Category Archives: Terms and Conditions

How To Get Clients To Pay You (And What To Do If They Don’t)

For any small business, cash is King. Without a doubt, the single most damaging risk to you as a small business owner is negative cash flow.  One of the many reasons for negative cash flow are slow or no paying clients.  They can sink you faster than you can say “small claims court”, if you let them.

So, how do you get clients to pay you on time?  While there is no magic bullet, there are some things that you can do to minimize deadbeat clients.  The theme to keep in mind here is that “Prevention Beats Collection Every Time”.

First, vet your client up front.  Weeding out those who are not likely to pay you minimizes your likelihood of getting stiffed.  Be especially wary of clients who are “jumping ship” to hire you because they are unhappy with their last service provider.  That’s a red flag that there might be a fee dispute.  That doesn’t automatically mean that you won’t take the client, but it may change how you structure your relationship.

Second, always have a written fee agreement with the client that, among others, covers the following:

  • A description/scope of the services or product to be provided
  • The amount and terms of payment
  • Client obtains no intellectual rights in the work product until payment in full is received
  • Work ceases if payment is late and will continue only after account is brought current
  • Client property will be held if payments are late
  • Client is responsible for all collection costs

Third, you can eliminate any collection problems if you get your money up front.  So, get 100% of your fees up front.  When that’s not possible, get as much as possible.  I recommend that clients get at least 50% up front (2/3 if they can get away with it), with the remainder due upon completion.  If you have to, accept smaller upfront payments, but in more frequent intervals (e.g. 25% up front; 25% in 30 days after certain milestones; and the balance upon completion).

Note that these terms should be in your written agreement!

Fourth, communicate early and often.  Send status updates and invoices on time.  Clients are less likely to complain about the work and more likely to pay invoices if they are kept informed about the progress of the project, asked for regular input and feedback and provided with timely invoices.  In fact, if your invoices are regularly sent out late, you risk late payments, or worse, no payments at all.  If you’re a slacker, you’ll train your clients to be slackers too.

Additionally, your invoice should be unmistakably clear as to what  (how much) payment is due, when is it due, and where payment should be sent.  This sounds really simple, but it doesn’t always happen.  The invoice is your first request for payment.  This is not the place to be sloppy.

Fifth, offer a discount for early payment.  You might even offer a discount for on-time payments (hey…drastic times call for drastic measures…don’t stand on principle and end up out of business).  The downside, perhaps, is that some clients may expect this as the standard.  IMHO, you should take the early cash, raising your fees if necessary to offset the discount.  Cash now beats cash later all day long.

Sixth, some people believe that if you offer a carrot (discounting fees for early or on-time payments), then you should also wield a stick- penalties for late payment – such as interest on late payments, a late fee, etc.  I disagree.  First, clients rarely pay the interest or late fees, which then creates another collection effort if you want to enforce the penalties.  Second, it creates ill-will with clients.  Except for the worst of the worst deadbeat clients, try to maintain a cordial, professional relationship with the client when possible.  It’s not worth the client bad-mouthing you to everyone in town about your “unfair, overbearing” billing policies.

If you decide to use penalties, make sure they are in your written agreement.

So, what if you follow this advice and the client still doesn’t pay?  I’ll tell you what to do in my next post.

The ABCs of NDAs (Non-Disclosure Agreements)

Non-Disclosure Agreements (NDAs) are very common in today’s business environment.  Depending on the type of business you own, you may be asked (or may be asking others) to sign an NDA numerous times.  But, while they are common, don’t take them lightly.  These agreements have important terms and conditions which you should understand clearly.

NDAs are used in order to protect the confidential nature of certain information that one party is sharing with another party.  If you are the party sharing confidential information, you should have a standard NDA already prepared to send to the other party.  Generally speaking, it is likely that a business that wants to do business with you will insist that you sign their NDA.  But, when you are the customer/client, you should try to leverage that bargaining position to insist on the other party signing your standard NDA.

Many times, you will be presented with a unilateral NDA; that is, an NDA that protects only the other party’s information.  Out of fairness and to cut down on unnecessary delay, NDAs should usually be mutual, thereby protecting both parties’ information.  It is highly likely that both parties to a business deal will exchange confidential information, so the same terms, conditions, protections and restrictions on the use of the information should govern both parties.  You may be tempted to think that only one party will be sharing confidential information, but if the business relationship continues past one or two meetings, that it likely not the case.  It is simply easier to have a mutual NDA signed up front than to try to remember that it wasn’t and go back later and fix it.

