Why Handshake Deals Can’t Always be Trusted

Why Handshake Deals Can’t Always be Trusted

The handshake signifies an important step in establishing a mutual trust towards a long-term relationship when all is said and done. Some organizations may be quite content to do a handshake deal and feel that written agreements somehow undermine the trust they have between each other. A handshake deal is an agreement between two (or more) parties to commit to an agreed business deal. It is a verbal commitment to a transaction. For it to be considered legally binding, someone needs to witness the agreement take place and there must be some sort of written follow-up confirming the details agreed upon.

If there is no witness and no written follow up, it can be exceedingly difficult to prove their existence. You may come to realize that a handshake deal is not legally binding, and a contractual dispute could arise, especially if dealing with the complexity of B2B deals and rebates. We have learnt from speaking with our customers, that for deals with a multitude of finer points, it's always best to get your agreements in writing – so that each party is aware of their responsibilities. This can be done physically or online through a collaboration platform.

Disputes can arise

'Let's shake on it', when used in a business context, can spell disaster for all involved: If one party intends a handshake deal to be legally binding and the other does not, a dispute is inevitable. A written agreement would solve all of this and make solving disputes that much simpler. If a handshake deal goes to court, each party's credibility has to be established or questioned by the court. 

Difficult to enforce the terms 

In order to enforce the terms of a handshake deal you will need to first prove what the terms actually were. And the party on the other side may have a different interpretation or may simply lie about what was agreed if they realise that it was not favourable.

Proving the terms of handshake deals in court often requires a mixture of testimony from both parties and details of how they acted before and after the handshake deal was made. While the parties' testimony does frequently devolve into "he said, she said" arguments, any inconsistencies in one side's rendition of events is often a sign that they are either not being credible or are unreliable. This can make it clear that the agreement was not actually the way they say it was.

Remembering different versions of the deal

Whether your trading partner is telling the truth or not, remembering different versions of the truth is a big issue when people work together through a handshake deal instead of a contractual agreement. For example, imagine a beneficial growth deal with several tiers of potential rebate earnings. When you’re approaching a tier that could trigger a significant retrospective rebate, the other party could realise they are close to having to pay out a large amount and dispute anything from the targets agreed, the rates that meeting each target achieves and even whether the deal is retrospective or not! It does not even matter who was right and who was wrong in this situation. Neither person can prove it because neither of them have signed a legally binding contract.

Why it’s better to have a written agreement

We are all optimistic about the future of our trading relationships. We firmly believe that nothing bad will happen, because we trust one another. Unfortunately, this isn’t always the case especially when life-changing events like coronavirus pandemic happen. Firstly, people sometimes fail to cover and agree on ALL aspects of the business deal. Secondly, memory fades. If agreements are based only on a handshake deal, you may find it difficult to recall some of the deal terms down the road. Thirdly, you may have misunderstood one another, and won’t realize it until it is too late. Writing things down allows both parties to have clarity and negotiate on all aspects of the deal.

Digital collaboration solutions are the answer

The presentation, negotiation, and management of your contract agreements can be made far more legible with the right platform. For example, when a supplier or distributor is trying to decide whether to accept a deal, they shouldn’t have to wade through piles of documentation or cast their mind back to a handshake deal that was agreed upon a few months ago. With Enable, you can access all your deal terms, signatures and messages in one centralized collaboration platform, therefore decreasing the risk of contract disputes and unfair deals happening again.

Elizabeth Lavelle

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