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Getting Comfortable With Contracts
This is my site Written by CPorterEsq on April 15, 2011 – 1:40 pm

A few weeks ago I came across an interesting question on Quora: “What is good advice for how to deal with a client who refuses to pay for design work because of obviously false/irrational reasons?” Putting aside the passive-aggressive nature of the question, the issue of getting paid is important for many small business owners.

The first reply suggested writing a “heart-wrenching letter” to the offending party. Can you imagine your bank, or doctor, or cell phone company writing you a heart-wrenching letter trying to convince you to pay them? Of course not, because they can rely on a written contract to enforce their rights.

A good contract is often the foundation of building good relationships. Following are answers to questions that I’m frequently asked about contracts to help you get a little more comfortable using them.

Do I really need a written contract?

If you’re asking, the answer is probably yes.

Business revolves around deals. I agree to do something for you in exchange for some type of payment. Or you and I decide to enter into a business relationship together. These are two common business deals that take place millions of times every week. But all too often, something goes wrong. I don’t perform my end of the deal quite like you expected. Or you don’t pay me. There could be any number of disputes, especially when the deal was only a verbal agreement.

A written contract can help eliminate some of those disputes by clarifying the deal and answering the numerous questions that might arise in the course of the deal. If a dispute arises, the contract also provides the basis for an arbiter or court to resolve it. Finally, a contract clearly conveys that you are a professional running a business, and that you are serious about your work.

Do I have to hire a lawyer?

By and large the first thing I hear when I tell someone to hire a lawyer is, “That’s too expensive.” Your lawyer makes you money. She makes sure your contracts are strong and helps your negotiate with confidence. Her job isn’t to sue clients, it’s to make sure you never land in a place where you have to sue.

The second response is usually, “Are things at the point where I need a lawyer already?” Things were at that point when you turned pro. You don’t need to carry your lawyer around with you in your pocket or talk to her every day, but you do need to think of her as a trusted advisor who is looking out for your businesses best interests.

What’s the best way to negotiate a favorable contract?

Don’t blindly accept their terms. The larger and more established the organization, the more likely it is that contract terms will be skewed in their favor. Always start from a strong position with your desired terms in mind and a good sense of what you are and aren’t willing to accept. There will always be other business deals.

If you’ve done your work in the business development process, you have allies in the organization. You have convinced someone with some amount of authority that your work is indispensable to their success. That is influence and leverage. You might hear, “That’s just our policy with outside vendors,” but, as with the Geneva Convention, you’ll find that there is frequently more wiggle room in policy than you’ve been led to expect.

Be specific and confident. People are reassured when you deal with them in a confident manner. This is what we charge. These are our payment terms. This is how we work.

Ever sit in a doctor’s office and look at an X-ray together? Think of the difference between your doctor saying, “This all looks fine.” and “Ummmm, I guess it looks okay.” The former is incredibly reassuring, while the latter has you running for a second opinion before you’ve left the office. And for good reason.

When a client asks you how much something costs, every “ummmm” out of your mouth costs you thousands of dollars. If you don’t think you’re worth the money, person on the other side of the table certainly isn’t going to.

If they want something different, they will let you know. Don’t negotiate with yourself on behalf of the client. Don’t convince yourself they won’t be all right with something.

I started work without a written contract. Is there anything I can do?

It can be incredibly difficult to memorialize an oral contract. It may cause tension and difficulty between you and the party you are contracting with as you come to realize how much you didn’t agree on at the beginning.

Depending on what you contracted to do, an oral contract may be enforceable. If you decide the risk of having an oral contract is less than the risk of having to rely on it if the deal going bad, you might decide to do nothing. In this case, though, it’s a good idea to keep track of all the evidence you have to support your interpretation of the agreement. You’ll need it if a dispute arises.

Finally, save yourself the headache next time and don’t start work without a contract.

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