Our legal expert David Walker is providing his expert advice on all things contract law, dispute resolution and intellectual property. Step two involves a look at standard terms and conditions.
As an entrepreneur, your focus is on solving problems for your clients whilst making a profit at the same time. The “legals” are probably the last thing on your mind and yet they can make or break your business.
Think about the following questions:
What happens if something goes wrong with the service you provide?
What if you don’t hit the performance targets you agreed with your client?
What if your client keeps moving the goal posts?
Businesses face these questions (and many more) every day, and unless you have thought about the answers – and agreed them in advance with your client – you could be in trouble.
Now, I don’t want to dampen your enthusiasm. Most of the time there won’t be a problem. Most of the time everything will work out just fine, which is why these issues are often ignored.
What happens when they don’t?
At best, dealing with these issues distracts your focus from more important tasks and takes up valuable resources. At worst, you can end up in court because despite your best efforts to resolve matters, your client still isn’t happy and starts legal action against you
Most entrepreneurs are risk takers, but they take calculated risks. However, exposing your business to these issues is an unnecessary risk because they are so easy to avoid. They can even be addressed without giving them a second thought!
How do you do this?
Discussing and negotiating each and every issue that might arise with every client is going to be time consuming. It may also feel awkward discussing what might go wrong when you’re building relationships and want to focus on the positive.
Therefore, the quickest and easiest way to deal with these issues is to use standard terms and conditions of business.
Using standard terms and conditions will provide many advantages for your business. For example, where the price given is an estimate, they will explain how the final price will be calculated. If there is an issue with the quality of your work, they will explain how it will be resolved. If the end result is uncertain, it will make it clear that no guarantees are given.
Standard terms and conditions can also protect your intellectual property rights by clarifying who owns what. But most important of all, they can save you from potentially unlimited liability if a client tries to sue you. I shall explain more about this in the next article in this series.
The process of preparing your terms and conditions will also improve your business. Simply thinking about all the potential problems you could face and how you will deal with them will mean that they can be addressed before they ever arise.
But having standard terms and conditions is not enough. They must form part of a contract between you and your client. The best way to do this is to have your client sign them before you start providing your service. Often, your terms and conditions will be “the small print” on the back of a quote or order form you give them.
If you try to include your terms and conditions on the back of an invoice after you have completed the service, they probably won’t be binding on the client. This is because your client won’t have had the chance to read and accept them before you start work, so they won’t be part of the contract.
Now, I fully accept that most clients won’t read them, but this doesn’t mean to say they are not bound by them. The important point to remember is that you must give your clients a chance to read and accept them before you start work. By signing the order form your client is saying they have read your terms and condition and agree to be bound by them.
In an upcoming article I will talk about winning the “battle of the forms” – that is what to do if your client tries to impose their terms and conditions on you.
There’s one final point I want to make about terms and conditions and ensuring they protect your business. That is, when you have agreed them, you must stick to them.
It sounds so obvious that you might wonder why I’m making this point but many contractual disputes arise when service providers don’t stick to their own terms and conditions.
There are two main reasons for this.
First, circumstances may have changed so you can’t provide the service as originally planned. There could be any number of reasons for this. For example, you could have had staff issues, under quoted, the job may prove to be trickier than expected or even the weather could prevent you from finishing on time. What ever it is, you need to communicate with your client and your terms and conditions should contain provisions to enable changes to be made.
The second reason is a growing problem. The reason why many entrepreneurs are not sticking to the terms and conditions is that they aren’t theirs in the first place! More and more people are trying to save money by copying them from another business, or using a template that hasn’t been adapted specifically for them. This means they don’t accurately reflect the services they provide and could lead to them being unenforceable if they don’t have sufficient certainty – a point we have discussed in a previous article.
Copying someone else’s terms and conditions is therefore a false economy when they have to spend even more money on legal fees trying to resolve the problems caused by not having proper terms and conditions in the first place.
So, using standard terms and conditions can be a real saviour for your business. They can save you time every time you enter into a contract with a client and protect you from potentially unlimited liabilities. But, if they haven’t been professionally prepared, if they’re not properly incorporated into a contract and you don’t stick to their terms, they’re not going to save you when you need them most.
In the next article I’m going to explain in more detail how terms and conditions can be used to drastically limit or even eliminate potential risks in your commercial transactions.
Have a look back at David Walker’s first article, when he looked at the five essential components to make a contract legally binding.
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