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Is Your Customer Agreement a Strength or Liability?

Is Your Customer Agreement a Strength or Liability? 

“I’ve got a big problem.” 

Jen was out of options.  Her customers had always paid on time or close to it.  But lately, more customers have been delaying payment.  She didn’t know what to do. 

“What does your contract with them say?”  I asked.  Jen runs a commercial design print shop and design studio.  Her business had grown substantially over the last few years but she never updated her customer agreement.  She still used a free customer agreement she got online when she first formed her company.  The agreement was a bare-bones template that only included very basic payment terms but was silent as to late payments. 

“There’s no teeth in this agreement to enforce late payments.  I want to be able to charge interest on late payments, but can I legally do that?” she asked.  “What if they still don’t pay and I need to sue them?” 

Jen was in a bind.  Her agreement did not lay out a detailed procedure for late payments and breach of contract.  It also did not provide specifics for how disputes would be resolved between her and customers and what laws would apply to those disputes.  For example, Jen’s company is in New Jersey but her customer is in Pittsburgh.   Would Pennsylvania or New Jersey law apply? 

Jenn had so many questions but her agreement was no help.  How could she avoid these troubles in the future? 

An Ounce of Prevention 

A key way to avoid these problems is by having a strong and clear written agreement with your customers at the outset of your relationship.  This agreement is often called a Master Service Agreement (MSA).  An MSA is a legal document that establishes the terms and conditions for a long-term business relationship between you and your customer.  In the MSA, you set out the core terms and conditions between you and your customer (e.g. payment terms and amounts, liability, service levels, obligations of both parties, and much more).   

Like all well-prepared contracts, an MSA ensures you and your customer are clear on various matters important to your doing business together.  It eliminates troublesome gray areas and vagueness which can lead to ruptured relationships with your customers and potential liability for your business. 

Eliminate Problem Areas with Your Customers 

An MSA is essential to a strong foundation for your business.  Here’s why:  

1. Clarity between you and your customer

An MSA provides clarity on the expectations and responsibilities of both you and your customer.  The MSA defines clear payment terms and your company’s obligations to perform the services.  If you believe your customer is not performing under the contract, the MSA provides the answer to whether either of you is in breach of contract.   

    2. Get to work (and get paid) faster

    When you get your MSA in place, future contracts or projects can be executed faster and more efficiently.  The terms and conditions have already been established, so there is no need to negotiate them again.  This is good for your customers because when they want to hire you for a new project, you will be able to accept and start on the project faster.   

      3. Sidestep disputes

      An MSA helps manage risk by defining you and your customer’s rights and obligations.  Your MSA can address critical issues such as: 

        A well-structured MSA addresses many other important matters such as insurance considerations, geographic location, licensing and permits, termination/out-clauses, standards for work, tax responsibilities, and more. 

        4. Fosters a long-term relationship

        Because core terms and obligations of the relationship are laid out clearly at the outset of the relationship, you drastically reduce the chance you and your customer will get into a dispute that you are unable to resolve without resorting to court.  This provides a sense of trust and stability for your relationship.  In this way, an MSA strengthens your relationships with your customers and paves the way for future business for your company.   

        Protect your Customer Relationships 

        When you’re clear in your communications with your customer, it improves the relationship.  Getting a clear agreement (MSAs) with your customers is foundational to your relationship with them.  Talk with Len to find out how: BOOK HERE NOW!