Is your contract costing you money?
It’s not enough to simply have a contract, the terms of your service contract should help facilitate easy payment and protect your rights. If your contract is silent on certain issues, two things happen: (1) that issue falls into the “what would a “reasonable person” do or expect category and (2) the contract is interpreted against YOU, the drafter or presenter of the contract. That’s why downloading a contract template from a random website is a bad idea. Generic templates include language for a broad range of businesses, thus many of the provisions may not even apply to your dealings with a client. They also include provisions that make it difficult to figure out what the parties wanted. Below are some tips on how your current contract could be costing you money.
ONE: Doesn’t properly define the scope. In order for you to have a valid contract, there has to be what we lawyers call a “meeting of the minds.” That’s fancy for everybody needs to be on the same page. Therefore, it’s actually a legal requirement for each party to fully understand what services will be provided and when the fee for those services are due. As the service provider, it’s your obligation to protect your time by defining the scope of your services. It’s also your obligation as the expert (that’s why your client is hiring you) to help the client understand what your services include and don’t include.
A great way to avoid confusion in the scope is to list all of the duties included in the service. But you should go one step further and provide a list of ADDITIONAL services that a client may reasonably assume is included in the price. For example, if you design websites, will you hook up the client’s e-mail services to the website or is that extra? If you’re a photographer, will you provide the make-up artist, or is that extra?).
If the lines of what service yo provide or blurred, you will end up providing more services and as a result, losing money.
TWO: Doesn’t set concrete terms on when you get paid. Okay, you cannot be shy or coy when it comes to getting paid for work you agreed to do and delivered. Just get over it. And your contract should be very clear on that. Not only should you include how much you will get paid, but when you will get paid. And when it comes to this provision, you have to be strategic about how much money to get upfront – that way you have less risk. You should enter every contract understanding that there’s a possibility your client could walk out on your and not pay. So your goal is to try to get as much money upfront and in as many different stages as possible. What do I mean by that? For example, let’s say you’re a copywriter and you’ve agreed to write the sales page for your client’s launch for $500. Best practice would be to request half upfront before you start any work. I wouldn’t suggest requiring all of it upfront (I wouldn’t pay someone the entire fee without having seen a bit of work). Requesting half up front creates trust between you and your client and binds both parties – this way you each have some skin in the game. Let’s say you usually develop an online for the client to approve before you move forward with writing the sales page copy. Once your client approves the outline, and before you deliver the first draft of the sales copy, request half of the remaining balance ($125). This way, you’ve collected 75% before delivering the final product. If there’s any dispute between you and the client over the final version or what additional duties your client feels you should perform (i.e., additional revisions outside the scope of your agreement), you’ve already collected over half of your fee.
THREE: Doesn’t anticipate client delays. This one really sneaks up on you – it’s like a snake in the grass – you don’t see it coming until it bites you in the ass. Here’s a question: what happens if you send your client the final draft for review and they never get back to you, and you’re just waiting. . . for month? And when they finally get back to you, give you some feedback, you finish up the work and they take another couple of weeks. What does your contract say you can do? Nothing, I’m sure.
Your contract should ALWAYS include a provision of client obligations. You have an obligation to perform the duties, in a timely fashion and your client also has an obligation to respond to you in a timely fashion – such that it would facilitate you completing the tasks and getting paid. Your contract should have specific time frames within which your client has to respond to you or a timeframe within which you will complete the work. Once that time passes, your payment is due in full and you no longer have an obligation to perform any duties under the contract. Caution: putting in this provision doesn’t necessarily mean the client will pay you – they’ll very likely be pissed off, but at least you don’t waste your time trying to track them down – you can move on to other jobs. But here’s the thing, if your client knows ahead of time that you can terminate the contract based on their non-responsiveness – they tend to stay on track. Two weeks of not hearing back from the client is what most of my clients settle on.
FOUR: Doesn’t protect your intellectual property. Intellectual Property (IP) in its simplest form is: work that you create, for which you automatically own the rights. IP rights attach even if someone pays you to create that work. The question is how will you transfer those rights; will you sell them or license them? (licensing is a fancy word for allowing someone to use it) When you create work specifically for a client, you will usually sell it to them; at which point, you no longer own the rights to your work (the most you can do is reserve a license to use the work, like for marketing or showcasing your work). However, up until the moment you receive full payment for your work, you own the IP rights and your contract needs to make the clear. This is important because you generally have two options when it comes to copyright infringement: (1) sue in federal court under U.S. copyright laws or (2) sue for a breach of contract – in state court. You can only sue for copyright infringement in federal court if you have a registered copyright and from a practical standpoint, you aren’t going to register the copyright for each of your clients that you plan on selling. Therefore, the best way to protect your IP rights is to declare ownership of your IP in your service contract, state that your clients cannot use your IP until you have transferred it to them, and state the event upon which you will transfer those rights – which usually upon payment in full. So if your clients stiff you and try to use your work (i.e., logo, content, web design) they would be in breach of contract. That entitles you to sue in your regular state court in the jurisdiction you named in the contract. This route is much cheaper and more convenient than federal court.
FIVE: Doesn’t clarify how to terminate the contract. If you offer a flat fee for your services, the more hours you work, the less money you earn. Every now then, you get a client who’s not cooperative, takes forever to respond to your emails, requests work outside of the scope of your contract, or who just isn’t a good fit. Sometimes, you may have to fire your client. The stress of dealing with that one client is costing you money across the board because it decreases your motivation overall – which then affects the work you do for other paying clients. Thus, your termination clause should do two things: state that you have the right to cancel the contract due to client’s lack of responsiveness (which could include a breakdown in communication) and that a termination of the contract by either party does not absolve the client of any payment obligation agreed upon in the contract.
So there you have it. Tighten up your contract and get paid on time. And it’s a good idea actually explain the terms of your contract to your client. Let the client know how you work so that they can be on their best behavior.
Not sure if your contract is working for you? Download this free Contract Checklist and make sure your contract has these 10 Key provisions discussed in Episode 16 – Part 4 of the Getting Started Series.
Looking for lawyer-approved contract templates specifically for your business? Check out these DIY legal templates which include How-to Guides that walk you through each step of preparing your contract.
Listen to Ep. 16 to learn the ins and outs of reviewing your own contracts.
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