While the entire document contains important provisions, here are three of the key provisions you should understand well:

  1. What is the definition of “Confidential Information”.  Some definitions are very broad, while some definitions are drafted very narrowly.  Which is better?  Well, it depends on which side of the table you are sitting.  If it’s your confidential information that needs to be protected, you want a very broad, sweeping definition.  On the hand, if you’re the one who has the obligation to protect someone else’s confidential information, then you want a very narrowly tailored definition.  Keep in mind that the broader the definition, the more difficult it might be to manage and monitor the flow and dissemination of all of that information.
  2. Be careful about agreeing to language in an NDA that requires all of your confidential information given to the other company to be marked “Confidential” and/or for verbal communications that are to be considered “Confidential” to be confirmed as such as in writing after the verbal disclosure.  That can be a royal pain and a legal trap.  You might inadvertently share a document with the other side that isn’t marked “Confidential” and therefore, it would lose its confidential nature.  Additionally, do you really want to monitor everything you say in conversations with the other party, and remember afterwards to send a letter or an email reiterating what in the conversation is to be deemed “Confidential”?  Most likely not.
  3. NDAs permit disclosure to certain parties (e.g. officers, directors, employees with a need to know) and prohibit disclosure to others (other third parties).  It is important to know to whom you can and can’t disclose the other party’s “Confidential Information”.  Often in the course of providing services to your client, you will need to communicate at least some of that information to vendors or suppliers.  Having to go obtain prior written permission from your client for each one of those disclosures is ineffective and potentially very inefficient.  Make sure you have the right permissions up front.

The NDA is not simply a document that you should stick in a file somewhere.  Violating an NDA could result in severe and costly monetary penalties for your business.  Make sure you that you know how to manage and control another party’s “Confidential Information” (e.g., keeping it in a locked file cabinet, restricting disclosure to only permitted parties, marking “Confidential”, etc.).

Your business reputation and financial stability depend on it.

If you need an NDA, please don’t hesitate to contact me at 224-938-2100 or through the Contact form on this website.  I’d be happy to help you!

 

 

3 Questions (and 2 Warnings) Before You Barter

I get calls all of the time asking me if I’d be willing to barter my legal services in exchange for [fill in the blank].  Rarely, if ever, do I accept the bartering offer, but that does not mean that I am against bartering.  I just haven’t had an offer that was compelling enough for me yet.  But, you may get an offer to barter your services or products in exchange for someone else’s that is appealing to you.  Before you say yes, consider these 3 questions (and 2 warnings!):

Is the barter for a product or service you need?

Don’t get sucked in just because someone is offering something that won’t cost you any cold, hard cash.  It will cost you your time or your product, meaning there’s an opportunity cost to the barter.  Make sure that the product or service you are going to receive is of real value to you.  Website design services? Probably.  30 free cups of coffee at the local coffee shop?  Maybe.  Maybe not.  You need to decide so that you don’t feel cheated at the end of the day.

Is the barter an even (or reasonably even, if not exact) exchange of value?

This is usually where the bartering offers to me fall short.  If I’m going to draft a contract for you for $750, are you really going to give me that much value in personal training sessions? Or dining coupons at your restaurant?  Or $750 worth of clothes from your consignment boutique?  Usually not, so I haven’t felt that there was enough value in the barter.  Now if a website designer offered to re-design my website (assuming that I needed one), I might be interested.  That is a more even exchange of value.

So, make sure that the offer you’re considering is a fair exchange.  There has to be some motivation to forego cash.  Usually, that motivation is that the other person has something of value you could use, and vice-versa.  However, if that value isn’t even, the person on the receiving end of that short stick is going to feel resentful and may back out of the transaction before completing the exchange.

Make sure that each side of the barter exchange understands the value that is being exchanged so that a fully informed decision can be made as to the merits of the proposed exchange.

Is the other person willing to put the terms and conditions of the barter exchange in writing?

A bartering deal is governed by general contract law.  So, committing the deal to writing is always a good thing—even if it’s simply an email exchange with both sides acknowledging the terms and conditions.   Not being clear and precise about the terms of the barter deal is a slippery slope to small claims court.  In addition to a detailed description of exactly what’s being bartered, you should also include (minimally):

  1. The timeframe in which the bartering will take place (e.g. do I have to utilize your website design services within 6 months of completing my legal service to you?);
  2. The value of the barter; and
  3. Cancellation terms (can I cancel the bartering deal and demand cash payment? If so, under what circumstances and timeframe?)

Clear communication is key.

What are the tax consequences to you?

