Customers are the life blood of any business, but sometimes when dealing with customers things can go wrong.

It might be your fault, it might be their fault or it might be no-one's fault — however, if you didn't bother to sign a contract, then you'll all suffer in the long run.

Why Do I Need Contracts?

A contract gives you a sound legal base for your business, and some guarantee that you're going to get paid for your work without you having to ask the customer for payment in advance.

If a dispute should arise, the contract lays out what both parties agreement on. If you end up having to go to court, the contract is what the judge's decision will be based on.

Without a contract, you could be vulnerable and open to exploitation. Someone might claim the terms they agreed with you were different to what you're claiming, or they might say they never signed up for anything at all and so they won't pay.

It's especially common to see big businesses mistreat small ones, thinking that they won't have the knowledge, time or money to take action.

Essentially, contracts take away your customers' ability to hold non-payment over your head, and instead gives you the ability to hold it over theirs.

Written and Verbal Contracts

There's an important distinction in the law between a verbal (spoken) contract and a proper, written one. A verbal contract is binding in theory, but in practice it can be very hard to prove. A written contract, on the other hand, is rock-solid proof of the terms of agreement.

You might assume you'll never have a dispute with one of your customers, but it's all too common to find yourself having a disagreement. They might want you to do a ‘small' amount of extra work to finish the job or to make it better, not realizing that this could totally eliminate your profit.

Therefore, you should be very wary of doing any work on the basis of a verbal contract. However, if you trusting enough to work only with a verbal contract, it could still help you, especially if you had witnesses.

Won't It Be Expensive?

A written contracts doesn't necessarily have to be a formal contract drawn up by a lawyer with ‘contract' written at the top and signed by both parties. These kinds of contracts are the most effective, but they can be expensive to have produced and may even be intimidating to customers.

The most common kind of written contract, is a simply a letter. If you send a customer a letter (or even an email) laying out your agreement before you start work, and they write back to agree to it, that should be enough to qualify as a written contract, with most of the protections it affords in place.

If you're doing high-value work for some clients, though, it could be worth the time and trouble to have your lawyer write up a formal contract, or at least doing one yourself and having your lawyer look it over.

Formal contracts will certainly give you the most protection if there is a dispute, and there's nothing to stop you from making it a one-time expense by re-using the same contract for every customers.

Contracts for Small Purchases: the Terms and Conditions

It would be silly to expect anyone who buys a $10 item from you to sign a contract, or write back indicating their agreement to your terms.

In this case, you should have a statement of the ‘terms and conditions' your customer is agreeing to when buying from you, and they should have to tick some kind of box indicating their agreement before you send anything.

Fortunately, it usually isn't necessary to be paranoid about contract law when dealing with small purchases, since customers pay you first and receive the goods or services afterwards. If you plan to offer any kind of payment plan or other long-term agreement, of course, this should always be backed up with a signed contract.

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