30+ things to look for in your Customer Contracts

In this article, I’ll discuss:

? ?Better payment and collection terms & practices (12+ things)

? ?What to put in your customer agreements (15+ things)

? ?What to look out for when customers insist on using their own contract.?

? ?Indemnity and limits on liability explained for non-lawyers (4 examples, 3 arguments to use in negotiations, and 3-5 ways to limit your liability (depending on your role)).?

Payment Terms & Collections:

Some of the most frequent questions I get from startups are about payment terms and collections. For example, "how can I be sure to get paid? How do I collect from a client that is behind in paying their invoices?"

Not everything is a “legal” issue. Some solutions involve negotiating different business terms in your contracts. For example, at the risk of stating the obvious, you might want to strive for business terms such as:

• ??Getting paid in advance rather than in arrears (e.g., annually in advance if possible, or at least monthly in advance with auto pay)
• ??If getting paid in arrears, then getting paid more frequently (e.g., weekly or bi-weekly instead of monthly)
• ??Getting paid faster (e.g., net 10 or net 15 instead of net 30 or net 45).?
• ??Right to auto renew?
• ??Right to charge credit card on file (or direct debit)
• ??Right to charge interest, late fees and costs of collection.
• ??You can also get creative with “business” terms, such as asking for a deposit / advance / retainer, but only if and after 2-3 payments are late. Even larger clients may be willing to agree to this, under the assumption it will never kick in.?

As for more issues to think about regarding payment terms, see

• ?9 things to look for in payment terms of a contract: https://www.dhirubhai.net/pulse/copy-9-issues-look-contract-payment-provisions-brian-heller-mzewe/

And as for some ideas how to get the client’s attention when you do have to write a collection letter, see?

• ??3 novel tips on how to write an attention grabbing collection letter: https://www.dhirubhai.net/pulse/collection-letters-get-attention-3-unusual-ideas-brian-heller-ew6se/

What to put in your Agreements?

(and what to look out for when your customers insist on using their own templates instead of yours):?

When creating your own customer agreement templates, or reviewing contracts proposed by your clients, precisely what to look out for in each case may depend on the type of contract (your line of business, the nature of services or software, etc.).?

You know your business best – even better than your lawyer. So the first thing you should do is brainstorm – in plain English – what do you want your contract to say (and not say)??

Don’t worry about HOW to say it yet – a lawyer can help with that. But you are your first line of defense. Make a list of what points are most important to YOU to have covered in your customer agreements. Block some time to think about it. Write it down. Share this list with your lawyer.

Be sure to include on your list any issues that have come up in the past with clients.?

• ??What has gone wrong in the past that you want to protect against in the future?
• ??What clauses in your contracts always slow down the client and make them pause before they sign??

Those provisions may need to be revised to be more clear or more balanced.

The same principles apply when reviewing a customer (or vendor) contract. Brainstorm what you do want it to say, and what do you not want it to say.

What issues to look for depends on what type of agreement it is, or what type of clause / section / exhibit within an agreement you're working on.

If it's a SaaS / Cloud agreement, here's what you need to know: https://www.outsidegc.com/blog/top-15-legal-issues-in-a-saas-agreement

Along these lines, here are some overarching, general tips on how to think about your business terms. Keep in mind, some of these articles may be written from the point of view of the customer or client, not necessarily from your perspective as the vendor, so adapt accordingly:?

• ??7 things to look for in a Service Level Agreement (SLA) https://www.dhirubhai.net/pulse/7-issues-look-sla-service-level-agreement-brian-heller-vekue/
• ??8 things to look for in a Data Privacy Addendum (DPA) https://www.dhirubhai.net/pulse/dpas-data-privacy-agreements-addenda-8-legal-issues-brian-heller-qjyre/
• 8 Issues to look for in an NDA (or confidentiality provisions within any agreement): https://www.dhirubhai.net/pulse/8-issues-look-nda-non-disclosure-agreement-brian-heller-iiake/ ???
• Along these lines, here are some overarching, general tips on how to think about your business terms. The following article says that it is for reviewing “Statements of Work”, but the same principles apply whenever thinking generally about business terms. See https://www.dhirubhai.net/pulse/sows-statements-work-ultimate-guide-how-review-negotiate-brian-heller-la0ne/

Depending on the type of contract, see here for more specific advice and checklists, based on certain specific deal types. Keep in mind, some of these articles may be written from the point of view of the customer or client, not necessarily from your perspective as the vendor, so adapt accordingly: https://www.dhirubhai.net/pulse/how-draft-review-various-types-contracts-clauses-from-brian-heller-dz5lc/

Indemnity and Limits on Liability:

A lot of business owners think indemnity and limitations on liability are very complicated legal terms. They’re not. Here’s a plain English explanation for non-lawyers of what they are, and why you should care (examples, arguments to use in negotiations, and ways to limit your liability (depending on your role)): ? https://www.dhirubhai.net/pulse/indemnity-limitation-liability-dummies-you-too-what-cap-brian-heller-xak6e/

Other:

What if a customer sends you their form agreement to use? https://www.dhirubhai.net/pulse/using-customer-paper-when-your-saas-sends-you-wrong-type-brian-heller-6d8le/

Hopefully this is a helpful start. Of course, it’s no substitute for consultation with an affordable, efficient business lawyer. Feel free to reach out to me if you want more personalized assistance.

Brian Heller

[email protected]