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How to create an efficient cancellation policy

Unless you’re in the event business, it can be easy to overlook a cancellation policy. But without one, you can be leaving yourself vulnerable to lost revenue. Learn how to create an effective policy and effectively communicate it to prospective clients.

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Contracts make for better purveyor-client relationships.

If you run an independent business, then you understand why it is important for clients to keep their project commitments. Whenever a client changes their mind or has a change in organizational direction, you lose time and profit, which can negatively impact your business. 

So what can you do to make sure you don’t lose projects? 

One way is to have a fair and consistent cancellation policy for your company that sets expectations for anyone who books with you.

With a cancellation policy, you set expectations with the client the moment a contract is signed. A cancellation policy protects your time and money when a client introduces an unexpected situation—such as a change of heart. Here, we discuss what to include in your cancellation clause and tips on how to politely enforce it. 

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What is a cancellation policy?

A cancellation policy is a written agreement made between a service provider and their client. It clearly defines penalties, such as a fee, for clients that fail to abide by the contract. The fee can be a fixed amount or a percentage of the overall cost of service.

A cancellation policy is useful for a company because it allows a business to recoup lost money from canceled projects. A cancellation policy also encourages clients to commit to your services. It mitigates potential clients wasting your time!

As an independent business, you need to protect yourself by setting boundaries that protect your time and expertise. A cancellation policy ensures that you still receive part or all of the income that is due to you for your work done.

How to write a cancellation policy

Writing a cancellation policy isn’t difficult, and you don’t necessarily need a lawyer to create one. Below, I’ve listed the step-by-step process for creating a fair, efficient, and enforceable cancellation policy.

1. Set a timeframe for cancellation

There are many reasons why cancellations occur. For example, a company may change organizational leadership, no longer have a budget, or decide the return on the project may not be worth it. 

Whatever the reason, you should set a timeframe for cancellation that safeguards your business’ schedule so you can minimize lost time and profits

Determine how much notice time is fair to your clients.  Some small businesses require 48-hour notice to cancel a contract, while others require a minimum of 30 days. Decide what works best for your particular business practices

Also, make sure you clearly outline how clients should notify you of any cancellation, whether it’s by phone, email, or text message.

2. Specify penalties for cancellation fee policies

Once you determine a grace period for clients, your next step is to decide what the consequences should be for those who fail to honor a contract that they’ve agreed to.  

You need to decide on a penalty that is both effective and fair. If charging a fee, the amount will depend on the type of service you offer and how financially impactful a missed session is to your business. 

Many small businesses charge between 25% and 50% of the total cost of services, but your choice might differ depending on your type of business.

You might decide to deal with clients who cancel their contracts outside the cancellation window in one of the following ways:

  • Get the client’s payment in full
  • Take 50% of their project cost
  • Charge an agreed-upon percentage of the overall project cost

Whatever you decide, make sure it’s spelled out in your cancellation policy so customers understand before deciding to work with you. 

Pro Tip:  Enable prepayments for your contract to reduce the likelihood that clients will cancel. Once they’ve paid, it gives them the incentive to continue working with you rather than simply falling off the radar.

3. Decide when to waive cancellation fees

As much as your business can benefit from having a strict cancellation policy, you also need to be flexible when dealing with cancellations.

Most businesses establish a cancellation grace period, or a time frame when a contracted client can cancel without incurring a fee.  There may also be circumstances that fall outside of the client’s control, such as natural disasters or quarantine restrictions. Your cancellation policy should be structured in such a way that it takes such events into consideration. 

It should be clear about these few exceptions and what happens in such circumstances – whether deposits will be nonrefundable, partially refundable, or refundable in full. 

Clients will appreciate a cancellation policy with fair rules for unavoidable emergencies. This way, they’ll feel more comfortable agreeing on a contract with you knowing that if unforeseen circumstances pop up, you’ll be able to adjust delivery dates or forgo the cancellation penalty. 

Just keep in mind that you shouldn’t be too lenient with your clients or encourage these exceptions more than once as this will likely cost you in the long run.

4. Take accountability for cancellations on your end

It’s clear to see that creating a cancellation policy adds a level of professionalism to your business. But, it’s important to note that this agreement works both ways. 

