Most of our clients are businesses that offer specialized services, so we help them focus on building relationships with their clients and customers. As part of that process, we look at whether they need a written contract with their clients. Here are five reasons why a written “Service Contract” with clients is a good idea:
1. A written contract sets expectations and establishes responsibilities.
It’s easy for confusion to occur. Two people can often understand an agreement differently – especially when you’ve been talking with clients over a period of time about how you can help them, what services you will provide, and when they will be provided. Maybe the services you provide are complex or you need to define the scope of services to avoid “scope creep,” which happens often with service businesses and can hurt margins.
By having a written service agreement with clients, the client has something concrete that defines your relationship and it sets out the responsibilities on both sides. In the process of reading and signing a service agreement, a client learns what is and what is not involved in the provided services. Whatever expectations they had (or assumed) can be confirmed or clarified by reading the contract language.
Having clarity in the relationship with a client is important. When expectations are clear and everyone understands the division of responsibilities, it benefits the relationship with a client in many ways. A good relationship with a client can help to avoid costly lawsuits and provide the basis for future engagements or referrals to new clients.
2. A written contract can show a level of sophistication, professionalism, and stability that can help your brand.
A well-written and presented contract can show that the business is organized, has good infrastructure in place, and takes its obligations to clients seriously. Alternatively, a lack of a written contract or a poorly written contract can give the impression that a business is not very professional or sophisticated. In some cases, it can even undermine a client’s confidence in the stability of the business. This can set the tone for a client to have doubts about the quality of service and can lead to complaints.
3. A written contract can help you get paid.
If you have a written contract with your client, it can include terms that help you get paid. At a minimum, the contract should state the fee amount so the client (or you) can refer to it in the event of any misunderstandings or disagreements over the amount due. In addition, by setting the times for payment and providing for late fees, clients are aware of their responsibilities and the consequences of not paying on time. In the event a client does not pay at all, the contract can provide for the client to pay all costs of collection, including attorneys’ fees if it comes to that. A written contract provides a record of the fee amount, a mechanism to collect payments, authority to charge late fees, and the right to recover costs of collection.
4. A written contract can provide terms to address specific circumstances.
There are circumstances where a business should have specific provisions that need to be in writing. Some examples of these may be ownership of intellectual property that is created by the business, confidentiality of client information, and authority or permissions that need to be granted to the business by the client. Each of these examples are briefly discussed below.
As we have discussed in some of our previous blog posts on intellectual property, the creator owns the creation. In order to change that general rule, you need a written contract. If you are creating and intend for your client to own the final creation, then a contract would transfer that ownership. If you are creating and intend that you retain ownership of the creation, a contract would set out the rights of the client to use the creation in limited circumstances. This is often referred to as a “license” and the law requires it to be in writing. Therefore, if a business provides services that involve intellectual property, a written contract with clients can be essential.
A written contract with a non-disclosure provision can reassure your clients that you will treat their information with care and keep it confidential. Most service-based businesses will encounter some type of client information that can be considered private. Even if a client does not require confidentiality, a provision in a written contract shows that you are anticipating their concerns and respecting their privacy.
If a business needs permission to access a client’s property or take action on behalf of a client, a written contract can establish the authority of the business to do so.
5. If things go south, rules are already in place.
If your client (or you) is unhappy in the relationship, a written contract would have the rules in place for how to deal with the situation. If either of you wants to terminate the services, you’ve both already agreed to the procedures that are set out in the contract. Arguments over termination can be eliminated by following the contract.
If things really go south and a lawsuit is imminent, the contract rules can be very helpful in assessing the risk ahead. For example, if there is an attorneys’ fee provision in the contract, it would provide the prevailing party the right to recover their attorneys’ fees from the other party. Having the obligation to pay attorneys’ fees can be a factor in the analysis of whether to file or move forward with a lawsuit.