Customer contracts are the single most important part of any business arrangement. If you are extending credit, there is simply no good reason not to use one. Contracts must be in writing, and they must be agreed to in advance by both parties.
How do customer contracts benefit your business?
They document all details of the customer relationship.
Imagine beginning a relationship with both parties clearly understanding how things are going to work. A customer contract is a road map to success.
They can often be very simple.
Not every customer contract has to be complicated. Often, a simple statement will do. For example, if you take new customer orders over the phone, confirm details of cost, expectations for payments and the consequences of non-payment in an email before providing your service. Ask customer to email back their agreement to your terms. You have a simple contract.
They help resolve customer disputes.
If you have a solid customer contract, you can use it to resolve customer disputes. For example, I have a customer who outlines, in detail, how a customer must cancel the contract. If a customer does not cancel correctly, additional charges apply.
Also, if you decide to litigate a customer dispute or non-payment, a customer contract will greatly increase your chances of success. You contract should also address the subject of arbitration, and how it may or may not be used to resolve disputes.
They can lower your costs of debt collection
If you wish to recover collection agency or attorney fees, you must include them in your customer contract and make sure customer agrees to them beforehand. The same holds true if you want to add finance charges or late fees. You cannot just add them onto your invoice after the fact.
They can be used to personally guarantee a business debt.
If your customer is a business, especially a new business or a business in distress, we recommend obtaining a personal guarantee. A personal guarantee means that an owner of the business guarantees the debt if the company is unable to pay.
Ask your attorney to draft a customer contract for your business for you today. It will not cost much, and it will be the best money you spend this year.