A fashion brand in Lekki once sent a supplier ₦4.2 million upfront for fabric, based on a WhatsApp conversation and a signed invoice. The fabric never arrived in full, and the supplier stopped responding. When the founder tried to recover the money, she discovered the invoice she signed said nothing about delivery timelines, quality standards, or what happens if the order is incomplete. She had no real contract, just a payment record.
This happens constantly across Nigerian business, founders treat contracts as a formality to rush through, when a well drafted one is often the single cheapest form of insurance a business can buy. This guide walks through exactly how to draft a contract that actually protects your business, not just one that looks official.
Why Most SME Contracts Fail to Protect Anyone
Before the how to, it helps to understand why so many contracts fall apart when they are actually needed. Most business owners either use a generic template downloaded online, copy a contract a friend used for a completely different deal, or skip a written contract altogether and rely on invoices, receipts, or verbal agreements.
The problem surfaces only when something goes wrong: a customer disputes an invoice, a supplier delivers late, or a partnership sours. At that point, vague or missing terms mean you have little to stand on, whether in a negotiation, mediation, or in court.
Step 1: Identify What You Are Actually Protecting
Before drafting anything, list out what could realistically go wrong in this specific relationship. A supply contract needs protection against late or incomplete delivery. A service contract needs protection against scope creep and non payment. A partnership agreement needs protection against one party walking away or making unilateral decisions.
Write this list first. It becomes the backbone of your clauses later, since every risk you identify should map to a specific term in the contract.
Step 2: Nail Down the Parties and the Purpose
Every contract should open by clearly naming the parties involved, using full registered names as they appear on your CAC certificate, not trading names or nicknames. If you are contracting as a registered company rather than as an individual, this matters enormously, it determines who is legally liable if something goes wrong.
Follow this with a clear statement of purpose: what is being bought, sold, delivered, or performed. Vague purpose statements ("consulting services" with no further detail) are a common source of disputes later, when one side claims a task was included and the other claims it was not.
Step 3: Spell Out Scope, Deliverables, and Timelines
This is where most informal contracts fall short. Specify exactly what is being delivered, in what quantity or format, by what date, and to what standard. If you are a manufacturer supplying retailers in Kano, specify units, packaging requirements, and delivery windows. If you run an agency, list deliverables individually rather than a general description like "marketing services."
Include milestones for longer engagements. A six month project should have checkpoints, not just a final delivery date, since a milestone structure gives you an early warning if the other party is falling behind.
Step 4: Get Payment Terms Airtight
Payment disputes are the most common reason Nigerian business owners end up in a legal fight, so this section deserves the most precision. Specify:
- The exact amount, in naira, and whether it includes VAT
- Payment schedule, upfront deposit, milestone payments, or full payment on delivery
- Accepted payment methods, bank transfer, Paystack, Flutterwave, and the specific account details
- Late payment penalties, a stated interest rate or fixed fee for payments beyond the due date
- What happens on non payment, suspension of services, termination rights, or debt recovery steps
Late payment culture is a real and constant problem for Nigerian SMEs. A contract with clear penalty clauses gives you actual leverage to enforce timely payment, rather than just a moral argument.
Step 5: Add a Termination Clause
Every contract needs an exit door. Specify the conditions under which either party can terminate, for cause (breach of contract, non payment, failure to deliver) and for convenience (either party can end the arrangement with notice, commonly 30 days).
Without this clause, ending a bad business relationship becomes a legal gray area. With it, you have a clear, agreed process both sides accepted upfront.
Step 6: Include a Dispute Resolution Clause
Decide upfront how disagreements will be resolved rather than leaving it to chance. Many Nigerian SMEs now specify mediation first, escalating to arbitration under the Arbitration and Mediation Act 2023 if mediation fails within a set period. This keeps you out of the court system, which can take years to resolve a commercial dispute.
State the seat (commonly Lagos or Abuja), the language of proceedings, and which rules apply if arbitration is chosen.
Step 7: Protect Your Intellectual Property and Confidential Information
If your business shares proprietary information, pricing models, client lists, product designs, recipes, formulas, include a confidentiality clause preventing the other party from sharing or using that information outside the relationship. If you are contracting a freelancer or agency to build something, such as a logo, app, or marketing content, specify clearly who owns the final work once payment is made. Many founders assume they automatically own what they paid for. Without an explicit IP assignment clause, that is not always true under Nigerian law.
Step 8: Add a Limitation of Liability Clause
This clause caps how much one party can be held liable for if something goes wrong, protecting you from open ended financial exposure. Without it, a small mistake, a late delivery, a minor product defect, could theoretically expose you to unlimited damages claims. Most commercial contracts cap liability at the value of the contract itself or a fixed multiple of it.
Step 9: Get It Signed Properly
A contract is only as strong as its execution. Both parties should sign and date the document, with company contracts signed by an authorized signatory, usually a director, and the company seal or stamp applied if your company has one. For higher value contracts, consider having signatures witnessed. Store the executed contract securely, both a physical copy and a scanned digital copy saved somewhere accessible, not just in a WhatsApp chat.
Common Mistakes to Avoid
Avoid using a contract template pulled directly from a foreign website without adapting it to Nigerian law and currency. Avoid leaving blank fields unfilled, assuming you will "sort it out later." Avoid relying on verbal side agreements that contradict what the written contract says, courts and arbitrators generally only enforce what is written. Avoid skipping legal review entirely for high value contracts, a lawyer's fee to review a contract is far cheaper than the cost of an unenforceable one.
The Bottom Line
A contract that actually protects your business is specific, not generic. It names real risks and addresses each one directly, payment, timelines, termination, disputes, and ownership. Spending a few hours or a modest legal fee getting this right at the start of a relationship saves you the far higher cost, in money and stress, of discovering the gaps only after something has already gone wrong.
