Business contracts are legally enforceable agreements that provide security for all parties, including business owners, clients, vendors, and more. In this comprehensive guide, learn how to draft and review contracts, ensure your clients sign promptly and provide a professional experience.
A business contract is a legally binding agreement between parties. For example, independent business owners may have an agreement to perform a service for a client, which all parties agree to before the service is performed.
The business agreement will lay out the scope of the service, set up payment details, and include a variety of clauses that protects the business owner. After the business owner has their lawyer look over the contract to make sure it is both legally binding and favorable for the business, the client can review it as well.
If you’re a service provider and you have clients, you’ll need to know how to create legally-sound contracts, how to enforce them, and how to make the signing process a good experience for your client. Use these contract best practices for independent business owners.
- The elements of a good contract
- Essential clauses for independent businesses
- Contracts for services and retainer agreements
- The contract process from drafting to signing
- Contract management tools for independent business owners
The elements of legally-sound business contracts
A good contract is legally compliant and protective. That means there is nothing in the contract that breaks any laws. The contract must also be enforceable in court if you get sued. Always have a lawyer make sure your contract protects you.
A contract should:
- Set expectations between the business owner and the client
- Avoid misunderstandings by clearly outlining the scope of service and any guarantees
- Help resolve disputes
- Include any necessary clauses that are relevant to your situation
- Protect you if you get sued
- Lead to more business because of guarantees, such as a quality guarantee or a satisfaction guarantee
- Build trust with your clients because using contracts shows that you are professional and you take your business seriously
The basics of a general business contract
The simple definition of a contract is an agreement between parties where there is a promise to do something for payment.
If you offer a service, the contract should state that you’ll complete that service for a set price within a set timeframe. And the client agrees to pay the price for the service and agrees to any other clauses, such as a confidentiality clause (which is especially relevant for business coaches).
A contract must have a few basic elements, as outlined in the bullet points below, such as an offer, capacity, acceptance, agreement, and signing
For an agreement to be an enforceable and legally binding contract, there needs to be a few basic elements:
- Something of value must be exchanged: A commitment is made to offer something of value, such as a service, for something else of value—for example, payment for the service
- Capacity: A party must be capable to offer something of value and also be able to do so legally
- Offer acceptance: The offer must be accepted by the other party
- Mutual agreement: The client agrees to pay for this service, and the contract’s conditions, including all the clauses, have been accepted by all parties
- Written contract: For example, real estate contracts need to be in writing
- Signed by all parties: Contracts must be signed by all parties to make them binding
Laws may differ in your state or your country, so be sure to get the advice of an attorney in your area who is experienced with business law and contract law.
Elements of a client contract
Since independent business owners work directly with clients, let’s dive into what your client contracts should include:
- The contact information of the parties
- The scope of the service being provided
- Dates, such as deadlines or delivery dates
- Obligations—what each party is obliged to do for the other party
- The total cost of the work if there is a flat fee or some other cost metric such as an hourly rate
- Payment terms, including when payments are due, how payments may be made, and types of payment that aren’t accepted, such as a personal check
- Retainer fees, if applicable
In addition to these basic elements, you’ll want to add beneficial clauses which are addressed in the next section.
Basic information about the parties
The names and contact information of each party should be listed in every contract, including email addresses and physical mail addresses.
Scope of the service
Client contracts must clearly define the scope of service, which outlines the specific services you’ll be providing to your client. The services you’ll be offering, the anticipated results, and any deadlines or timelines that must be met should all be covered in this section.
It is important to be clear about the nature of the relationship or the extent of the work. The scope needs to be precise and clear. If you’re providing a service for a client, a thorough description of the service should be provided. Include the limitations of your service as well—be specific about what you will not be doing for each contracted service.
The total cost of the service
The contract should include specific remuneration amounts. Include the total cost of the services provided, the transaction price, or any other costs relevant to the particular contract.
You can add an ongoing fee in this section of the contract, such as an hourly fee. You may also put a retainer fee here if you’re providing ongoing services which the client pays for in advance or set intervals, such as a monthly retainer fee.
