Customer contracts are essential. Non-negotiable. If you are going to extend credit, even with a long-standing customer or a large company that looks good on paper, without customer contracts you could be setting yourself up for a big loss.

This week, I received a call from a business owner who is owed $7,000. I asked if he had a contract, and he said that he did. However, when he sent me the contract, I noticed it was not signed. In short, even though he uses customer contracts, in this particular instance, it was a “rush” job, and the customer never signed the contract. The bill has not been paid, which prompted the customer to contact us. Our initial research shows that the businessowner owes just about everyone in the state (exaggeration, but not by much). The business has stopped operating and has no assets.

Would a customer contract would help collect this particular debt? Perhaps, especially with a personal guarantee. We know for a fact that the owner of the indebted business has assets, while the business does not.

Often, customer contracts do not have to be complicated. Simple terms communicated to a customer and an acknowledgement from customer that the agree and accept those terms is better than nothing. If you cannot take a few minutes to send a quick email, perhaps you should take a time management class!

Customer must agree to terms in advance. For example, if you do not have a written agreement regarding finance charges on late payments, you cannot charge them. Simply listing finance charges after the fact on your invoice does not cut them.

Customer contracts should be in writing. Oral contracts are legal in most states, but an oral contract leaves terms and conditions open to interpretation, and hence, open to dispute.

Many small business owners hesitate to have their customers sign a contract, believing that it starts a business relationship off on a negative note. Nothing could be futher from the truth. Clearly communicating terms and conditions in writing, and making sure your customer agrees to them will communicate your commitment to the customer and to a long-term business relationship.

What’s that I hear? Too busy? Can’t afford the time? The reality is that you cannot afford not to.