It seems simple, right? Your customer wants to purchase goods or services from you and they give you payment in exchange. But, you know, things can get complicated. And unfortunately, even a tiny error or missed payment could put your cash flow in jeopardy or upset a client.
One of the best ways to avoid misunderstandings or late payment is to write a contract in place. You’re probably thinking that sounds like overkill — and it might be for coffee shop owners and their regulars. But for freelancers, contractors, and business owners who work on a project basis or in wholesale, writing a contract is a good idea.
Benefits of Writing a Contract
Here are a few reasons you might want to write a contract in place for your next job:
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They create a shared understanding.
Writing a contract should create a shared understanding of how you and your customers should act and what’s expected of them. That means the contract should include an overview of operational and sales processes as well as how the customer can use the product or service.
They help you manage expectations.
If everyone is on the same page about the terms and conditions of a sale, then you can easily manage your customers’ expectations. It’s all there in the contract — costs, timelines, and other policies (like refunds, complaints, etc.). Effectively managing expectations is key to good customer service and repeat business.
They help you get paid.
A contract should communicate the cost of goods and services and when payment is due. If your customer misses payment or refuses to pay, a contract gives you legal leverage to collect payment. (And it’s not uncommon: 71 percent of independent workers cited trouble collecting payment, according to a study by the Freelancer’s Union.)
Not to mention, contracts can protect you from chargebacks.
They help minimize disputes.
Contracts can also protect you from chargebacks (also called payment disputes). A contract can’t necessarily solve all your disputes, but it can make things easier. When you have a signed document that outlines all your policies and what was expected of the transaction, it’s easier to mediate difficult situations.
There are a number of other reasons contracts are a good idea, but you get the point. At minimum, we recommend getting your customer’s signature next to a clear description of the goods or services you’ve sold, along with other important information like timelines, deliveries, and return or refund policies.
Considerations for Your Contract
Creating a contract can help you reduce business risk and mitigate disputes. If you decide to put a contract in place with your customer, below are some helpful guidelines adapted from FindLaw to consider. Note that these guidelines are offered for informational purposes only, are not comprehensive, and should not be interpreted as legal advice. We encourage you to seek the assistance of a licensed attorney to ensure that any contract meets your specific needs.
- Name all parties involved. Be sure to include company names with their full legal title.
- Define the exchange in detail. Define the scope and type of work to be done. It’s a good idea to offer explicit details in clear, short sentences so the information is easy to understand and can’t be misinterpreted.
- Include payment details. Include the time and amount you expect to be paid. If you have a special payment arrangement, clearly define those details (for example, if payment installments are required).
- Use an addendum when necessary. Consider whether an addendum to outline additional terms and conditions is required.
- Think about confidentiality. If you are sharing confidential information with another party, consider using confidentiality clauses or an NDA agreement to help protect that information from disclosure.
- State how to terminate the contract. Describe how the contract will be terminated and provide specific details.
- Ensure the contract adheres to the law. Research any relevant state, federal, and local laws and regulations that may apply to your contract to ensure your contract is enforceable.
- Consider how a contract may be resolved in the event of a dispute. If a conflict occurs, consider how you want the parties to address it, for example, by mediation or arbitration.
- Include a portion at the end for all parties to sign. At the end of your contract, leave a space for all parties to sign and date the contract.
Well-organized contracts allow business owners to adopt a professional face and set expectations with their customers. If everyone’s on the same page about the scope of the project or the value of the goods being sold, you are better positioned to build strong relationships and ensure you get paid for your hard work.
Use a Template Contract
Many business owners often don’t have the time, mental space, or context to create, organize, and store a contract for each sale. That’s why we’ve developed Build Your Contract with Square as a tool to help meet these needs.
If you’re looking for a simple way to create a contract, we’ve created a suite of free contract templates that allow you to easily customize them to best fit the details of the sale at hand. You can leverage this tool to give you peace of mind for the work you do and time back to focus on that work.
Once you’ve prepared the template to fit the transaction, you can attach it to the invoice and send it to your customer. (Take a look at these invoice examples for inspiration.) We’ve added a feature to Square Invoices that allows you to attach files, whether that’s contracts, before/after images, bills of sale, or purchase orders (just make sure they’re PDFs or jpgs).
Your customers can download, sign, and store the attachments for their records to ensure the terms and conditions of the transaction are understood by both parties.
1We’re glad to offer you tools to help improve your business. But it’s important to note that Square is not a law firm and this does not constitute legal advice. Square provides these templates to individuals who choose to prepare their own contractual documents for their private use. If you need legal advice as to the accuracy, sufficiency, or enforceability of specific contract terms, you should consult with a licensed attorney.