the question of ‘when do I use contract redlines?’ gets a little blurry. It will depend a lot on the nature of your product and the risk associated with it. It will also depend on the average contract value of your contracts. One of the most common things to do when selling software to SME sized companies is to have your standard terms and conditions on your website that all of your customers agree to by using your product. Nested underneath this agreement is an individual work order with each customer.

A work order is similar to a statement of work (SOW) that you might use with an enterprise customer. The work order outlines the term of the sale, the value, and the particulars around the number of seats or licenses. With this, there is often a section in the work order for ‘amendments to the terms and conditions’. Parties often place small negotiated amendments here, overriding specific parts of the overarching terms and conditions.

This process allows of some minor customization without the long winded approach of redlining contracts or master service agreements in their entirety.

what are contract redlines

What Does a Typical Redlining Process Look Like?

Contract redlines refer to the process of reviewing and editing a contract, typically in a collaborative setting, to mark proposed changes, revisions, or amendments. Legal and business contexts commonly use this process when negotiating contract terms and conditions. The term “redlines” comes from the practice of using red ink or highlighting to indicate the changes made to the original contract text.

Here’s how the contract redlining process typically works

1. Initial Draft

  • One party (often referred to as the “drafting party”) creates an initial draft of the contract with their proposed terms and conditions.

2. Review by Other Party

  • The other party (the “receiving party”) reviews the contract and identifies sections or clauses they want to change, clarify, or negotiate.

3. Marking Changes

  • Instead of making direct changes to the contract, the receiving party marks up the document using red ink or digital tools, such as track changes in word processing software, to highlight the specific text they want to modify or add.

4. Comments and Explanations

  • In addition to redlining, parties may also provide comments or explanations to clarify their proposed changes or to justify why certain modifications are necessary.

5. Contract Negotiation

  • The drafting party then reviews the redlined contract. The two parties engage in negotiations to reach a mutual agreement on the contract terms. This negotiation process may involve multiple rounds of redlining and discussions.

6. Final Agreement

  • Once both parties have agreed on all the contract terms and any redlines or proposed changes have been resolved, a final version of the contract is created, incorporating all agreed-upon revisions. This final contract is typically signed by both parties, and it becomes a legally binding document.
  • The contract redlining process helps ensure that both parties have a clear understanding of the terms and conditions, that any ambiguities are addressed, and that the contract accurately reflects the agreed-upon terms. It is a crucial step in contract negotiation and can help prevent disputes and misunderstandings down the line.
  • Redlining can also be done electronically using specialized software, which makes it easier for parties to collaborate remotely and track changes in real-time.

If you’re looking for better ways to track redlines and all the changes that happen in your contract negotiations Contract Sent – Contract Management Software for Startups is specifically built for this purpose.

Contract Sent is not a law firm, this post and subsequent pages on this website do not constitute or contain legal advice. To understand whether or not the ideas and guidance on the Contract Sent website is applicable to your business, you should consult with a licensed attorney. The use and accessing of any resources contained within the Contract Sent site do not create an attorney-client relationship between the user and Contract Sent.

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