Customer is King! Cultivating Good Customer Relations

As the saying goes “The customer is king!”.?However, many a good business has failed as a result of bad customers.?How do you monetise your business, build trust and confidence with your customers and protect yourself from their failures and your own?

It is trite to say that every business exists firstly for its customers! This requires contracting with customers for the provision of goods and/or services. Good contracting processes foster stronger customer relationships.

The Contracting Process

The contracting process has two main bases:

1. What is the business model (how is revenue generated)?
2. What are the risks, and how are they to be mitigated?

These fundamentals need to be captured in the contractual terms. A contract sets out the terms that define and protect the relationship between the company and its customers.

Your Business Model

Every business, after analysing its value proposition and the market, must determine how it is going to deliver goods and/or services to customers and charge them for this.?There are various ways to structure this, such as the following examples:

• A Company may sell the goods outright? (for cash or on credit terms), or lease them to Customers (with or without an option to purchase);
• A Company may license a software application to a customer, or it can offer it as a service (software as a service -SAAS);
• A Company may sell goods directly or through a distributor-network, or sell them through an on-line store;
• A Company may provide services on an ad hoc basis (contracting for each order) or under a Master Services Agreement, utilising short form purchase orders to create individual agreements in terms thereof; or
• A Company may provide service and support on and “ad hoc” basis (as and when required ) or on a packaged or retainer basis, evening out cash flow requirements for the business and the Customer.

Each of these modes will have different commercial risks and contractual terms.? Additionally, they may involve differing regulatory requirements. For instance, the Consumer Protection Act and the Protection of Personal Information Act generally apply. Industry-specific legislation, such as financial or food health and safety regulations, may also come into play.

Each of these business models will have its own contractual parameters and risk mitigation strategies, all of which impact upon the contractual terms.

Identifying and Managing Risks

The most common risks associated with customers include:

• Non-payment;
• Claims from customers for poor quality or performance;
• Misappropriation of intellectual property;
• Consequential damages exceeding the contract value; and
• Protracted or unresolved disputes that drain resources and damage your reputation.

These risks must be assessed and managed in alignment with the business model and industry standards.

Consultation with an experienced commercial attorney will enable you to mitigate and manage the risks through proper contractual arrangements, including well-crafted standard terms and conditions.

Essentials of the Contracting Process

"An oral contract is not worth the paper it’s written on" may be an exaggeration, but as a general rule, having something in writing is far better than nothing.

Each commercial contract has basic “essentials” which enable the contract to be enforceable. In Customer Agreements (whether for goods or services) the essentials are:?

• Proper identification and description of the parties (buyer/seller; provider/customer; licensor/licensee);
• Proper description of the goods or services;
• Proper recordal of the price and price adjustments;
• Details of how the goods or services are to be delivered and accepted; and
• Payment terms and conditions.

In addition to these essentials, there are also standard clauses that provide general legal protection, including:

• Confidentiality;
• Intellectual property protection;
• Limitation of liability;
• Warranties and indemnities;
• Dispute resolution provisions; and
• Termination rights.

Lastly, "boilerplate" clauses, such as delivery of notices, assignment of rights, and amendment protocols, must also be carefully crafted to align with the business model and industry.

Streamlining the Contracting Process

To avoid the need to “continually reinvent the wheel”, businesses can use “Standard Terms and Conditions” or “Master Terms and Conditions”. These can provide a good basis for repeat business and save on the time and cost of transacting.?Often these are placed on a website or printed on standard documents like order forms, quotations or invoices.?One can then incorporate these by reference to Purchase Orders (for goods) or Work Orders (for services), thereby streamlining your contracting processes.

Concluding Thoughts

Entrepreneurship is the process of building a business, a venue generating enterprise.?A part of this building process is the establishment of a contractual framework to engage with, retain and manage the relationship between the all-important Customer and the business.?A good contracting framework, including standard terms and conditions, provides a sturdy platform for a long and mutually beneficial relationship, thus building the value of the business.

“Customer is king" – but a solid contract may well be the crown!