5 Types of Contract You Should Know


If you own a business, there are at least 5 types of contracts you need to know to avoid problems: bill of sale; employment agreement; licensing contract; nondisclosure agreement; and promissory note. Also, for effective contract management, you need to know how to plan a contract strategy, train your team, measure and audit the results.

Types of Business Contracts

We all know that contracts are an inevitable part of owning a business or working with others. This is why just about every business owner will at some point have to learn how to manage their contracts with employees, vendors, customers, partners or clients.

Even though some contracts are mandatory, this is not the main reason you should bother with them. A contract is the best way to make sure that you and the other part acknowledge and agree on the terms of a deal. 

There are plenty of different types of business contracts out there that operate in different ways. Some are simple while others are complicated; some revolve around people while others around things. But how can you identify the different types to know what you’re dealing with?

Top Five Most Common Business Contracts

These are the most common business contracts of a company. You’ve probably already heard about them—if not, you should keep track of them from now on.

1. Bill of Sale

A Bill of Sale is an agreement between two entities that states who owns a piece of personal property, what is it, when it was sold, how much it worths and who sold it. Also, this type of contract is usually employed to legally recognize ownership and identify the owner of a certain property.

2. Employment Agreement

If you are going to hire employees for your company (let’s hope you are!), you will need to have an Employment Agreement. This type of contract legally sets out the terms and conditions of a person’s employment. This can include how much they will be paid, how many hours they’re expected to work per week, what kind of bonuses they can earn and for what reasons they can be terminated.

3. Licensing Contract

If you have a product to sell, which seems like a fairly smart thing to do if you’re in business, then you will need a Licensing Contract. A Licensing Contract is an agreement that allows you to earn money through your invention or creation by allowing someone else to use it. This type of agreement can serve and outline terms such as how much they will pay, restrictions of use, reproduction rights and product exclusivity. This is a great way to monetize your intellectual property when you need another person’s help to do so.

4. Nondisclosure Agreement

When you collaborate with others, you should also make sure that you are legally covered by a Nondisclosure Agreement, which can be employed with vendors, clients or potential employees. A Nondisclosure Agreement protects your confidential information and can give you the right to seek legal action if the other party discloses information covered by the agreement.

5. Promissory Note

The last, but not least, among the business contracts we’ll talk about today, is the Promissory Note. This is a legal type of IOU. It can be used if someone wants to borrow money from your company. The note becomes a legal record of the loan and states the terms of repayment, as well as the interest rate and any penalties associated with late payment or default.

Steps for effective contract management

If you are finding it difficult to keep up with all of those contracts lingering around the office, here are a couple of the most basic steps you should follow in order to develop effective contract management.

Make a plan

The better prepared you are, the higher the chances for success. That’s why the very first thing you need to do in order to increase the effectiveness of your contract managing is to make a plan. This plan should include your goals, expectations, budget and a list of the responsibilities categorized by department.


Once you have established a contract management plan, you are going to need to train your employees on the process, terms and guidelines. If you plan to use contract management software, make sure that all of your employees are equipped with the skills they need to navigate the system.


Then, you will need to begin measuring the effectiveness of your company’s contract management. Some metrics you can keep track of are:

  • Number of mistakes made by employees while preparing contracts
  • The amount of time it takes to retrieve a contract when necessary
  • The amount of time required to prepare certain contracts

And any other metrics that seem relevant to your business.


You will also want to periodically audit the contract management process previously implemented in order to make sure that everything is operating accordingly. If you find any problems during an audit, you can then address them right away.

Manage your contracts with Pipefy

To easily manage your company’s contracts, you can count on Pipefy. We have a pre-built, ready-to-use template of Sales and Legal contract.

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