Introduction
Client relationships can make or break your business. As an online business owner, ensuring that your working relationships run smoothly is key to maintaining professionalism, preventing disputes, and protecting your income. One of the most effective ways to achieve this is through well-drafted, clear contracts.
Contracts set the foundation for client relationships by outlining expectations, defining responsibilities, and establishing payment terms. Without them, you risk scope creep, delayed payments, and misunderstandings that could lead to unnecessary legal battles or damaged reputations.
In this post, we’ll explore why contracts matter, what happens when you don’t use them, key clauses to include in every contract, and how to communicate contract terms effectively. Plus, we’ll highlight some common mistakes business owners make and how to avoid them.
What happens without a contract?
Many small business owners and freelancers make the mistake of relying on verbal agreements, emails, or handshake deals. While this might feel more personal and flexible, it’s a risky approach that can quickly lead to problems. Here’s what can happen when you don’t use a proper contract:
1. Delayed Payments
Without a legally binding contract that specifies payment terms, clients may take their time paying invoices—or worse, refuse to pay altogether. A contract sets clear payment deadlines, outlines late fees, and ensures you have legal backing if you need to chase unpaid invoices.
2. Scope Creep
Scope creep is one of the biggest challenges for service providers. If your agreement is vague about deliverables, clients may start requesting additional work that wasn’t initially discussed. This can lead to frustration, unpaid extra hours, and even burnout.
3. Disputes and Miscommunication
Even with the best intentions, miscommunication can happen. Without a contract, there is no clear reference point to settle disagreements. A well-written contract removes ambiguity and ensures both parties understand their rights and responsibilities.
4. Intellectual property issues
Who owns the final product? If you create a logo, website, or course content for a client, can they resell it, modify it, or claim ownership? Contracts protect intellectual property rights, ensuring that you maintain control over your creative work unless otherwise agreed upon. TIP ownership should only transfer (if that is your intention) on payment of all fees due.
Key clauses every contract needs
A strong contract should protect both you and your client by outlining essential terms. Here are some of the key clauses every online business owner should include:
1. Payment Terms
Clearly define:
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The total project fee or hourly rate
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The payment schedule (upfront deposit, milestones, or final payment upon completion)
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Accepted payment methods
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Late payment penalties
2. Scope of Work
Outline exactly what services or deliverables you will provide. Be specific to avoid confusion. If necessary, include:
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Project timelines
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The number of revisions included
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What is not included in the agreement
3. Termination and Refunds
Every contract should include a termination clause specifying:
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How either party can exit the agreement
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Any notice period required
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Whether refunds will be issued (if applicable) and under what conditions
4. Dispute Resolution
No one likes to think about disputes, but having a plan in place can save time and stress. Define how conflicts will be resolved:
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Mediation before legal action
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Governing law jurisdiction
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Steps to take if a dispute arises
5. Intellectual Property Rights
Clarify who owns the work created. For example:
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Does the client have full rights, or do you retain ownership and license it to them?
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Can the client modify, resell, or distribute your work?
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If applicable, do you have the right to showcase the work in your portfolio?
A well-crafted contract ensures that both you and your client understand what’s expected, reducing the likelihood of misunderstandings or disagreements.
How to communicate contracts effectively
Many business owners worry that sending a contract might scare off potential clients. However, contracts are not just about protecting yourself—they also reassure clients that they are working with a professional. Here’s how to introduce contracts in a way that builds trust:
1. Frame the contract as a mutual protection tool
Instead of saying, “I need you to sign this contract,” reframe it as: “I have a contract in place that protects both of us, outlining the scope of work, timelines, and payment terms so we’re on the same page.”
2. Offer a brief contract walkthrough
When onboarding clients, walk them through the contract and highlight key terms. This not only ensures they understand what they’re agreeing to but also prevents future disputes.
3. Use plain language
Legal jargon can be overwhelming. Ensure your contract is clear and easy to understand. If necessary, provide a summary of key points in an FAQ format.
4. Digitise and simplify the signing process
Use online signature tools like DocuSign or HelloSign to make it easy for clients to review and sign contracts quickly. The fewer barriers to signing, the smoother the process. TIP: Do NOT commence work until contract is signed and initial deposit paid!
Common contract mistakes to avoid
Even with the best intentions, many business owners make contract mistakes that can cause legal headaches down the road. Here are some common pitfalls to avoid:
1. Using vague language
Be specific about deadlines, deliverables, and payment schedules. Instead of saying, “Project will be completed within a reasonable timeframe,” specify, “Project will be delivered within 14 business days from contract signing.”
2. Not including a termination clause
Without a clear exit strategy, both you and your client could be stuck in an arrangement that isn’t working. Always include a clause outlining how and when either party can terminate the contract.
3. Failing to address late payments
Specify when payments are due and what happens if the client misses a deadline. Consider including late fees or stopping work until payments are made.
4. Using poorly drafted contracts
Not all contracts are created equal. A generic, one-size-fits-all contract might leave gaps that fail to protect your business. That’s why using legally drafted contract templates—like those in our shop—ensures you have a strong, enforceable agreement tailored to your business needs.
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Having solid contracts in place is essential for protecting your business, ensuring smooth client relationships, and maintaining your professional reputation. If you need legally drafted contract templates, we’ve got you covered.
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***Disclaimer. Please read!!***
This article is for general information purposes only and should be used solely as general guidance. It does not and is not intended to represent legal advice or other professional advice.
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