As a small business owner, you depend on prompt payment for your success. So often I find that collection problems are directly related to misunderstandings about what is expected of each party. Written contracts help avoid confusion, document the understandings, establish trust and elevate you to a more professional level. Your contract does not need to be a 12-page document full of boilerplate and legalese. In fact, keeping things simple and easy to read can often serve you and your customers best. The scale of the job and other circumstances will dictate how detailed the contract need be, but depending on your business and the scale of the job, a single page with just a few paragraphs might be all you need.
Here are five essential elements that you should include in your contracts:
- Scope of Work. Clearly set forth exactly what you will be doing for your customer. Many times, it is also very helpful to state items that are not included, especially if there are common misunderstandings on those issues. For instance, if you are in the business of developing web sites, are you including search engine optimization (SEO) as part of your services? If you provide weekly lawn care, does this also include regular fertilizing? If not, say so to avoid any mistaken assumptions.
- Time for Performance. We all want to know when will the job be finished. In this on-demand electronic world, people come to expect instant gratification. Avoid any concern that your client thinks you are taking too long by listing in your contract when the work will be completed and what sort of events may cause excusable delays. If your work depends on the weather or obtaining essential information from your client or other parties, that should be stated. (Bonus tip - communicate regularly with your client, especially if things are not going as expected.)
- Payment Terms. Your client should understand exactly when you will expect to be paid, how much and what types of payment you will accept. If you need to purchase equipment or materials, are those paid up front? For bigger jobs that may take an extended time, will there be milestones and interim deliverables that will trigger payments? Write those out.
- Termination Provisions. Can you or your client terminate the agreement? If so, under what circumstances? Will there be any refunds allowed for termination?
- Penalties. What happens if you or your client do not follow the terms? Can you specify what will be the damages? Is a refund all you will be offering? Does any extended balance carry interest? Will you charge any collection or attorney’s fees if you are not paid?
What is this going to cost to set up? Do I need a lawyer? These are valid questions. There are on-line resources to help produce contracts, but certainly there is no substitute for having the guidance and expertise of an attorney to ensure that your specific issues are properly addressed. The cost will vary from attorney to attorney and situation to situation, but setting up a basic template appropriate for your business should cost far less than the headaches associated with trying to collect after an avoidable misunderstanding. And many attorneys (including me) will offer a free consultation.