Dates, deadlines, and contract duration
The start date and end date, if applicable, should be stated in the contract. There may also be continuous terms, meaning the contract may continue indefinitely until one party ends the contract. For example, a continuous contract could be ongoing consulting. There should also be a list of all deadlines and delivery dates here. Service agreements may be ongoing, so there wouldn’t be a deadline here for those types of agreements. Contracts may be for a set term and may renew automatically, however.
Rights and obligations of each party
This clause specifies the obligations of each party, as well as their rights. For example, if you’re providing a service to a client, you might specify in this clause that you must finish the work by a particular deadline.
The contract may stipulate that payment must be made by a specific date by the client. Additionally, certain rights can be added, such as the right for either party to file a lawsuit or end the contract early.
You want to protect your business but you don’t want to scare away potential clients. Always review your contracts with your clients to make sure they understand the terms and conditions.
Essential clauses for independent businesses
Contract clauses clarify specific terms related to your business and services. Many of these clauses include standard copy that you can find online or have a lawyer add to your contracts. However, always be sure to make your contract copy specific to your needs.
Every contract should have a termination clause that specifies when a party can end the contract. In this clause, you set a deadline for your services, after which the contract expires automatically, or list specific reasons that you or your client may cancel a contract.
A termination clause is particularly helpful for service providers who offer ongoing service. There must be some way for either party to stop the service or end the contractual relationship. There are times when you may want a contract to end early. For example, if your client has significantly late payments, this clause allows for the early termination of the agreement.
Intellectual property, private data, financial information, private communications, and other confidential information are protected by a confidentiality clause. This clause can also be in the form of a non-disclosure agreement (NDA), in which the parties agree to not disclose private or protected information.
Businesses should have a confidentiality clause to safeguard their sensitive data. Clients who accept this provision agree not to disclose any information about the company or the details of the relationship. Confidentiality clauses can work both ways. This clause can also guarantee that the client’s information will be kept private and that the company won’t share any information that might harm the client if it went public.
Dispute resolution clause
Disputes can arise involving any part of the relationship or agreement between parties, so each clause in the contract must be clear and specific about the terms. A dispute resolution clause details how disputes are resolved and where they are resolved. This clause may include which jurisdiction lawsuits may be filed or if disputes go to arbitration, rather than court.
Force majeure clause
Force majeure is an event that is beyond the control of the parties involved that may disrupt a transaction or relationship. Force majeure events can include natural disasters, civil unrest, pandemics, and more.
The clause specifies the circumstances in which events may occur and in which neither party may hold the other liable for relationship breakdowns or other consequences of the event.
When including possible events in your force majeure clause, it’s best to be specific to avoid any ambiguity. Use force majeure templates and examples online if you’re unsure of exactly what to put in your force majeure clause.
Breach of contract clause
A breach of contract clause specifies what will occur if either party violates the terms of the agreement.
This clause outlines expectations if the client violates the agreement in any way. The client would be in breach of the contract if they sign and don’t pay, for example.
A business owner can also add remedies to breaches of contract that could include charging a fee or terminating the contract. Various types of court-ordered damages are possible remedies for a breach of contract.
Agreements containing indemnification clauses state that neither party shall be responsible for the other party’s losses. The other party may be required to pay court costs, jury awards, or attorney fees if they are sued and end up losing their case. This provision may shield a company from liability or harm caused by a client.
An arbitration clause is a type of dispute resolution provision that stipulates that parties to a contract will arbitrate their differences with a neutral third-party arbitrator rather than taking their case before a judge or jury in court. In addition to being less formal and more private than a trial, arbitration may also be less expensive.
Review your contracts with your client and be sure to get their feedback and answer any questions to give them the best possible experience. You want to be protected, but you also don’t want to scare off clients with intimidating legalese and convoluted contract provisions.
Use a clientflow and contract management system like HoneyBook to make the contract experience a good one for your clients. You and your clients can sign and save documents easily on HoneyBook.
Contracts for services and retainer agreements
If you offer an ongoing service, you’re going to want a provision in your service contract that stipulates the price of your services and the frequency of the client’s payment. A retainer agreement is a contract or clause in a contract that requires the client to make an advance payment for your services.
Retainer agreements are common for professional service businesses like law firms, but they can also be used by other kinds of service businesses like consultants and marketing firms, among others.
Why use a retainer agreement versus other payment arrangements?
