Anywhere from 36% to 53% of small businesses are involved in at least one litigation each year. While this may sound like a lot and an inevitable future for your business, it doesn’t have to be that way. For many of these situations, the litigations could have been completely prevented and avoided with a clear agreement and attention to contract law at the beginning of the business relationship.
By creating clear and detailed client agreements, you can avoid many of the common reason for litigation. This guide will show you six clauses that your client contracts should have.
1. Scope of Services
Your contract should describe in detail the working relationship. This could be a description of the goods or services that you will provide the client. This is a common source of conflict, so using plain and accessible language is best for this portion.
- Description of the goods or services
- Timeline of when the client can receive the goods or services
- Milestones for multi-phased deliverables
The more precise you are about size, quantity, and any other identify descriptor, the less chance there is for dispute.
2. Pricing and Payment
Your contract needs to outline how much you will be paid for your goods or services. It should also outline how and when the client must pay. Include acceptable and not acceptable forms of payment.
How you charge will depend on the nature of your business. For some, it’s a flat rate. For others, it could be hourly. This is also your opportunity to include fees for improper or late payments.
3. Timeline
If you don’t define a timeline for your contract, then your it could potentially be never-ending. Another option is that the court will apply standard contract law to your agreement. Neither of these options may be desirable, so it’s important to define the timeline of your agreement.
Include deadlines for when your deliverables are due. Then include deadlines for when the client’s payment is due. It’s also smart to include a timeline for dispute resolution.
4. Limits on Liability
As a service or product provider, you’ll want to limit your potential liability. Keep in mind that your clients will want you to accept as much liability as possible. This clause needs to clearly define your liability while also being reasonable.
The limits define the amount of compensation one party can recover from another in the event of a breach of contract, negligence, or misrepresentation. Without this clause, there’s no financial limit for the damages that a client can ask for.
5. What Happens at Termination
There will come a day when either you or your client will want to terminate a contract early. Your contracts need to define how either party can go about terminating the contract.
You could require notice by a certain day and by a particular method. It’s also important to require payment for the product or services rendered up to the point of termination. Otherwise, you risk not receiving compensation for your partial fulfillment of the contract.
6. Dispute Resolution
Sometimes a party doesn’t terminate the contract, but they fail to fulfill their side of the agreement. Life and business are unpredictable, and conflicts can arise. However, litigation is expensive and a lengthy process.
Contract law accounts for this by providing an alternative route called mediation. Your client contracts should require parties to attempt mediation before escalating the issue to court. Mediation is cost-effective and leaves the door open to preserve goodwill for continued future business dealings.
Apply These Contract Law Tips to Your Client Agreements
If you haven’t reviewed your client contracts in a while, then there’s no better time than the present. By having a clear and detailed contract, you’re protecting your business. While there’s no way to prevent all contract disputes, you can prevent the majority of them by having a well-written contract.
Our skilled team can help you improve or create client contracts. That way, you can focus on the performance and growth of your business.
Schedule a free consultation today and discuss with our team your contract needs.
