A professional contract is essential for any business relationship. It establishes the terms and conditions of a working relationship and lays out important legal terms to ensure both parties are legally protected.
Many starting business owners make the mistake of not having a contract in place. They may not realize just how essential a contract is for protecting their interests and creating a level playing field for their business to grow.
Why having a contract is essential for your business?
There are rare cases when you may not need a contract in place, but for the most part, an agreement between you and your client is essential to conduct services professionally.
Here are the top reasons why having a contract is essential for your business:
Provides clarity of expectations – A contract is a legally binding agreement between the parties that outlines each other’s responsibilities and expectations during the project to avoid any misunderstandings in the future.
Showcases that you’re serious about your business – A professionally drafted agreement demonstrates that you are committed to your business and take it seriously — those first impressions matter, especially as you work with bigger clients.
Depicts how conflict is handled – If in the unlucky chance you run into issues with your client, you can always refer back to the contract they signed to help resolve it. A solid contract makes it easier to address disputes and legal obligations to your clients (and vice versa).
Protects your business – Most notably, if things escalate, your contract will give you legal protection from a client taking legal action against your business. However, having those clauses in the first place is vital to ensure your contract protects your business and doesn’t have any loopholes that may be used against you.
Top clauses to have in your contract
There are many important clauses to include in your contract, but here are a few that we think are essential for any business:
Be clear on the project scope and what you will be working on. It’s important to be as specific as possible to ensure you and the client are both on the same page to avoid miscommunication.
For example, if you’re going to be working on a new website design, itemise and outline the deliverables in the contract:
- How many pages will you be designing?
- Are you also responsible for developing the website?
- Are you writing any copy or sourcing images?
- Are there any strategy calls or meetings as part of the process?
- What are the technical requirements or integrations you agreed on?
Specifying the deliverables of the project not only gives your client a better idea of what they’re paying for and what to expect but can also help avoid scope creep.
Have an additional clause explaining what happens if the client decides to change the scope of the project mid-way through – will that change affect the fees charged to the client? Will you charge them hourly? How will the timeline be affected?
We also recommend adding that you cannot guarantee that you will be able to fit your clients’ requests immediately to avoid a situation where you booked a project for a one-page website design, but the client now requires an additional ten pages forcing you to move all your future projects or work overtime.
Remember, your client protects and accommodates you and your business first.
Your contract should clearly outline your payment terms.
Project total – what’s the total project fee for this project?
Billing schedule – how many installments are you expecting to receive? Are these installments paid upfront or when the work is completed?
Payment schedule – how long does the client have to pay your invoice once they receive it? Is it immediate? 15 days? 30 days?
Non-payment terms – what are the consequences if your client doesn’t pay on time? Do you put the project on hold? Are there fees for reactivating a project? Do you add late payment fees to your invoice?
All these details are crucial to avoid misunderstandings and confusion down the line and ensure you’re actually getting paid for your work.
Depending on what type of work you create and the services you deliver, you may be making some intellectual property for your client. This can involve copy, design, illustrations, logos, and other content. It’s essential to determine who owns the rights to this IP in advance to avoid unnecessary disputes in the future.
If you’ve created something specifically for a client, giving them full ownership of that asset after the final payment has been made is good practice. Until that happens, you own the right to the work as the original creator and provider.
You may decide whether you also want to include any source files or grant exclusive rights to your client or if they can request that for an additional fee.
Whatever you decide, make sure you state that clearly in your contract so both parties are in agreement about how and when ownership will be distributed.
Limitation of Liability
Limitation of liability is a necessary clause to include in your client agreement as it protects your business in case something goes wrong or there are any issues with the delivery of your project. For example, if a client claims they were harmed in some way by your work, you can use this clause to limit the amount of money you have to pay to them. It’s an excellent way to manage risk and protect your company from unforeseen expenses.
Of course, it’s never fun when you come face to face with a termination request or a dissatisfied client, but life happens, and sometimes projects don’t work out.
Your contract should include clear guidelines on what happens if either you or your client wishes to cancel the project. Here are a few things to consider:
- Is there a termination fee? If so, how much is it? Will you receive compensation for any work you’ve already completed before the cancellation was made?
- Do you have to deliver any files or assets to the client before they cancel the contract? What about the work that you haven’t completed yet?
- Who is responsible for completing work remaining on a project when one party decides to terminate the contract?
Contract cancellation policies vary considerably depending on the type of project you’re working on and the type of clients you work with. Each business and industry is different of course, so make sure you build the clauses into your contract accordingly.
How to create a contract
While the clauses mentioned above are important, they aren’t the only elements to consider when creating a professional contract. Ideally, you should hire a legal expert to draft the agreement for you based on your industry, expertise and the type of projects you work on.
While it may seem like a hefty investment at first, by hiring a professional, you will avoid many headaches that can arise from poorly written contracts in the future. They can also help you identify any loopholes in your process that can potentially expose you to unnecessary liability and increase your costs.
Unfortunately, it only takes one lousy project or situation to make you wish you had invested in this sooner!
If you do not currently have the option to hire a legal expert, you may search for templates online that you can use as a starting point for creating your own contract. Make sure to use a reputable source and purchase templates that have been drafted, reviewed, or approved by a legal expert.
With such templates, remember that they are not a substitute for a properly designed and executed contract explicitly created for your business and your industry. The last thing you want is to end up in court dealing with a dispute that could have been easily avoided with a professionally drafted contract in the first place!
The power of a signature
Once your contract has been finalized, the next step is to get it signed by both parties. You can, of course, sign the contract in person, but nowadays, this is all done digitally.
There are lots of tools that can help you create and send a contract to your client to sign. Something to keep in mind when going the digital route is to ensure you verify your client’s identity upon signature. Suppose you miss this step and get a client to sign a digital contract without verifying their identity first. In that case, you may find yourself in a challenging situation down the line if you are ever required to prove that they were the person who signed the contract in the first place.
In Yocory, you can choose opt for a 2-step identity verification process to protect you, your business, and your client from such situations.
For example you can decide to identify all parties via both email and text, for added security.
Otherwise, if you can simply opt for a single verification mechanism. In any scenario, each party will receive a temporary code they must use to confirm their identity while signing.
Having a client agreement in place is a non-negotiable for every professional freelancer or business person operating today. Not only does it protect you and your business, but it also sets the proper expectations between you and your clients.
If you don’t have the budget to invest in a legal expert, research online templates that you can adapt to your needs in the meantime.
While a contract’s main job is to have your back, we hope you never face a situation when you need to enforce the agreement clauses and use it in court!
If you want to feel more in control of your business, improve your client communication, and scale more confidently, sign up for a free Yocory trial and join our community. We always have your back too!