Your business is protected
A retainer agreement protects you, just like any other contract. Any kind of contract, including a retainer contract, outlines each party’s responsibilities so that, in the event of a disagreement, everyone is on the same page.
Additionally, because money has already been allocated, the service provider can cover any expenses that arise while the retainer is in effect, even if the client is unable to do so or stops being available.
You can build better relationships
A retainer arrangement is a working relationship that can foster trust between a client and the business. When someone requests payment in advance for your services, it’s a sign that they value you and your time enough to make a financial commitment for something they won’t receive right away.
Customers who hire you pay upfront for the time and consideration you’ll give them over time. The money they pay to retain your services is applied to the total due when the services are finished.
Having several clients on retainer enhances cash flow because money is made available upfront to cover costs. Your revenues may become more steady and predictable as a result of this.
Other types of payment agreements
Retainer fees aren’t the only way service providers and independent contractors can charge for their services. Independent contractors can invoice clients for the work they’ve performed.
Payment can also be made in these ways:
- COD: One payment method is cash on delivery (COD), whereupon a client pays immediately after the service is finished
- Net 30: Another method is to send the client an invoice. Once the invoice is sent, a common payment term is for the full payment of the invoice within net 10, net 30, or net 60 days after the invoice
- Contingency: Service businesses may charge a contingency fee as an alternative to a retainer. This is a fee that the client pays based on the successful outcome of a service, such as a lawyer winning a case.
The contract process from drafting to signing
A few things must happen before a contract is signed. Make sure you figure out what you want to include in your contracts and have a lawyer review the documents. Then, use this checklist for contract signing.
Write the contract and include essential clauses
If you’re drafting the contract yourself, you can include important clauses as well as any negotiated terms the other party agreed to. Include any clauses that are pertinent to the particular relationship or transaction in addition to the fundamentals of an enforceable contract as described in the section above.
Have your lawyer review the contract
If your lawyers haven’t drafted the contract, you’ll want to include them at this stage to have them review the contract that you’ve written. If there are any changes to the contract, such as changes that may be made as requested by the other party, you’ll need your lawyer to review the changes. The same is true of any changes to the scope of the contract or modification to any clauses.
Negotiate the terms and conditions
Sometimes you may sign contracts that have already been made by the other party. This does not imply that the agreements cannot be altered. You can negotiate new terms to make the agreement as advantageous to you as possible.
Review the contract and any changes
Your attorney should review the contract and any changes to it to ensure there are no drafting mistakes and that the contract is in full compliance with the law. Give the contract a thorough review with the other party as well. There is no reason for there to be any surprises.
Sign the documents and save copies
Each party must then sign the contracts, including their initials on each page and other specific requirements. The other party must countersign the documents if any changes or addenda have been made by one party.
All parties now sign the agreement after distributing the necessary paperwork to each signatory. You might think about using the agreement as a model for a simple starter contract in the future. The contract becomes enforceable once all parties have signed the required paperwork.
Use contract templates to save time
To save time, set up contract templates that you can reuse with each client. That way, you don’t always need to write a new contract and have a lawyer review it for every single client. With a system like HoneyBook, for example, you can save online contract templates, then tweak them easily to include your specific terms and clauses.
When it’s time to send client contracts, all you need to do is drop in your client’s specific project scope and terms. Better yet, HoneyBook lets you combine your contracts with other actions, like service selection, so your contracts will automatically pull in their project details.
Contract management tools for independent business owners
To improve your process of creating and signing contracts, use a clientflow management platform. With a system like HoneyBook, you can streamline much of the process and ensure your contracts are ironclad between you and your clients. HoneyBooks benefits include:
- Independent business owners can easily use online contract templates for their service agreements
- All parties receive a downloadable copy of signed legal documents
- Your client’s name and other information can be automatically imported into documents
- You and your clients can view and sign documents on any device, whether the device is a desktop computer, tablet, or phone
- Contracts can be saved as online templates for easy contracts to use in the future
- Adding signatures to documents makes the contracts legally binding
- When a client signs a document, you’ll be sent notifications so you know that the contract signing is complete
Before writing, negotiating, and entering into business agreements, be sure to consult with your attorney, particularly who practices business law or contract law, specifically.
Easily draft and sign service contracts and other types of contracts with the help of a client management system like HoneyBook.