That’s right!  You may think of bartering as just a convenient, efficient, and cost-effective way to obtain the goods and services you need, but the IRS sees bartering (along with most other things in life) as a potential taxable “transaction”.

The IRS takes the position that a bartering transaction is really a two part transaction.  The first part is that you are selling something—either product or service—and therefore, you are expected to account for (and report as income on your tax return) the market value received.  Secondly, you are “purchasing” some goods or services, which is an expense that you must record.  If the “income” from what you “sold” exceeds the “expense” from what you “bought” , then you may owe taxes on that difference.  If it’s a truly even exchange, then you likely owe no taxes on the transaction.

WARNING #1: I’m an attorney, not an accountant.  Right?  Right!  Therefore, check with your accountant about the proper way to account for your particular bartering deal.

There are two more points worth making about bartering.

First, there are several bartering companies or “clubs” which have created their own bartering “currency” (e.g. credits or bartering dollars) for use within the member community.  These companies/clubs  formalize the entire bartering process and give you access to a larger pool of potential bartering exchange participants, rather than just you and your web designer or hair stylist.

WARNING #2: Not all bartering companies are created equally, so do your due diligence and find one that has a good track record and no lawsuits or government investigations.

Finally, you can’t build a successful business off of bartering.  Eventually, you have to make real sales and make a real income.  Therefore, barter wisely and sparingly.  Bartering should be only a tiny percentage of your business.

Have you bartered before in your business?  What was your experience?  Are you considering entering into a barter arrangement?  Leave a comment.  I’d love to hear from you.

 

[Video] How to Start a Business: Part 9


Over the past month or so, I’ve been outlining the 10 steps to starting a business.  Today, we’re going to cover step #9.  Let’s talk about the good stuff.  This is what’s been keeping you up at night.  What you’ve spent all your time dreaming about.  This is the centerpiece of your entire business.  Your website.

It is vital that your website have terms and conditions and a privacy policy.  You’ve got to let people know what the “rules of engagement” are for doing business with you.   If you don’t tell me what your policies and procedures are, you leave it to my imagination to make them up.  I guarantee you that will lead to all kinds of disputes and misunderstandings with your customers.

You get the picture?  So, make sure you have your website terms and conditions  and privacy policy in place when you launch your website.   If you need help with yours, don’t hesitate to contact me!

One more step to starting your own business and I’ll be making a special announcement, so stay tuned…



Freelancers & Solopreneurs: You Need a Good Contract!

Freelance copywriter Nichole Bazemore wrote a great article about how she has reluctantly learned the importance of a good contract when dealing with clients. Read her post here.  Although you can see my comments on her blog, I’ll repeat it here:

I’ve said it before and I’ll say it again. A good contract is an essential part of your business. I know that negotiating contracts or insisting on having a written agreement before starting an assignment is unsavory to some folks, but it is critical to your business.

AND….I firmly believe that insisting on a written agreement with strong, solid terms and conditions actually is part of providing value to your clients. It says to your clients that you value the relationship enough to want to avoid misunderstandings along the way. For clients who are honest and mean you well, a good contract protects the relationship.

But for those clients who are dishonest and mean you no good (or at best, are indifferent to your need to get paid for you do), a good contract protects YOU.

Which is as it should be.  I’d love to hear your thoughts.  Leave me a comment.

Don’t Ignore the Boilerplate! Part 4

The last boilerplate provision we’ll discuss in this series is the “Limited Warranty” provision.  But first, let’s review the four main warranties and what they mean.

 

  1. Warranty of Title:  I own it and you don’t have to worry about my creditors or heirs coming to take it away from you.
  2. Warranty Against Infringement: I designed or created it, and you don’t have to worry aobut someone suing you for violating their patents, copyrights, trademarks, etc.
  3. Warranty of Merchantability: the goods I’m selling you are what you would expect for the trade usage for which I’m offering them and they conform to the product description contained on any label or packaging.
  4. Warranty of Fitness for a Particular Purpose: If I know that you need something special in the this product or that you need to use it in a particular way or for a particular purpose, it’s in there and it works.

The Uniform Commercial Code (better known as the “UCC”) basically provides that unless specifically excluded, the buyer of goods gets the above warranties whether or not they are part of the written contract.  So, it is important for business owners to understand that “satisfaction guaranteed” policies are really very generous warranties, while other warranty provisions really seek to limit the remedies available to the purchaser of goods.

