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If you are involved in a service business, contracts with customers are a
must. It ensures that both you and your client agree to the services that
you will deliver, in what timeframe, and under what conditions. It protects
your business, while giving your clients the confidence they need in dealing
with you. After all, as the movie mogul Sam Goldwyn once said, "a
verbal agreement isn't worth the paper it's printed on." A written
contract is a symbol that proclaims, "We've got a deal."
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A contract enhances the professionalism of your business. Since
everything is written down on paper and signed by both parties, it is easier
to stick to the agreed deliverables. You will not be easily intimidated by
your client's whims and changing preferences in the middle of the project.
If things run smoothly, you may never see the contract after the client has
signed it. However, if you and the client disagree, you can refer back to
the contract to guide you how to resolve issues of dispute.
Imagine that you are computer consultant creating a web application for a
client. Without a contract, clients could easily add ten more items on the
agreed work plan (and they always do!) - and expect to pay the same amount
of money. If you have a contract from the get-go, you can simply issue an
addendum to your contract including the price increase to accommodate the
ten tasks that have been added. Hence, it will be clearer that the ten new
tasks are beyond the scope of the originally signed contract, and to do them
would require additional resources on the part of the client.
Contracts need not be long or complex; it can be a simple two-page letter
of agreement as long as it covers all the bases. You can do it yourself, or
seek the help of a lawyer in drafting your contracts. If you want to save on
legal fees and draft the contract by yourself, your first step should be to
gather sample contracts from similar businesses or to check out sample
contracts from books and other resources. The key in preparing a contract is
to be specific about your expectations and more thorough about planning for
problems.
Your contract should comply with special rules governing your business or
profession in your state or locality. While there is no such thing as
one-contract-fits-all given the variety of businesses, the following
elements are normally covered in a contract:
The parties to
the agreement,
specifically you (either your name or the name of your business) and the
name of the other party, whether that's a customer or a vendor.
A specific
description of your deliverables,
or the services that you are going to perform. If you are engaged in a
design-oriented business, it may be a good idea to include a sketch, diagram
or illustration of the work the client will be getting. Having some visuals
will ensure that you and your client are on the same page with the same
expectations.
The price to be
paid for the work and what that is based on.
Specify if the rate is based on a fee, a flat fee, a per diem fee, an hourly
fee with an estimate, and whether reimbursement for expenses will be
covered.
How and when
the payment will be made.
Be clear on the payment modalities that you want, keeping in mind that you
should get as much of your money as you can upfront. Avoid spending
out-of-pocket money for materials, as your clients have to shoulder these
expenses. Also consider imposing penalties for late payments, or a clause
that states that "the work stops if the payments do." You may
require 50 percent down payment due at signing of the contract and the
remaining 50 percent after the completion of the service or a different
combination that will work for you and your clients.
Clear
definition of when the work will be completed. It
is important to be very clear about the circumstances for the required final
payment.
Additional
terms you could include in the contract:
a. conditions under which either party can terminate the contract,
b. whether either party can transfer or assign the contract to another
person or company,
c. whether disputes arising from the contract may be arbitrated or mediated,
d. in the event of a dispute, whether work should stop until the dispute is
resolved
e. payment of attorney's fees if one party breaches the contract,
f. an address where legal notices can be sent to each party, and
g. state law that will apply if questions about the contract arise.
Execution of
the contract, making sure
that both parties sign the contract and the person signing (if he or she is
representing a company) has the authority to sign. Each party should receive
a copy of the final signed agreement.
If you drafted the contract yourself, you may want to hire a lawyer to go
over the contract to check if you missed any important provisions. The extra
cost can give you additional peace of mind regarding the strength of your
contract. But if you cannot really afford or do not want to consult a
lawyer, having a contract that you drafted yourself is still much better
than a handshake.
More importantly, review the contract with your clients to make sure that
you are on the same boat. You may be dealing with clients who are unfamiliar
with the language and intricacies of your profession. Sitting down with them
to discuss every single point in the contract can help them understand what
they are getting into, and clarify issue points before the start of the
business engagement. You will find that clients appreciate your effort to
educate them about the business, thus producing more goodwill between you
and your client.
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