Terms of Service - SaaS - B2B

What are Terms of Service?

Terms of service set out the terms and conditions on which a company provides software as a service (SaaS) products to its customers who are businesses (rather than consumers). Terms of service are also known as terms of use, terms and conditions of service, terms and conditions and terms and conditions for the supply of services.

Terms of service are typically included on the company’s website or appended to order forms. They will be drafted in a general way so that they can apply to all contracts that the company concludes with customers. The terms therefore do not include details such as pricing or the specific products ordered (these details will be agreed individually with each customer and will generally be recorded using an order form or via an email confirmation). Additionally, there is no requirement that the customer sign the terms of service, although customers should indicate that they have agreed to the terms as part of the order process (this is usually confirmed in the order form or email confirmation). 

When should you use Terms of Service?

Terms of service should be used when providing SaaS products to businesses. The terms will apply to all SaaS products provided by your company to its customers. It is possible to agree amendments to the terms on a case by case basis but if you generally have to negotiate the legal terms on which you supply services with your customers, you should consider using a services agreement instead. It is common to use terms of service (rather than a services agreement) when selling SaaS products because they are compatible with both self-serve customers and a high volume of sales.

Why are Terms of Service important and why should you use it?

By adopting a general set of terms of service the company avoids having to agree contractual terms with each customer individually. This not only saves time and money on legal fees but also creates a smoother sale process. 

The terms of service will cover a number of key legal areas including: 

• the maximum liability of the service provider;

• how to terminate or cancel the services and what happens when the services are canceled; and

• ownership of intellectual property created as a result of, or used in connection with, the supply of services. 

Additionally, the terms can be used to provide customers with important information such as:

• who can use the services (i.e number of users and/or specified users within the customer’s company);

• how to contact your company;

• uptime commitments (i.e. commitments around the availability of the services); and

• how the customer must pay for the services.

What are the common pitfalls when using Terms of Service?

SaaS products are different from other types of products. It is therefore essential that you do not use the same terms of service for SaaS products as you use for other products or services and that the terms have been drafted specifically for SaaS products. 

A key concept that needs to be included in SaaS terms is the distinction between an individual user of the product (who will be an individual) and the customer (which will be a corporate). The terms should give your company protection against individual users who might breach the terms, for example by disabling accounts if an individual has shared their login details with a third party. It must also, however, allow you to take action against the corporate customer, for example by downgrading their subscription if they fail to pay fees. 

It is an unavoidable feature of SaaS products that there will be times when the product is unavailable. This is known as “downtime”. The terms of service can include “uptime” commitments, whereby you commit to the services being available for a minimum amount of time during a period. If you include an uptime commitment, it is important that there is a carve out for scheduled maintenance. This will allow you to carry out maintenance work without breaching the uptime commitment.

Another common mistake companies make is failing to include provisions governing content that customers add to a SaaS platform. The terms should include restrictions around the type of content that can be added as well as disclaimers to restrict the company’s potential liability in relation to such content.