Contract Critique

Prospecting for new customers costs more time, more energy and more of your hard-earned dollars. A good customer these days is as hard to come by as a good employee, so when you find one, you need to hang on to that customer. Tying the customer to you can be the difference between profit or loss on your next financial statement.

Of course, you know the key to running a successful business is providing top-notch customer service. Yet, great service alone may not be enough to keep a good customer doing business with you. It is a good idea to get it in writing. Use a written sales agreement or service contract to seal the deal.

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The office machine repair company has them. Janitorial cleaning companies use them. Even your competition uses them. Using contracts just makes good business sense. After all, if you are not willing to put your promise of great service at a fair price on paper, then are they really worth making? Contracts are a great way to keep valuable customers. The contract will also help when you're planning work schedules or ordering supplies. If you don't currently use contracts, you should start using them with existing customers, outlining current services. With new customers, have contracts ready for their signature after you make the sale. You will want to make sure the contract has the following key points spelled out clearly.

SERVICES

List clearly what services your company will be expected to provide. Lawn mowing, shrub and tree care, chemical programs and winter services should all be explained in the contract. The customer will want every service listed. If you are providing services year round, state that and specify what the winter services will entail. Also, define when the services will be completed, whether it's daily, weekly, bi-weekly or monthly. Try not to promise a certain day of the week. The weather may not cooperate with the days outlined in your contracts.

LOCATIONS

Banks, restaurant chains, retail stores, property management companies and daycare chains are all good examples of customers who may have multiple locations that you service. You can list these in the contract by branch name, street address or complex name. Even if your customer has only one location, identify it as the place you will provide services. If clients have multiple locations, make allowances in the contract for the fact that not all the locations will require the same services. Some locations may have more parking lot space, fewer trees or more lawn space. Be flexible.

PAYMENT TERMS

If you plan to bill or invoice each service as it's provided, you should list these separately in the contract. Should your client wish to have a contract price for complete services, then how you bill them will become important. In most industries, the invoice is usually payable when presented. However, larger corporate clients, may expect the invoice to be due in so many days without penalty. Example: Net 14 days. To encourage payment sooner, you could offer a discount. A 1- or 2-percent discount is often acceptable if the invoice is paid sooner than 14 days. Likewise, if payment is late, 1- or 2-percent penalty is not unreasonable. Of course, state specific discounts or penalties in the contract and list them on each invoice as well. Terms can vary from each customer or contract.

HOLD HARMLESS

Some of your customers may require that you offer a Hold Harmless Agreement. Under this agreement, your company agrees not to hold the customer liable for accidents or injuries sustained while on their property. Liability insurance and workers compensation insurance will play a big role in your ability to offer this agreement. Most major commercial accounts will require that all service providers show proof of this business insurance coverage. They may even ask to be listed as an additional insured. Without proper insurance, forget about having them as clients. Consult your insurance broker for more details. A Hold Harmless Agreement will also help prove to your larger commercial accounts that you are smart about your business agreements and that you care about your business relationships.

RENEWAL OF AGREEMENT

A clause that allows your service agreement to continue past the original service period is something you should include in all contracts. This section will give your customer an easy way to continue to do business with you if they are pleased with your service without having to form a new agreement. Spell out what steps the customer needs to take in order to extend the original agreement. Written notification from the customer stating their wish to continue is always a good option. If you anticipate an increase in the cost of doing business or providing services, be sure to build in some increase for your pricing.

TERMINATION OF AGREEMENT

Having the ability to terminate a contract can come in handy if business conditions change on your end. Usually a 30-day written notice from either party is enough notice. Leaving a customer scrambling for a grounds maintenance provider with a snowstorm looming is simply bad public relations.

KEEPING IN CONTRACT

A well-written contract will tie your most valuable customers to you. A contract stating what services you will provide and at what time of the year, will allow you to better plan your business activities. Will you need temporary employees in the fall for leaf removal? How much and what kinds fertilizers or chemicals will you need? Do you need more equipment? Should you purchase that new vehicle? Having contracts with your best customers will help you plan for all of those activities. Contracts can also provide you with an unseen benefit: A reputation as a company that backs its quality service with a written agreement.

Be sure to seek legal advice as needed. Spend a little time and a few dollars on consulting legal counsel before drafting your own standard agreement or drafting a new one. Laws regarding contracts vary from state to state, and the time spent with a good attorney will be worth it in the long run.

David G. Gaines is the founder and president of Cavalier Asset Management, a St. Louis-based financial services firm providing employee benefits, investments and insurance to small business owners. He has written and spoken extensively on business topics concerning the business owner. You can reach him at david@cavalierasset.com.

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