How and Why to Create a Customer Contract

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In its most basic terms, a contract is an enforceable agreement between two parties. Contracts do not have to be written down to be legally enforceable; a verbal agreement also can be binding. However, basing your relationship with your customer on a verbal agreement and trust is an unnecessary, high-risk strategy and can be difficult to enforce in court.

As a craftsman, you are likely to be focused on building relationships and designing/executing your project while providing quality workmanship. Making your customers sign a written agreement before performing services probably isn’t foremost in your mind. However, a well-drafted, written contract provides certainty and clarity, and protects the interest of all parties if problems arise during a project. It can be a powerful and useful tool when used correctly in your business.

A good customer contract does not need to be complicated. It should not be written in legalese, but instead in short, clear sentences using plain language that is easy for everyone who will sign the contract to understand. If a contract makes sense and is easy to process, your customer is more likely to trust what it says and agree to its terms.

While written contracts should be customized to fit the particulars of the project, there is certain information that should be included to create a simple and effective customer contract.

Orange 1The contract needs to clearly state the contact information for all parties involved in the contract. This means not only the legal name of the person or business, but also the main contact, physical address, billing address, and contact details, as applicable. If you have incorporated your business, make sure to use the exact name that is on the incorporation paperwork. Use these legal names throughout the contract, as well as at the end where the parties sign.

Orange 2Describe in detail what you have agreed to do for your customer. It is important to be as specific as possible about what you are being hired to do, how you are going to do it, and the price that you will charge for your services. Make sure to outline any deadlines, such as project milestones and date of completion. If anything is needed from the customer to complete the project, specify what and when you will need it provided. Documenting this level of detail helps to guide the working relationship between the parties and sets clear and defined working parameters. You don’t want to feel like you have to do more work than was intended originally, and your customer doesn’t want to feel like they are not getting what they paid for.

Orange 3Along with the price that you will charge the customer for your work, make sure to include payment terms. Depending on the type of job you will be doing for your customer, you will want to consider preparing both a billing and a payment schedule in the contract. If you are being paid an hourly rate, define when you will invoice your customer, for example, weekly or monthly. If you are billing by the project, include at what stages of job completion you will be invoicing the customer and what percentage, or dollar amount, will be invoiced after each stage. The payment schedule outlines how long the customer has to pay you after receiving your invoice, acceptable forms of payment, as well as any late fees the customer will incur if they do not remit their payment as scheduled.

Don’t Be Afraid to Ask for Help

If you don’t feel comfortable drafting a contract yourself or are unsure about what you have drafted, a small business attorney can draft the contract for you or review and provide advice on a contract you have drafted yourself.

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Orange 4Include a description of how the contract will end. For example, if a contract is for a one-time service, state that the contract will end once that service has been completed. If it is a contract for ongoing services, you may want to state that either party may end the contract by giving a number of days’ notice, for example, 30, 60, or 90 days. You also may want to set out the circumstances under which the parties can terminate the contract. A well-written termination clause can provide an exit strategy to end the contract without having to resort to legal proceedings.

Orange 5Write into the contract what you and the other party will do should a dispute arise. You can specify where disputes will be handled, and which state’s laws will govern those disputes. This could be particularly helpful to you if you and your customer live in different states. Unless there is a specific reason for doing otherwise, just pick your own state. That way, if you do end up having to settle a dispute, you won’t have to spend additional time and money traveling out of state. Include specific ways that you will resolve any dispute. Consider adding a mediation or arbitration clause to the contract. Both of these methods typically are faster, simpler, and more private than litigation.

Orange 6Last, but certainly not least, have all parties sign and date the contract before proceeding with the project. Contracts are binding legally only if they are signed by all parties. Make sure that each party signs with their legal name as stated in the contract. Once signed, be sure to give each party a fully signed version of the contract.

Having a written contract in place shows that you take your business seriously. It builds confidence with your customer by removing uncertainty and providing a clear outline of the working relationship. There are a lot of resources that can help you put together a solid business contract. If you don’t feel comfortable drafting a contract yourself or are unsure about what you have drafted, a small business attorney can draft the contract for you or review and provide advice on a contract you have drafted yourself.

Dana Rogers is the controller for the National Wood Flooring Association (NWFA) in St. Louis. She can be reached at dana.rogers@nwfa.org.

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