Avoid Contract Disputes: 6 Best Practices for Small Businesses

You sit down with your morning cup of tea and turn on your computer for a full day of work. A quick check on your inbox shows that you have an email from a client, and upon opening the email you learn that the client is very upset. The deliverables they thought they were getting is not at all what you provided, and now they want a refund. Contract disputes like this one have a propensity to turn your day from great to rotten in the blink of an eye.

There’s nothing worse than that sinking feeling in the pit of your stomach when a client is unhappy. After all, you started your business to use your skills to help others. Your goal is to make things easier for your clients - them being upset or unhappy is the last thing you want. 

Many times, client unhappiness stems from a contract that was not clear enough. When you created your service, you had a clear set of deliverables in mind. Unfortunately, those deliverables were not laid out in your contract, and so they were not clear to the client. In their mind, they were getting one thing and the reality of what they got was very different. 

Neither of you are necessarily wrong, but your contract didn’t set clear expectations. The good news is that you can clean up your contracts in order to avoid future contract disputes with clients. You’ll want to make sure that your contracts are clear and specific in order to avoid misunderstandings. In particular, there are six areas that you’ll want to make sure are incredibly clear in order to avoid contract disputes.

Payment Terms

If you’re doing work for a client, you want to ensure that you’re being fairly compensated, and compensated on time. This means an important aspect of your contracts with clients are your payment terms. Depending on your situation, you might want to consider adding the following to your contracts:

• Total Payment Amount
• Payment Schedule 
• Accepted Payment Methods
• Late Payment Fees
• Currency
• Retainer or Deposit Amount (and Whether it’s Refundable)
• Refund Policy

Having these terms outlined in your contract not only make it clear to everyone what specifically is involved with payments, but it also backs you up should there be any disputes about payments in the future. Read more about payment terms that every contract needs if you want to get paid >>

Scope of Work

This particular section of a contract is key for making sure that everyone is on the same page as far as what the project entails. Having this clearly outlined ensures that no client is unhappy about something they thought they were receiving, but didn’t get - like for our customer above. For this part of your contract, you may want to include and cover:

• Project Description
• Deliverables
• Timeline 
• Responsibilities of Both Parties
• Scope Changes (Including Fee and Timeline Changes)

Intellectual Property Rights

Intellectual property is an intangible creation of the mind that can be patented, trademarked, or copyrighted. (Read more about trademarks vs copyrights.) If you’re working with a client in which intellectual property will be created, you will need to spell out very clearly in your contract who that intellectual property belongs to. You may also want to outline who will own the copyright, any trademarks, or any patents created with this work. And if you are licensing the work, you will probably want to outline that as well.

 

 

Termination/Cancellation Clause

In this clause of your contract, you’ll want to make sure that you specifically outline what the steps are that will need to be taken in order to terminate your contract. This should be clear for both parties. Some key pieces you may want to include are:

• Termination Circumstances
• Notice Period
• Consequences of Termination

As much as we would all love to never have to terminate a contract, it’s an avoidable part of running a business, so make sure you’ve got yourself covered by clearly outlining this clause in your contract.  Read more about what happens when a client wants to cancel >> 

Liability Provisions 

Another part of your contract that you absolutely hope to never need to refer to are your liability provisions. These are there to outline what happens if something goes wrong in the course of your working relationship. Inside of this part of your contract, you may want to include:

• Limitation of Liability (The Amount of Damages Either Party Can Be Held Liable For)
• Indemnification (Provide Protection to One Party Against Any Legal or Financial Damages that May Arise from Actions of the Other Party)
• Insurance (Types and Amounts Required by Either Party)
• Damages (Monetary Compensation for Breach of Contract)
• Force Majeure (How to Contract is Affected by Natural Disaster)
• Governing Law (What State/Country Will Be Used to Enforce the Contract?)

We know that these parts of a contract can seem daunting. There’s a lot of legal words and phrases that go into pulling together a strong contract. Which is why we’ve created contract templates for small business owners that walk you through exactly what you need in your contract. In less than 10 minutes you’ll have a contract set up that makes you feel confident in what you’re sending to your clients! 

 

 

And if you’re realizing that maybe the legal foundations of your business aren’t quite as strong as you’d like them to be - be sure to download our No-Nonsense Checklist to Starting a Business. Inside, you’ll find a full checklist of everything you need to do to establish and maintain a strong legal foundation for your business. So that you can save yourself future legal headaches!