Your Initial Agreement/
Terms of Trade
I have seen many occasions where a business is established, starts engaging with customers and clients, but does not have properly organised processes in place to engage with their clients. Where this occurs, it can be difficult for you as a business owner to enforce your agreement with the customer and/or client as there will inevitably be a dispute over certain details. A comprehensive work contract agreement or terms of trade allows for a number of important aspects of the business and customer/ client relationship to be formally documented and if you have such an agreement in writing that clearly sets out all of the terms and expectations, such disputes can be avoided.
Some of the aspects of your work contract agreement may include (this list is not exhaustive and you should consult with your lawyer to develop a comprehensive list of required terms and conditions):
- The scope of the work to be performed
- The timeframe for the work to be performed
- The timeframe for payment
- Resolving disputes between the parties
- Enforcing payments if there is a default by the customer or client
- Warranties and conditions
Often a new business owner will be reluctant to spend valuable time and money drafting a formal agreement in the Initial Clients phase. This is an error that too many new business owners make as they start engaging with customers or clients with either a very short agreement, or nothing at all.
Although a great deal of work may be done, enforcing payment of invoices if the relationship sours can be difficult in the absence of a firm agreement. It can also be difficult to change a basic agreement to a more comprehensive agreement at a later date, as the customer/ client may be concerned about your motives in making the change and be hesitant to accept a new agreement.
Of course, if you are just starting out, it may be cost prohibitive to engage a lawyer or other consultant to draft these types of agreements. However, as soon as you attract a few clients, it is imperative that you draft appropriate terms and conditions for your business. Make sure, though, that the documentation is tailored for your business, and is not simply a pro-forma document without any consideration of the particular requirements of your business and situation.
Beware!
Perhaps the biggest challenge that business owners face is that their work contract agreement does not actually define the scope of the work being performed. The scope of the work must be clearly set out so that there can be no confusion or misunderstanding as to what is (or is not) to be completed.
From the Case Files
A client of ours was operating a business that provided custom made products to builders specific to each different building in which they were being installed. As they were custom made items, they could not be used in other construction works as they would not suit. The business operated with one major client and a number of minor clients with the major client being on board from this phase in the Business Legal Lifecycle. Unfortunately, the agreement between the parties was a handshake agreement and a written agreement (although discussed on many different occasions) had never been formalised. A dispute arose between the parties as to the terms of payment for a job that, whilst our client had prepared the item correctly, their major client could no longer use due to a dispute with their end user. The major client alleged it was a term of the agreement that our client would not be paid if the end user did not pay the major client. Our client said that this was never agreed. The dispute lasted a number of months and ultimately ended the working relationship between the parties despite the fact that there had not been any issues during the first three or so years of the business relationship. Due to the fact that the parties had never entered into a formal written agreement, there was no easy mechanism to resolve the dispute nor was there any way for the client to enforce the fact that they had complied with their requirements. The business owner was left with the choice of either commencing proceedings to sue for their loss or walk away. Both options would have left them severely out of pocket. Ultimately they decided to drop the debt but had they had a proper written agreement in place, this would have been avoided as it would have spelt out all of the terms and conditions for payment which could have then been enforced.
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