Contracts are legally binding written agreements between a vendor and client that need to be drafted and reviewed carefully.
The longer a business relationship is carried out through an informal handshake or trust, the greater the risk for all parties involved.
The best protection against fraud or potential future disagreements is the creation of a terms of service contract which states how business will be conducted and to which all parties must agree.
The agreement process starts with one party initially offering their terms and conditions which can be either accepted or rejected by the other party involved. At this point, the rejecting party can make changes to the terms as they see fit and present a counter-offer to the original party for consideration.
This process repeats itself until there is a meeting of the minds in which common ground is found and a contract can be drawn up. During the back and forth, it’s important to resolve issues relating to scope of work, payment, and scheduling at the bare minimum.
1. Scope of work
At the bare minimum, a contract needs to establish an understanding between both the vendor and client. Establishing expectations will help avoid questions and concerns about the quality and quantity of completed work.
For example, consider a business which creates and edits videos. In drafting up a contract, they would likely specify the maximum length of video they are willing to provide. This prevents a client from taking advantage of the company by demanding more work to be completed before finishing a project.
2. Payment structure
Payment is a sensitive issue and the invoiced amount cited for work completed should never be a cause of problem. Every contract should have a billing structure section which clarifies the cost of providing service (hourly rate or price per project), when payment is due, what payment methods are accepted, and penalties for late payment.
Furthermore, don’t forget to include the cost of modification. Using the same video firm from above, if they charge by the hour, they would not want to re-edit a video based on a client’s demand for modification without receiving the adequate compensation for extra work done.
With emphasis on delegating scope and monetary compensation, it’s easy to overlook scheduling. Since no one can physically work around the clock all year around, don’t forget to include when clients can get in touch and expect work to be completed.
The video company mentioned above may be delivering videos of a certain length and getting paid accordingly, but a realistic expectation needs to be set in how quickly work can be accomplished.
A client might expect the polished video in just one day, but it might take your firm that long just to craft the transcript for the audio voiceover.
4. Contract oversight
Contracts can get lengthy and firms which manage multiple contracts with various clients need to closely monitor and pay attention to detail of each to manage expectations.
Due to this, a contract management team which has the best interest of the contracting business in mind needs to be created to oversee details such as terms, deadlines and renewals.
Furthermore, their job is to ensure that every contract is helping facilitate a business to achieve its overall goal rather than hinder it. Automating this process can save as much as 260 hours per year.
Without a legally binding contract, both clients and vendors can take advantage of each other and this puts billions of dollars at risk throughout the country.
Creating a contract helps both parties get on the same page and avoid conflict by establishing a set guideline of rules that must be followed. Therefore, to avoid complications and headaches in providing a service, make sure contracts are air-tight and leave little scope for exploitation.
This article has been edited and condensed.
Shawn Arora is the founder of LaunchSpark Video, a Toronto-based explainer video agency with a focus on ROI. LaunchSpark works with SaaS and tech vendors to distill complex messaging into clear and concise insights that increase conversion rates.