Customer Contracts: Planning for Recovery

Posted by Marilyn Miller on April 17, 2020  /   Posted in Uncategorized

I just listened to the New York Governor daily update on the Covid-19 situation in his state. I have listened to him often of late. I have a vested interest in New York, as my (healthy, thankfully) 96-year old father lives there.

Today, the governor spoke about how New York has come back stronger from tough times before, and that he hopes and believes that the same will happen after Covid-19. It got me thinking about how my business, and other small businesses can use this “down time” to ensure we come out stronger on the side of this ordeal.

One way to strengthen and protect a small business is with strong customer contracts.

The time to write or review your customer contracts is now. Relying on oral contracts or a “handshake deal” is not good practice. While oral contracts are valid, unless a deal is in writing, you leave yourself open in the event of a dispute.

Use this time to strengthen your business by making sure you have a good customer contract that is executed before a transaction. If you wait until after the transaction, as my mom used to say, you are “closing the barn after the cows have gotten out”. Good solution, but too late to be of any use.

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.

personal guarantee means that an owner of the business guarantees the debt if the company is unable to pay.

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.

Commit to the drafting, revision and regular use of customer contracts. Update them annually. 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.

In other words, close the barn door before the cows get out, not after!

 

 

 

 

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