Protect Yourself & Your Business With a Service Agreement

Protect Your Business: Why Service Agreements Are Non-Negotiable

Business owners, from skilled tradespersons fixing leaky pipes or installing roofs to a sharp consultant guiding strategic decisions, face inherent risks. While your expertise is invaluable, without a solid service agreement, you’re leaving yourself vulnerable to misunderstandings, financial losses, and even legal battles.

Think of a service agreement as a roadmap, clearly outlining the expectations and responsibilities of both you and your client. It’s not just a formality; it’s a crucial tool for protecting your business and ensuring smooth, profitable collaborations. Let’s delve into some key terms that should be included in every service agreement, regardless of your industry.

Payment Terms: Setting Clear Expectations for Compensation. One of the most critical aspects of any service agreement is defining payment terms. This section should eliminate ambiguity and ensure you get paid fairly and promptly. Terms should address:

• Payment Schedules, Methods: Specify when payments are due. This could be upon completion of the project, on a monthly basis, or according to a predetermined milestone schedule. The agreement should also address accepted payment methods, such as bank transfers, credit cards, or checks.
• Late Payment Penalties: This is where you protect yourself from clients who delay payments. Your service agreement should outline the interest rate and/or late fee that will be applied to overdue invoices. This incentivizes timely payments and compensates you for the financial strain caused by delays.
• Dispute Resolution: Outline the process for resolving payment disputes. This could involve mediation, arbitration, or litigation. Having a clear procedure in place can prevent costly and time-consuming legal battles.

Warranty of Services: Defining the Scope of Responsibility

While you strive for excellence, unexpected issues can arise. Perception is reality, and while you may view work as complete and industry standard, your clients may think otherwise. A well-crafted warranty clause protects you from unreasonable expectations and liability.

• “As Is” Warranty: Many service providers opt for an “as is” warranty, which means they provide services without any implied or express warranties. This limits your liability for any unforeseen problems or defects. For example, a consultant might warrant that they will provide their best professional advice but cannot guarantee specific outcomes.
• Limited Warranty: Alternatively, you might offer a limited warranty that covers specific aspects of your services for a defined period. For instance, a tradesperson might guarantee their workmanship for 90 days or replacement of materials for 1 year.
• Exclusions: Clearly state any exclusions to your warranty. This might include damage caused by misuse, negligence, or unauthorized modifications.
• Disclaimer: In some cases, a disclaimer of implied warranties may be necessary. This clause explicitly states that certain implied warranties, such as merchantability or fitness for a particular purpose, are excluded.

Liability Limitations: Protecting Your Assets

Mistakes happen, even with the best intentions. A liability limitation clause safeguards your business from excessive financial burdens.

• Incidental and Consequential Damages: Your agreement should limit liability for indirect damages, such as lost profits or business interruptions. For instance, a software developer might limit their liability to the cost of the software itself, excluding any consequential losses incurred by the client.
• Cap on Liability: You can also set a maximum amount of liability, which is often tied to the total contract value. This ensures that your financial exposure is limited, even in the event of a significant error.

Attorneys’ Fees for Collections: Ensuring You’re Not Out of Pocket

Unfortunately, some clients may refuse to pay. Miscommunications and unreasonable expectations occur. An attorneys’ fees clause allows you to recover the costs of legal action if you’re forced to pursue collections. This clause typically states that the prevailing party in any legal dispute is entitled to recover their attorneys’ fees. This incentivizes clients to settle disputes amicably and discourages frivolous lawsuits.

Conclusion

In conclusion, service agreements are not just a piece of paper; they are a vital tool for protecting your business and ensuring its long-term success. By carefully drafting your agreements and including the key terms discussed above, you can minimize risks, maximize profits, and build strong, lasting client relationships. It is always best to consult with a legal professional to ensure your service agreement is tailored to your specific needs and complies with applicable laws.

Every professional eventually learns an important lesson with respect to their trade – you don’t know what you don’t know. That’s part of what experience teaches us. The same thing applies when trying to do something you don’t regularly handle, such as contracts. If I were to attempt to fix my own plumbing, I would make mistakes and learn by example. Similarly, self drafting a service agreement can lead to a whole host of problems. The world’s worst contract is fine if everyone is happy and getting paid. It’s when disputes arise that the terms matter.

Let us help you avoid a costly dispute by drafting a service agreement tailored to your business. It doesn’t take long, and you’ll be glad you have it. I promise.