What do all these statements have in common?
“I don’t have time to do it.”
“It will be too expensive.”
“We don’t want to start a business relationship on a negative note”
They are all really bad reasons why small business owners do not take the time to secure a contract with their customers. There is no excuse for not having something in writing with every customer to whom you extend credit.
No time? Well, you need to make time. Remember, you do not need a formal agreement. Something is better than nothing. If someone calls you and asks for service, provide a quote over the phone, but ask for an email address. Confirm in an email and ask customer to confirm back before you provide the service of ship the product. Takes minutes, could save you money. Here is an example (customer is a plumber).
To Customer: XYZ Plumbing is happy to provide the following quotation for service. Our rates are $50/hour with a 2-hour minimum. Please have payment of 100.00 ready for our tech when he arrives. We will bill you for additional costs, if any. Once we will bill you, payment is due upon receipt, and any invoices unpaid beyond 30 days will be subject to finance charge of 1.5% per month (18 per year). In addition, if your account remains unpaid and is referred for outside collection, you agree to be responsible for all costs of collection.
Ask customer to agree to terms by reply email. And voila, you have a simple contract! Of course, if you are entering into a long-term project or if you are extending a large credit limit, we strongly suggest you contact your attorney and get a more formal contract, but in a pinch, something is better than nothing.
Too expensive? The “contract” above costs nothing. You can template it and use it again and again. Even a more formal contract drawn up by your attorney will be a one time expense that you can use again and again. And the fact is, it will save you money in the long run because it will be your proof that customer knew and agreed to your terms. It could also help you recover some of your collection costs. Buying a template contract from your attorney will be some of the best money you will ever spend.
Negative? How could clearly communicating the details of your business relationship be anything but positive? In fact, it is leaving gray areas subject to interpretation is negative, while clearly defining the terms and conditions is the right thing to do. If a potential customer balks at your terms and does not want to do business with you, you have a decision to make, but at least it will be an informed decision.
In closing, a strong customer contract is a great tool for bad debt recovery. It can help resolve disputes, offer proof that customer requested work and can help you recover costs of collection.
Too many of our collection clients with no contracts learn the hard way. Don’t be one of among them!