When you’re starting or running a business, other businesses will often ask you to sign a contract before they’ll work with you. A supplier may send its terms before supplying products, a software company may require you to agree to its terms before you can use its service, or a consultant or outsourced provider may send an agreement before starting work.
When you’re busy getting your business up and running, it’s easy to sign the contract and move on. But what you agree to can have real consequences for your business.
The contract determines how much and when you need to pay, what the other business must provide, what happens if something goes wrong, who owns any work that’s created, and whether you can end the agreement if it stops working for your business. This is why it matters to understand what you’re agreeing to before you sign.
Before signing, the key question is whether the written contract actually captures the commercial deal between the parties. If it doesn’t, your business may end up trying to enforce obligations that were never properly recorded, or defending claims it never expected to accept.
Reading the contract carefully can help you avoid unclear obligations, unexpected costs, one-sided risk allocation and disputes that may be expensive to resolve later. Here are six practical tips by our commercial contract lawyers to help Australian business owners read a contract before signing and identify clauses that should be clarified, questioned or negotiated before execution.
Tip 1: Understand the Basics of Contract Law Before Signing a Commercial Contract
You do not need to be a lawyer to read a contract, but you do need to understand what you are agreeing to. At its simplest, a contract sets out what each party has agreed to provide, such as goods, services, payment or access to software.
Problems can arise when the written contract does not match what was discussed or expected. This may only become apparent later, such as when an invoice is not paid, work is delayed, there is a disagreement over who owns the work, or one party wants to end the contract.
We’ve seen this play out from the drafting side too. In one matter, a significant amount of time was spent negotiating a subconsultant clause to make sure insurance cover extended to subcontractors, before anyone checked whether the client was actually engaging subcontractors at all. It’s a useful reminder for business owners as well as lawyers to understand what’s actually happening operationally before getting lost in clause-by-clause negotiation.
Before signing, check that the contract clearly reflects what you agreed to. Make sure the correct businesses or people are named, and check the scope of work, price, payment terms, deadlines, length of the agreement and how the contract can be ended.
If those details are unclear, it may be more difficult to enforce the actual agreement or resolve a dispute later under the terms of the commercial contract.
The consequence of an unclear commercial contract is that your business may then have to rely on emails, verbal negotiations or assumptions to explain what the parties intended, which can increase legal costs and uncertainty.
The solution is to make sure the key commercial terms are written clearly before the contract is signed. The practical question is not just whether there is a contract, but whether the contract says what the parties agreed.
Tip 2: Identify What Could Go Wrong Before Signing any Commercial Contract
Before reading line by line, think about what could go wrong in the arrangement. This helps you read the contract commercially, not just as a set of legal clauses. For example:
- What happens if the goods or services are not delivered on time or to the required standard?
- Can either party terminate the agreement early, and what notice, fees or consequences apply?
- What happens if payment is late, disputed, partly withheld or not made at all?
- Who is responsible for extra work, delays, variations or third-party costs?
Exit rights deserve particular attention. We’ve reviewed agreements where the default and payment clauses looked reasonable on paper but gave no clear, workable right to exit if the other party simply stopped paying. Without that, terminating for non-payment can mean navigating lengthy notice and cure periods, or risking a claim that you terminated wrongfully.
It’s also worth checking whether the agreement is the kind of standard-form contract the unfair contract terms regime applies to. Since November 2023, unfair contract terms in standard form small business contracts are unlawful under the Australian Consumer Law and can expose a business to significant penalties, so this is worth checking on both sides of the table, whether you’re the one signing or the one issuing the contract.
Contract disputes often arise because a contract does not clearly deal with delays, non-payment, defective work, changing scope or early termination. Reading a commercial contract with those questions in mind will help you identify vague, missing or one-sided clauses.
Tip 3: Read the Entire Contract, Including Schedules and Linked Terms
One of the most common mistakes businesses make is reading only the first few pages or the commercial schedule. Important terms often appear later in the contract, in annexures, in linked terms and conditions, or in documents incorporated by reference. Focus on identifying:
- Precedence clauses that explain what document overrides another if there is an inconsistency, such as a quote, proposal, order form, statement of work or standard terms.
- Conditions precedent clauses that set out the conditions that must be satisfied before certain obligations start, such as finance approval, payment of a deposit, insurance being obtained or a license being granted.
- Incorporated terms that may include online terms, product terms, policies, service levels, privacy terms or other documents that are treated as part of the contract.
Precedence clauses are worth double-checking even when you think the deal is settled. We’ve seen negotiated special conditions rendered completely ineffective because the contract’s order of precedence clause ranked the standard general terms above them – meaning the amendments the parties had specifically agreed to were overridden by the terms they were meant to replace. We’ve also seen the reverse problem where near-identical conditions duplicated across both a special conditions schedule and an annexure, with slightly different wording in each, creating confusion about which version actually applied.
Also take care with phrases such as “notwithstanding anything else in this agreement“. These words can override earlier clauses, so they can change the effect of terms you have already read.
