Checking contracts: step-by-step plan for SME entrepreneurs

Checking a contract before signing prevents years of problems. For SME entrepreneurs: an hour of thorough review can save thousands of euros and stress. Key red flags: vague price clauses, unilateral liability, untenable notice periods, missing confidentiality, and automatic renewal without a termination clause. Below is a checklist for self-checking and when it is better to consult a lawyer.

The short answer

• Self-check: read twice, check for red flags, compare with previous versions.
• Key checkpoints: parties, scope, price, term, liability, termination, IP.
• Red flags: vague wording, automatic renewal, unilateral fines, unlimited liability.
• When to consult a lawyer: amount > €10,000, long-term commitment, international aspects, complex subject matter.
• Time: self 1-2 hours, lawyer 1-4 hours (€250-€1,500 depending on scope).

Why check the contract?

Sven (SME trading entrepreneur) receives contracts on his desk every week: suppliers, customers, freelancers, insurance companies. In case of non-checking:

• Vague price agreements → subsequent discussion about costs.
• Unilateral notice period → bound by the contract while the other party runs away.
• Unlimited liability → business-threatening risk.
• Unsustainable penalty clauses → unexpected bills.
• Unclear IP clause → work that is actually yours goes to the client.

The investment in control is always smaller than the cost of errors.

Self-control step-by-step plan

Step 1: Identification of parties

• Correct names, Chamber of Commerce numbers, addresses.
• Who signs — authority (director, authorized representative).
• For a BV counterparty: Check the Chamber of Commerce extract for directors.

Step 2: Scope and deliverables

• What is delivered — concrete and measurable?
• When delivered — concrete dates or timeframes?
• What is/is not included?
• Avoid: “expected”, “reasonable time” without definition.

Step 3: Price and payment

• Fixed amount or variable? For variable: clear calculation mechanism.
• Including or excluding VAT?
• Payment term (14-30-60 days?).
• Penalty for late payment.
• Indexation or price increase clause — regulated by law?

Step 4: Term and termination

• Fixed-term or indefinite term?
• Notice period — the same for both parties?
• Automatic renewal — watch out for tacit renewal.
• Premature termination — grounds and consequences.

Step 5: Liability

• Mutually limited, or unilateral?
• Maximum amount (often 1x contract value or annual turnover).
• Exclusions (force majeure, indirect damage).
• Insurance obligation — who insures what.

Step 6: Confidentiality and competition

• NDA clause — what is covered, for how long?
• Non-compete clause — proportionate?
• Client clause in relation to service provision.

Step 7: IP rights

• Who becomes the owner of what is made?
• For freelance work: Explicit IP transfer?
• Usage rights upon non-transfer (license).

Step 8: Dispute Resolution

• Mediation or arbitration as a first step?
• Competent court (preference for own place of establishment).
• Applicable law (Dutch law).

10 red flags

1. Vague pricing formulations: “market-conform”, “reasonable” without definition.
2. Unilateral liability: you unlimited, they limited.
3. Untenable notice period: counterparty 1 month, you 12 months.
4. Automatic renewal without a clear cancellation clause.
5. Excessive secrecy: indefinite period, everything secret.
6. Too strict non-compete clause:years, worldwide, all activity.
7. IP at client automatically without compensation.
8. Foreign law and judge without necessity.
9. Unilateral penalty clauses: you pay a lot, they pay nothing.
10. Unknown references: to attachments or conditions that you have not seen.

When should you hire a lawyer?

Self-control is insufficient in the following cases:

• Amount > € 10,000 (depending on business scale).
• Long-term commitment (> 2 years).
• Complex subject matter (M&A, IP licensing, software).
• International aspects (different law, different court).
• Unknown counterparty or industry.
• First contract of a new type.
• When in doubt – doubt is a signal.

For Sven: for contracts above €25,000 or longer than 3 years, he always has Petra (SME contract lawyer) review. He handles standard smaller deals himself using a checklist.

Examples from Sven's practice

Supplier contract €50,000/year

Unilateral price increase clause (supplier could increase without limit) – Petra had a cap included during renegotiation (max 3% per year).

Software license SaaS tool

Automatic 3-year renewal without cancellation option. Not checking had locked Sven to a tool for 3 years that he wanted to stop after 1 year.

Freelance designer assignment

IP clause missing — designer would have remained owner of branding. Added clause: IP transfer to Sven's company upon payment.

Honest recommendation

Make contract review a standard process: go through the checklist for every contract, and involve a legal expert for larger or more complex contracts. Invest in standard legal templates (€500-€1,500 one-off) — this reduces the complexity of the review process when used. If in doubt: do not sign, consult first. For specific topics: have the agreement checked and the contract reviewed.

For other topics: general terms and conditions, purchasing terms and NDA.

Frequently Asked Questions