What should foreign businesses do before signing a contract in Vietnam?

Many foreign businesses working with partners in Vietnam often assume that the biggest risks only arise when goods are delivered late or do not meet quality standards. However, in reality, many problems begin right from the contract preparation stage.

Understanding Your Partner Before Understanding the Contract

One of the most important things before signing a contract is not amending every legal clause, but properly assessing the partner your business is about to collaborate with.

In reality, many foreign businesses only check the website, profile, or production capacity without thoroughly evaluating the legal status and operating history of the company in Vietnam. This can lead to risks if the partner is involved in internal disputes, has changed legal representatives, does not meet the requirements to operate in the relevant field, or has problems with financial capacity and tax obligations. For high-value transactions, reviewing the company's information before signing is often just as important as the contract itself.

Businesses should check the actual ability to fulfill the contract.

Many contracts are signed based on very positive quotations and commitments from the partner. However, after implementation, businesses often discover that suppliers lack production capacity, rely on third parties, or have no control over delivery schedules.

Therefore, before signing a contract, businesses should conduct a thorough assessment of the partner's operational scale, production system, export capabilities, and quality control processes. In many cases, a factory inspection or review of operational procedures can help businesses detect risks early that are not clearly stated in the introductory documents.

A common mistake is using contracts solely to confirm price and quantity of goods. In the international trade environment, contracts should be viewed as a risk management tool, not just a procedural document.

Many disputes arise because contracts do not clearly specify who is responsible for delayed delivery, how to handle substandard goods, quality control procedures, or conditions for refusing delivery. Without a clear resolution mechanism, businesses often find themselves having to renegotiate after a dispute has already occurred.

It is advisable to prepare a dispute resolution mechanism from the outset.

Many businesses believe that mentioning disputes during negotiations can diminish goodwill and cooperation. However, in international transactions, dispute resolution clauses are not a sign of distrust but rather a necessary risk management measure. Parties have the right to agree on the applicable law and dispute resolution mechanism in commercial contracts with foreign elements. Without clear definition from the outset, businesses may face difficulties when dealing with issues related to jurisdiction, litigation location, language used, or the enforceability of future judgments.

Foreign businesses often overlook the risk of language barriers in contracts.

In transactions in Vietnam, bilingual contracts are quite common. However, many businesses focus only on checking the English version without carefully reviewing the Vietnamese content.

In reality, even small differences in wording can lead to completely different interpretations when disputes arise. If the contract does not clearly specify which version takes precedence, businesses may face disadvantages during legal proceedings in Vietnam. Therefore, reviewing both versions before signing is a crucial but often overlooked step.

Signing a contract in Vietnam should not be seen merely as completing a commercial transaction. For foreign businesses, this is a crucial stage to vet partners, assess risks, and establish mechanisms to protect their interests before the transaction begins. A well-prepared contract, along with appropriate legal review, can significantly reduce risks related to payment, delivery, product quality, and contract enforcement in Vietnam.

In international trade transactions, DEDICA supports businesses in conducting legal due diligence on partners, reviewing contracts, and developing risk management solutions that comply with Vietnamese law and international trade practices.

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