---
url: 'https://www.fmjlaw.com/top-five-contract-strategies-to-consider-right-now/'
title: Top Five Contract Strategies to Consider Right Now
author:
  name: Adam
  url: 'https://www.fmjlaw.com/author/adam-brownfmjlaw-com/'
date: '2023-03-24T22:55:38+00:00'
modified: '2023-03-24T22:57:45+00:00'
type: post
categories:
  - Article
  - Thought Leadership
tags:
  - business
  - contracts
  - Corporate
  - manufacturing
published: true
---

# Top Five Contract Strategies to Consider Right Now

[![](https://www.fmjlaw.com/wp-content/uploads/2023/01/executive-insights-banner.jpg)](https://www.fmjlaw.com/professional/james-j-seifert/)

Many of our business clients, including manufacturers, are looking ahead and strategizing for a potential economic downturn.  If the economy declines, there are a number of things businesses can do to protect themselves as a part of their contracts and operating agreements.  The following five strategies will strengthen contracts and help provide some certainty if we are headed for a recession, and these are good strategies to think about regardless of economic conditions.

- **Require a Down Payment**

This provides extra protection in any agreement.

- The down payment should be enough to cover all material costs plus direct labor.

You do not want to be a bank for customers.

- **Build an Option to Reprice in Extenuating Circumstances**

Outline reasonable conditions and circumstances in your contract that allow a price adjustment. 

The goal is to provide flexibility so that your firm does not engage in unprofitable work given extreme and shifting economic circumstances.

- Do not attach repricing clauses to a timeline.

- **Include Price Adjustment Terms for Low-Margin Businesses**

Low-margin, high-volume business is especially critical to monitor as even one supplier or raw natural/material can flip a category of business from profitable to unprofitable.

- This is especially true for distributors whose particular value add relates to logistics only.

- **Review Payment Terms**

Resist any payment terms beyond 90 days. 

Although some large firms are stretching payable terms to 120 days and beyond, this is unreasonable for smaller businesses.

- Build in repossession terms, particularly if your customer relationship involves leased equipment. 

- Provide incentives for early payment.

- Avoid factoring receivables, if at all possible.

- **Consider the Payables Strategy**

Contact suppliers early if you know you will not be able to honor a payment deadline.

Suppliers are usually very understanding and will work with you under most circumstances.

- Always ask for and understand early payment discounts.

For some additional tips to help prepare for a possible recession, [please click here](https://www.fmjlaw.com/smart-moves-to-make-before-a-potential-recession/).  Please reach out to [Jim Seifert](https://www.fmjlaw.com/professional/james-j-seifert/) and our [Manufacturing Practice Group](https://www.fmjlaw.com/practice-area/manufacturing/).  We would be glad to review and audit your contracts and help you implement a strategy to mitigate the issues that come with a potential economic downturn.

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