 

You can either outright exclude certain warranties or otherwise limit them.  However, as a practical matter, most sellers of goods are willing to do something to appease unhappy customers, so rather than look at the outright disclaimer of any and all warranties (which isn’t legal in all states anyway), we’ll look at the less extreme “limitation of warranty” provision.  Here’s a sample provision:

 

Seller warrants that the widgets are free of defects and will remain so for a period of at least one year from the date of purchase.  In the event of any defects in workmanship or material, Seller wil correct these defects by repair or replacement at its own expense if Buyer has not altered the widgets in any way and has maintained the widgets in accordance with Seller’s recommendations.

THIS WARRANTY IS THE EXCLUSIVE WARRANTY AND SELLER SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, EXCEPT WARRANTIES OF TITLE AND INFRINGEMENT.  THIS WARRANTY IS THE EXCLUSIVE REMEDY OF BUYER WITH RESPECT TO ANY CLAIM RELATING TO THE WIDGETS, WHETHER ARISING AT LAW OR AT EQUITY, OTHER THAN CLAIMS FOR PERSONAL INJURY PROXIMATELY CAUSED BY A DEFECT IN THE WIDGETS.

 

The above provision is a good example in that it does not bury the disclaimer.  Courts do not take kindly to disclaimers that are in teeny, tiny mouse print on the back of a form purchase order.  If these disclaimers are important to you, the business owner, then they should not be buried, hoping that the other side never sees them.  Rather, they should be prominently displayed.  The likelihood that your warranty disclaimer/limitation will be enforced rises exponentially when they are part and parcel of the main body of the contract, having been seen and even negotiated.

 

This concludes the series on the importance of the contract boilerplate language.  I’d like to leave you with one last thought.  Ignoring the boilerplate provisions can indeed make or break your contract.  It is unwise to spend hours, days, weeks, even months negotiating the “real deal” and ignore these important provisions.

I hope you enjoyed this series on warranties.  However (ok, here it comes), do not rely on any of this information as legal advice.  You should consult with an attorney in your own state about your particular circumstances!

Don’t Ignore the Boilerplate! Part 3

We’re looking at boilerplate contract language that is often ignored to better understand why these provisions are important and how they can impact your contracts.  Today, we’ll discuss the “Forum Selection” provision.

 

If the parties to a contract choose judicial resolution (i.e. a lawsuit) to settle disputes rather than alternative dispute resolution (i.e. mediation or arbitration), then a forum selection provision might be in order.  Basically, this clause is where the parties agree that a particular court will have personal jurisdication over the parties in the event of any disputes.  Forum selection language is either exclusive (or mandatory, meaning that there is only one forum where a suit may be brought) or the language is permissive (meaning that while the parties consent to the forum named, the plaintiff may file the lawsuit in another jurisdiction).

 

A major consideration in determining which jurisdiction to select is the geographic location of the proposed jurisdiction.  Let’s face it.  If you are a Georgia company, litigating in Georgia is much more convenient for you than litigating in New York or California.  It’s simply a matter of convenience.  And if your state is convenient, then the county your business is located in is even more convenient.  However, the benefits of selecting your home state have to be weighed against the risks of doing so.  For example, if you are a Georgia company doing business in Illinois with an Illinois company (so none of the contract is performed in Georgia), a Georgia court might not be able to exercise personal jurisdiction over that Illinois company, without certain additional contract language in place.

 

Another consideration is the case load of a particular jurisdiction.  Given the nature of the particular litigation, you may want to litigate in a jurisdication with a relatively light caseload in order to move the litigation along rapidly.  On the other hand, there are times when your interests in a lawsuit might best be served by bringing suit in a jurisdiction with a very heavy caseload where proceedings will be delayed due to the court’s backlog of cases.  Because this determination has to be made on the front end of the contract, and not when it’s time to file a lawsuit, your attorney is in the best position to evaluate this.

 

For obvious reasons, the forum selection clause is often drafted in conjunction with the governing law provision.  While it might seem automatic that if you choose Georgia as the governing law, then Georgia will also be the forum for litigation, nothing could be further from the truth.  It is quite common to have one state’s law be the governing law and another state have jurisdiction over any lawsuits.  So, a governing law and forum selection clause might look like this:

 

The laws of the state of New York govern all matters arising out of or relating to this Agreement and all of the transactions it contemplates, without giving effect to its conflicts of law principles.  Any party bringing a legal action or proceeding against any other party shall bring such legal action or proceeding in the state Superior Court of Cobb County, Georgia.  The parties consent to the exclusive jurisdiction of such court and each party waives, to the fullest extent of the law, any objection that it may now or later have to the exclusive jurisdiction of such court.

The next (and final) post on boilerplate contract language will evaluate warranty disclaimers and limitations.  Stay tuned.