Tip 4: Read the Contract Twice for Commercial Terms and Legal Risk
Our commercial lawyers rarely read a contract once. We recommend business owners take the same approach, as important details and potential risks are not always obvious on the first read.
On your first read, focus on the basics. Does the contract accurately reflect what you have agreed to? Check the work or services being provided, the price, payment terms, key dates and how long the agreement will last.
On your second read, look more closely at what could happen if something goes wrong. Pay particular attention to clauses covering liability, indemnities, warranties, insurance, termination, intellectual property, confidentiality and dispute resolution. This second review can help identify missing information, conflicting terms or obligations you may not have noticed initially. This is also the read where you should check for obligations that might not be obvious from the commercial terms alone – for example, a head contract that contractually flows down privacy or data-handling obligations to a small business that would otherwise be exempt under the Privacy Act.
Most importantly, consider whether your business can realistically meet every obligation in the contract. Are the deadlines achievable? Are you taking responsibility for matters outside your control? Could your financial exposure be much greater than the value of the contract?
These are the types of issues our commercial lawyers look for when reviewing contracts, because a clause that appears reasonable on its own can create significant risk when considered alongside the rest of the agreement.
Tip 5: Compare the Contract to Similar Business Agreements
If your business has used similar agreements before, compare the contract against them. This does not mean every contract must be identical. It means you should ask whether the terms are ordinary for the type of arrangement and whether any changes have shifted risk, cost or control. For example:
- Is anything missing, such as a clear scope of work, payment schedule, service level or dispute resolution process?
- Are the obligations balanced, or does one party have most of the rights and few of the responsibilities?
- Are there unusual terms, broad indemnities, automatic renewals, unilateral variation rights or difficult termination rights?
Be particularly cautious with a contract that looks like it’s been recycled from somewhere else. We’ve seen counterparties repurpose a standard template originally built for a completely different business relationship, which introduces both copyright infringement risk and clauses that simply don’t fit the deal in front of you.
A clause is not automatically wrong because it favours the other party, but you should understand its commercial effect. The practical issue is whether the clause is acceptable for the value of the deal, the level of risk and your ability to comply with it.
Tip 6: Review Definitions, Capitalised Terms and Interpretation Clauses
Definitions control how words are interpreted in the contract. A simple capital letter can change the meaning of a word. For example:
“The Supplier must not supply goods that are similar to or the same as the Goods.”
Here, “goods” is a general word, but “Goods” may refer to a defined item elsewhere in the contract. If the defined term is narrow, broad or inconsistent with the commercial deal, the clause may have a different effect from what you expected.
Small inconsistencies here cause real problems. In one dispute we assisted with “Purchase Price” was defined as “$X plus GST,” but the operative clauses throughout the contract referred to “Purchase Price plus GST,” effectively doubling up the GST obligation. Because opposing counsel misunderstood how the defined term operated, they refused to remove the redundant wording, and it took a dispute to resolve what should have been a straightforward drafting fix. We’ve also seen agreements define “document” in one clause but then require “all Documents” to be provided elsewhere, leaving it unclear whether the obligation applied to the narrow defined term or documents in their ordinary sense.
If a term is not defined, its meaning may depend on how it is used throughout the contract and the context of the agreement. This is why definitions, interpretation clauses and capitalised terms should be reviewed together, rather than in isolation.
A useful step is to search the contract for each defined term and review how it is used throughout the document.
Overall, taking the time to carefully review the contract before execution can help reduce uncertainty, avoid preventable disputes and put the business in a stronger position if the agreement needs to be enforced.
If you are unsure about any part of a commercial contract or what the terms could mean for your business, our commercial lawyers can help. Prosper Law can review the agreement, explain your obligations and potential risks in plain English, and provide practical legal advice to help you make an informed decision before you sign.
Contact Prosper Law for practical commercial contract advice to help set your business up correctly from the start.
Frequently Asked Questions
Can a business negotiate a contract after receiving it?
Yes. A contract can usually be negotiated before it is signed. Businesses should raise unclear, unsuitable or high-risk terms early and ask for amendments in writing before agreeing to the final version.
What should a business do if the contract does not match the quote or proposal?
The business should ask for the inconsistency to be corrected before signing. If there are multiple documents, review whether the contract has an order of precedence clause that decides which document applies if the terms conflict.
When should a business get a contract reviewed by a lawyer?
A business should consider legal review where the contract is high value, long term, operationally important, difficult to understand or contains clauses dealing with liability, indemnities, intellectual property, data, confidentiality or termination. If you have any questions, contact our experienced commercial lawyers for help.
What should a business do if it does not understand a clause?
If a clause is unclear, the business should not assume its meaning. It should ask for the clause to be explained, amended or confirmed in writing before signing. If the clause affects payment, liability, termination, intellectual property or confidentiality, legal advice may be appropriate.
Can a business rely on verbal promises made before signing?
A business should be cautious about relying on verbal promises if they are not included in the commercial contract. Many contracts contain clauses that limit reliance on earlier discussions or representations, so important promises should be written into the contract before it is signed.
Last updated: 10 September 2026.
About the Author
Farrah Motley
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