Contract Vs No Contract? What small businesses need to know.
Whether you are new in business or have been trading for sometime what are the benefits of having a contract over not having a contract? How can having a contract help you relax, enjoy your time, grow your business and help you sleep?
Why you need a contract
So you may not think you need a contract, but if you don’t have a contract you may be:
- leaving yourself open to interpretation.
- Interpretation leads to disputes, misunderstandings, confusion.
- Unclear what you need from them & when by
I want to share a true story with you:
I was approached on Facebook by someone who was waiting 18 months to invoice a client. They thought they were covered as they had a contract, however, because their contract was in control of the customer as it provided no deadline for the copy to be received, they couldn’t invoice. They did have some money up front but never expected to be waiting 18 months for the copy so thought they were covered by putting
“Final invoice raised once website is live”
The website still wasn’t live as they hadn’t received the copy needed for it to go live.
What are you leaving in the control of your customers?
So what do a contract do?
So you’ve been trading well and never had a need for a contract, so why do you need a contract?
- fundamental to you and your customer knowing exactly
- fundamental in telling your customer what they’re getting for their money,
- fundamental in telling your customer what you’re giving them for their money,
- fundamental in telling your customer when they will get product or service,
- fundamental in telling your customer how and when you expect to be paid and
- fundamental in telling your customer the consequences of them not paying you on time.
- fundamental in defining who you are, who they are, which courts rule your contract
Cash flow is confusing with no contract.
Without a contract, you can not be certain when a customer is going to pay you. You don’t know what your charging structure is, you don’t know what your payment structure is and it’s unlikely you will get money up front.
How can a contract help with a defined charging structure
- When you will be paid
- How much you will be paid
- What you will be paid for
- How much of that will be paid upfront
will all be covered in your contract.
How can a contract help with a defined payment structure
- Everyone know when they have to pay
- How they have to pay
- What they are getting in return for that payment
- Consequences of late payment
How can a contract help with getting up front payment?
Every time you issue an invoice with credit terms you are being your customer’s bank! Stop being your customer’s bank
No matter if you are providing a service or a product, if you are offering credit terms you are spending time on your customer before payment. Get money for your time before you spend it
If your customer says they don’t want to pay you up front but has no valid reason – are you going to trust them to pay you at the end of the project? Build the trust relationship
Time for another story – I worked with a coach who had some terms that she had “DIYed” when she set up. We reviewed her terms and this is the outcome she got:
“I’m thankful that it’s in place and all monies have been paid upfront
so there will be no wasting time/energy chasing payment, also it stops the money side interfering with the coaching relationship – now the coachee and myself can concentrate on their goals – this is of enormous value”
Here is the difference before working with Rachael It would have taken me 9 months, 7 invoices, anything up to 7 hours to collect £150 per invoice.
Rachael wrote a new contract for me which means I received £1000 up front, freed up time for me to do more value-adding activities – business development, repay an outstanding director loan so I could buy secondary school uniforms, school shoes, PE kits including trainers, football boots etc needed for my 2 children for September.
Lack of a contract leads to stress.
According to many sources, stress is the biggest cause of time off work, both for the employed and the self-employed. Having a contract can reduce stress by:
1 – Reducing concern over unpaid bills
- Very few businesses don’t have to worry about paying bills
- With the right contract, you can stop this as you get payment up front or a timescale for invoicing
2 – Allowing you to enjoy your family commitments
- Payment is the biggest concern for small businesses
- Late payment biggest cause of time off work (FSB)
- Enjoying the down time not worrying about that customer or that outstanding invoice
- Get back your family and leisure time
Another true story – I was approached by a Virtual business assistant who was stressed by the fact she didn’t have any terms and was worried about the implications – here’s how she explained it:
Writing my Terms and Conditions was something I’d been putting off for a
while. I had the basics but kept worrying I’d left something out.
If you’re struggling to write your contracts or business terms and conditions, I’d certainly recommend getting professional help.
As a Virtual Business Assistant, my terms are specific to the services I perform. I didn’t want my terms to come across as highly restrictive but I needed them to be precise, thorough and to cover all eventualities.
It felt like a huge piece of work and I dreaded getting started. I was tempted to do a cut and paste job but decided it was the wrong thing to do.
I believe in plain English too so I wanted by terms to be short, concise and written in a way that’s easy to understand.
I also wanted them to be published on my website. My business philosophy is about making it easier for my clients to work with me.
So What Does a Contract Need?
Relatively little (unless speaker contract!)
- Who is supplier
- Who is customer
- What is the product/service
- How and when are you going to be paid
- What happens if either party cancels
- What are the consequences of Late payment
- How are you going to protect their data
- How can either party terminate
- Abusive language (where relevant)
- Legislation for your industry
- Ownership copyright (where relevant)
- It needs to be written in Plain English
- It needs to be written in a Legible font
EVERYTHING ELSE IS COVERED IN LAW
LAW OF RULES ALL CONTRACTS
So to conclude, contracts are
Helps you sleep
What else do you have in your contract?
Why did you include it in your contract?
Does it actually need to be there?