You should also add what you will do if you have to cancel something without minimum notice. 

Outline your client’s expectations for you so you can give them reassurance in your competence and professionalism. 

5. Draft your cancellation policy

With the necessary information in hand, you can now start drafting your cancellation policy. 

Writing an effective policy comes down to your ability to put this information together clearly and succinctly.

Make sure your policy is short and sweet, with instructions that are laid out so your clients can quickly read and understand its contents, which include:

  • The cancellation timeframe (and reschedule timeframe)
  • Penalties for cancellation
  • Separate rules for unavoidable emergencies
  • What happens if the business owner cancels the session
  • What happens if you, as the provider, have to delay or cancel services

…and any other pertinent information. 

Your policy should have proper capitalization and punctuation like any binding document. 

Also, you must be mindful of your tone. Make sure your wording is simple and professional, not accusatory. 

Keep in mind that your policy isn’t a way to deliver punishment. Instead, the goal is to motivate clients to keep their contracts without overwhelming them with the requirements expected of them.

Below are two examples of cancellation policies that you can model. The first one is short and to the point, and the second is longer and more detailed. 

6. Communicate your cancellation policy to clients

Once your policy is written, you can post it on your website or directly on your online scheduling page, if you use scheduling software. Alternatively, you can include a call to action in the email signature to remind clients of the policy in any correspondence. 

You must also clearly communicate it to all clients when managing contracts so you can avoid unnecessary conflict in the future. 

Many business owners mistakenly gloss over the importance of making sure clients understand their cancellation policy, but this is something that can make or break your service business. That’s why it’s important to talk about your cancellation policy and spell out its terms to new clients right from the beginning.

For instance, if you run webinars for prospective clients to fully articulate your benefits for their business, it’s worth explaining and agreeing to the cancellation policy within the meeting to make sure they fully understand the details and can ask any questions they have.

It’s crucial that clients fully understand the terms of your cancellation policy and consent to them before signing up for your services. It’s ethical, and it highlights that you take your clients’ needs seriously.

You can present this agreement along with your contract and payment arrangement.  Alternatively, you might consider building your cancellation policy into your client intake forms. 

Including the agreement in your admission forms is a strategic move that saves everyone a lot of time and works well to prevent last-minute cancellations since clients already know that this will cost them money.

7. Communicate your policy to your staff

In addition to communicating your cancellation policy to your customers, you must also share it with your staff. 

You can post it in a prominent location where everyone will have access to it. Make sure to familiarize your staff with the details of your cancellation policy. They should be able to effectively explain the policy and all its clauses and penalties to clients and know exactly what to do in case a client is looking to cancel.

Make sure they understand how to suggest alternatives, or possibly keep the contract until they speak to a more seasoned sales associate. Your staff should also be sympathetic towards the unexpected issues that clients sometimes experience.

8. Help clients remember their commitments

Once your cancellation policy has been structured and shared, simply schedule progress reminders as an additional means to prevent cancellations. 

Helping clients remember what they’re paying for is a crucial part of the formation and execution of your cancellation policy. 

Most people have a lot on their minds, and it makes sense that they may question the value that you’re providing them, especially early on when you’re beginning the project.  Others may simply push it down their list of priorities, and that’s why it’s good to send out timely reminders which you can also use as an opportunity to remind them of the value you provide.

You’ll be able to not only help clients keep track of the project, but also make it clear to them that you’re there to provide the services you promised.  Reminders can be sent in any way that’s convenient for your clients, whether it’s to send a reminder email, drop clients a message, phone, or video call.

If you feel that you’re simply too busy to manage the follow-ups and want a more personalized touch, consider hiring a virtual assistant to help.  

Moving forward with confidence

There you have it. Eight steps to creating and enforcing a fair and efficient cancellation policy for your company. To make your work even easier, I recommend using an online scheduling software like HoneyBook to manage projects, book clients, send invoices, and get paid – all from one convenient place. 

With HoneyBook, you’ll decrease the occurrence of last-minute cancellations and no-shows. Talk about benefits for your bottom line! 

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