The One Legal Document Every Service Business Must Have

Protect your client relationship with this essential agreement.
Protect your client relationship with this essential agreement.

If you are selling a service, you must have all of your clients sign a well-drafted Client Service Agreement before any work begins. It’s not enough to have a Statement of Work or a handshake or a friendly conversation. None of those will sufficiently cover your butt when the excrement hits the wind-machine.

A Client Service Agreement is all about your relationship with your clients or customers, and it’s capital ‘E’ Essential. If you are a consultant, coach, or other service professional, it’s imperative that your clients know what to expect when working with you and what their responsibilities are in the transaction.

A well-drafted client service agreement memorializes the basic terms of your relationship with your client. It also provides next steps in the event something unexpected happens. It can prevent disagreements and confusion with your customers, which in turn can prevent any need for litigation.

So what should be in your Client Service Agreement?

Typical items covered could include:

  • What happens when a client fails to show up at an appointment?
  • How many calls/emails/meetings with you can the client expect?
  • How and when will the client pay you?
  • What happens if payment is late?
  • Who owns the intellectual property you create together?
  • What happens if either party needs to terminate the agreement?

But what about all that other stuff?

Sometimes business owners look at a client service agreement and ask, “Do I really need all of that legalese at the end?” The answer is: hell, yeah, you do!

The stuff at the end of your client service agreement is called boilerplate. These are standard clauses that are often found at the end of a contract to protect you if there is misunderstanding, confusion, or just plain trouble-at-the-OK-corral during the relationship with your client. The boilerplate clauses control what happens when the parties to the agreement disagree.

For example, the limitation of liability clause is meant to do just that: it limits the amount of liability you could have if an issue arises out of the contract. In other words, thanks to this clause, the amount of money a problem will cost you is limited and won’t be inflated by extra, over-the-top damages.

Recently, a client of ours who works as a consultant was threatened with a lawsuit by her customer. She had worked with her customer for 3 months, and when the engagement was over, the customer wanted her to keep working. When my client informed him that she was no longer available, he threatened to sue her for loss of profits.

Of course because she kicks ass, she had her customer sign a client service agreement before they started working together. Her client service agreement included some very helpful items:

  • It clearly specified a term for the agreement with a clearly defined end point.
  • It included the limitation of liability clause that prevented her from being sued for loss of profits (see how handy that is?).
  • End result – with these superhero clauses, our client wasn’t too concerned with her customer’s threats and merely called us up to ask for advice.

By the agreement he signed, she couldn’t be sued for lost profits, and the term of the agreement meant she was not obligated to continue working with him either. She directed him to these clauses in the contract and never heard from him again. (We assume he is trying to bully someone who didn’t have him sign a Client Service Agreement.)

Another important clause in the boilerplate is called Recovery of Litigation Expenses (also known as the attorney’s fees clause which is such a better name, right?). The typical attorney’s fees clause allows the winning party of a lawsuit to recover their attorney’s fees and other costs incurred to bring the lawsuit to enforce the agreement. In other words, if the judge agrees to it, then whomever wins gets their attorney’s fees covered. Which is awesome, because some attorneys can be expensive (Not us though. We are worth every penny.)

Look at it this way. If your client owes you $3,000 but it’s going to cost you $2,500 to bring a lawsuit, well, you’re kind of out of luck, right? But if you can get the $3,000 you are owed and the other guy has to pay the $2,500 you spent to bring the lawsuit, all is right with the world.

(By the way, this happened to an business owner we know because they thought it was enough to have their client sign a Statement of Work. As we mentioned in the beginning, this is a big no-no! A Statement of Work is not a Client Service Agreement!)

The moral of these stories is that all of that boilerplate at the end of your client service agreement is actually protecting you from the problems that arise when there is an issue under the contract. If you’re wondering if your Client Service Agreement is sufficient, be sure to talk with a small business lawyer. Next time, we’ll talk about some additional boilerplate language you might come across.

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