As a small business owner, there are many benefits to having a written agreement with a customer. The first is it ensures everyone involved has a clear idea of the terms of their association. This helps avoid problems and misunderstandings. The next benefit is it creates documentation that can be used in the case of a lawsuit should the customer fail to pay or claim you did not perform as agreed. This protects you and your business in the future.
A customer agreement doesn’t need to be a 20-page document filled with antiquated legal-sounding words like “wherefore,” “hereto,” and “herein.” It can be as informal and as short or long as you want and need but it should include:
the date the contract was executed or begins;
the names of all the parties to the agreement using their full, legal name;
the detailed scope of work, or what you will do for the customer, in as much detail as possible;
who owns any intellectual property rights if you have a creative business;
payment terms including the amount of down payment, incremental payments throughout the job, final payment amount, and total final cost;
acceptable payment methods and any additional credit card fees;
expiration date of the agreement;
project deliverables;
any deadlines, including milestones and final deliverables;
how the agreement may be terminated by either party;
how you will deal with delays;
language regarding the working relationship as an independent contractor;
remedies in case of breach of the agreement;
possibly include an arbitration clause;
attorney’s fees provision;
signature of both parties;
and date of signing.
Depending on your business, you may be able to have an attorney draft a standard customer agreement you can use for all, or almost all, of your customers by simply filling in the blanks and crossing out unnecessary sections. In other types of business, a more detailed agreement, drafted for the specific client by an attorney may be necessary. Contract law is state-specific, so it is important to make sure your agreements conform to the laws of your state.
If your customer violates your agreement, there are several steps you can take to try and enforce it. Start with talking to the customer. Maybe they don’t know they missed a payment or are merely running low on funds and hoped to get it caught up but didn’t communicate with you. A polite reminder could be all it takes to get things back on track. If the customer refuses to honor the agreement, you should talk to a lawyer. The lawyer can review the agreement and advise you of your rights and next steps. If you included an arbitration clause, the next step may be moving forward with arbitration. If you don’t have an arbitration clause, or if arbitration fails, you will be forced to take them to court. If you end up in court, you will be grateful you invested in having an attorney draft an enforceable agreement.