You know that old saying “good fences make good neighbors”? Well, when it comes to your service-based business, client contracts make for stronger relationships. Contracts provide an opportunity to lay out the boundaries of the relationship, and outline the parameters of the engagement.
Legal issues involving client disputes or misunderstandings are one area of business that have the potential to create big headaches. That’s exactly why addressing everything proactively in your client contract is always the best way to go.
Depending on the nature of your service-based business, what you’ll need to cover in your client contracts will vary, but there are several common areas you should consider including.
Here’s what to consider when creating your client contracts.
Details and Scope of the Engagement
There’s nothing more frustrating than having a project that drags on months past the expected end date, or having to quibble with a client over what is or isn’t included in the scope of work. That’s why having a client contract that clearly outlines expectations for both parties is one of the best protections you can offer both yourself and your client.
When looking at what to cover in the details and scope of the engagement, consider including language that outlines:
- Associated timelines and duration of the project, including when you expect the project to start and end, key dates deliverables are due, and how the project will be impacted if these timelines aren’t met.
- What work is and isn’t included. It may seem like this should be obvious based on the work needed for the project, but when a client comes back for the fourth or fifth time looking for changes, you’ll be glad that you’ve laid this out.
- How add-on requests will be handled. What will you do when your client decides they want to add “just one more thing” to the work you’ve already agreed upon? Do you have a certain margin for extras in your pricing or will add-ons require the client to pay an additional fee?
A service-based business relies on payment for services rendered, so this is one area you want to ensure is airtight. Some business owners doing project-based work choose to do payment percentages, where they get paid a certain amount before the work begins, and then bill the balance at regular intervals or as a lump sum upon delivery of work. Others who work on a retainer-based model may have a biweekly or monthly payment schedule.
When determining your payment terms, consider the following:
- Method of payment. Most businesses offer more than one method of payment, but knowing which one will be used for each client engagement is important. If someone normally pays via Stripe or PayPal but suddenly decides to send you a check by snail mail, this will impact your cash flow.
- Billing frequency and payment due dates. Include clear terms about when your clients are expected to pay invoices. Some businesses choose to do a Net 30 payment schedule, others choose Net 45. What you decide on will depend on your own budget and the types of clients you work with, but this is also something that you can negotiate with a client.
- Late payments & associated fees. As much as you hope it won’t happen, having a policy that outlines what happens with late payments is important. Late payments can impact your ability to pay your team or other vendors, so clients should be made aware of any repercussions should they not pay their invoice on time. Late payment fees, interest on funds outstanding, or any other additional costs should be included in your agreement.
Contract Termination Grounds
Sometimes, when you run a service-based business (or any other business, for that matter!) things don’t go according to plan and the relationship needs to come to an end. Whether it’s initiated by the client or by you, having your contract termination grounds explicitly detailed is the best way to protect yourself. While it’s an unfortunate outcome, the last thing you want is to be left high and dry, not getting paid for the work you’ve done, or worst case scenario, having to pursue legal action.
The goal for this section should be to ensure that it is clear on how the agreement can be terminated and what the effects of the termination will be. Consider who can terminate and how much notice is required. You should also state how you will be paid in the event of a termination. If work was pre-paid, do you offer refunds? Additionally, your process and policies for early termination may slightly vary depending on whether it’s you or the client who wants to terminate the agreement.
Depending on the nature of the services you deliver, what you’ll want to cover under confidentiality can vary from a few small things to a large list of considerations.
Under confidentiality, you should include:
- What is considered confidential.
- Whose confidential information is protected from disclosure.
- How confidential information can be used and shared.
- Exceptions for disclosure of confidential information.
- How long confidentiality will last.
Ownership of Completed Work
If you are creating content for your clients, like copy or design, your agreement should address who owns the finished work product. While the assumption may be that the client 100% owns the work, if that’s the case, it should still be outlined.
In cases where you retain ownership of the work product, but you grant your client a license to use it, your client contract should include specific language about what your client can and cannot do with that content.
Most service-based business owners are wise enough to not make guarantees on performance or future income. For example, someone who creates marketing campaigns may not be willing to promise a certain return on investment as there are too many other variables out of their control that can impact the success of the campaign.
However, even if you’re not making an explicit commitment to certain results, it’s still important to protect your business through your client contracts. You don’t want to end up with a client expecting you to compensate them in some way if they take a financial or reputational hit as a perceived result of the services you provide. A disclaimer can help protect you from liability for results.
Client Contracts Create Better Relationships
While unforeseen things can always happen in your business, client contracts are there to protect both parties. While going the DIY route for contract creation is one option, it’s always in your best interest to have them reviewed by legal counsel to ensure the agreements are binding.
When it comes to client contracts, working proactively versus reactively can help you ensure you deliver the best client experience possible and don’t leave your business vulnerable.
Are you creating client contracts and looking for legal advice to ensure you’ve got your business fully covered?
Book a consult and we can get started.