Key takeaways
- An LOI records a shared plan; the contract that follows creates the real obligations.
- Some clauses, such as confidentiality, are often written to bind even when the rest does not.
- Whether a letter binds depends on its wording and the law that governs it.
- A signed LOI is progress, not a closed-won deal.
What a letter of intent usually covers
A letter of intent usually covers the headline terms of the future agreement and the rules for getting there. It is kept short so both sides can agree the shape of the deal before lawyers draft the detail.
- The parties and the purpose of the agreement.
- The main commercial terms: scope, price or pricing basis, and duration.
- Conditions that must be met first, such as approvals or a successful test.
- A timetable for signing the final contract.
- Which clauses bind, typically confidentiality, exclusivity and governing law.
When a letter of intent is binding
A letter of intent binds only as far as its wording and the governing law make it bind, which is why the document should say plainly which parts do. Courts look at the words used and how the parties behaved, so a letter that reads like a contract can be treated as one.
If you are unsure, ask a lawyer before signing. A common approach is a sentence stating that the letter is non-binding except for named clauses, which removes most of the doubt.
Letter of intent vs contract
A contract creates enforceable obligations to deliver and pay, while a letter of intent mostly records a shared plan to reach that contract. The contract has the full detail: service levels, liability, termination, payment terms and everything the LOI left for later.
An LOI can also be confused with a memorandum of understanding or heads of terms. The labels vary by country and industry; what matters is the content, and in particular which clauses the parties agree to be bound by.
How a letter of intent is used in sales
A letter of intent in sales is used when a buyer wants to commit in principle before a long legal or procurement process finishes. It is common in large deals, in partnerships, and where a supplier needs a signal of commitment before investing in a pilot or custom work.
For the seller, an LOI is a useful milestone: it confirms the buyer's intent, the scope and a timetable. It is not revenue. Pipeline reviews should treat it as a late stage with a real chance of slipping, not as a won deal.
Mistakes to avoid with an LOI
An LOI that never says which parts bind is the classic error. Most of the others come from treating the signed letter as the end of the sale.
- Agreeing a price in the letter that cannot survive the full contract.
- Accepting exclusivity with no end date.
- Letting the timetable lapse without a follow-up date.
- Counting the deal as won before the contract is signed.
Where Pebbles Ai fits
- CapabilityProspecting & customer recordsRecord a signed letter of intent on the deal in the CRM, which is in Beta, with a note and tasks for the dates it sets, so the deal keeps its stage and close date until the contract is signed.
- CapabilityAI workspaceAn assistant can put the dates the letter sets, such as the target signing date, into Google Calendar as events; in Manual mode each one waits for your approval. The legal wording stays with your lawyers.
Common questions
Is a letter of intent the same as a memorandum of understanding?
They are close relatives and the names are often used loosely. Both record intended terms before a contract; what matters is the wording and which clauses are meant to bind.
Can you back out of a letter of intent?
Usually from the non-binding parts, yes, but binding clauses such as confidentiality or exclusivity still apply. Check the wording, and take legal advice if in doubt.
Should a signed LOI count as a won deal?
No. It shows commitment in principle, but the deal is won only when the contract is signed. Keep it in a late pipeline stage with a dated next step.
About this page. Written by the Pebbles Ai team for people who run sales, marketing and growth. Last updated .
