Customer and Client Contracts

Surprisingly, though this is one of the most critical set of relationships in your business, many small business owners give little thought to how they are documenting their terms of engagement with customers. 

Here are some key issues you should consider when you create a contract to use with your customers or clients.

Payment Terms in Customer Contracts

Unless your business involves a hand to hand transaction where a customer gives you money at the time you give them the product, it is important to be clear about how you get paid. This includes how many days after an invoice the payment is due, late fees or interest on late payments, and how to handle costs of enforcing the agreement if you have to go to court to chase the payment.

There are other issues to consider as well. For example, if you collect payment upfront under a service contract, what happens if the agreement is terminated before services are complete? If you have a "no refund" policy this should be spelled out in the contract.

Scope of Work in Customer Contracts

It is important to be clear about what exactly you are providing or agreeing to do. Because this can vary from customer to customer, some businesses choose to have a master services agreement that spells out all of the standard terms and conditions, and a separate scope of work document that lays out the specifics for a particular job.

Intellectual property in customer contracts

If the product or service you provide includes any creative work, you should consider how the legal documents address ownership of that creative work.

A good example is a graphic design business or a web designer. When you create an image, artwork or website, under common law principles you own the rights to that work. Yet your customer has paid you to create it and will almost certainly want the right to use it at least for the platform you designed it for. You should give some thought to how much of your rights you are willing to transfer to the customer, and get legal advice to make sure your documents do what you want them to do.

Confidential information in customer contracts

Providing your service may involve sharing confidential information with your customer, or receiving confidential information from them. Most commonly the parties agree to some form of mutual nondisclosure to ensure that information needed for the engagement is not later used for something else or shared with competitors.

Independent contractor status in customer contracts

Usually, both parties will want it to be clear that the service agreement does not create an employment or agency relationship between them. You should be sure to include standard language that lays this out.

Termination provisions

Sometimes this is clear without laying it out in a legal document, such as where a product is exchanged for money in real time. In the event of ongoing services or subscriptions, however, it is important to make clear how and when the relationship can be ended.

Dispute resolution in customer contracts

If your agreement is silent on this, either party will have the right to go to a court of competent jurisdiction if they feel the other party has breached the agreement. This may be acceptable to you. You can also include a provision that requires the parties to attempt to mediate a dispute before going to court, or one that requires all disputes to be handled in arbitration.

If you are interested in an alternative dispute resolution provision, you should be clear about the difference between mediation and arbitration. Mediation means attempting to settle voluntarily and is non-binding. Arbitration is a binding legal proceeding in which a private judge, called an arbitrator, makes the final decision. If you are going to include a dispute resolution provision, it is a good idea to consult with a business lawyer to make sure you are really getting what you want.

Balancing legal needs and business needs in your contracts

It is also important to think about how your contracts will appear to your prospective clients. Too much legalese or fine print might protect you legally, but could turn off your prospective clients. We can help you write a business contract in plain language that everyone can understand, but that still covers these basics.

How We Can Help

Getting a business lawyer involved with your contracts does not mean you are doomed to drown in densely-worded, incomprehensible legal documents.  We understand that your contracts are not just legal documents but documents that can help set clear expectations- that means they need to be readable by regular people.  We can help make sure you have the essentials documented, so that you can do what you went into business to do without worrying about ambiguities in one of these key relationships.

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