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How To Avoid Contract Nightmares In Business

How to make contracts work for your enterprise

11Sep

One of the most common problems encountered by small businesses is the issue of contracts. As with any business, most small businesses are interested in acquiring customers and making money.

Especially when new, a business will often leave aside the tedious issue of contractual obligation until they are met with an obligation that brings production or service to a halt.

The digital world of marketing and web design is a good, contemporary example.

Enthusiastic to start generating revenue, agencies will often treat the administrative and contractual processes as secondary. That is until the client starts asking for additional work under the current project.

Such requests are hard to turn down. A bad review can finish you before you get off the ground. And so, agencies find themselves beholden to unscrupulous (or lazy, or disorganized) clients who make demands beyond the understood boundaries of the project.

Sure, sometimes it is the conduct of the agency that needs reining in via a contract. But more often than not in my experience, it is the client who needs to be held accountable to the contract - provided it exists.

Invoices need to be paid and lines need to be drawn. Here are some of the ways small Business can implement and manage contracts throughout the client-business lifecycle.

Make Sure Your Contracts are in Place

Contracts should be in place for all stakeholders, including clients, staff, contractors, and consultants.

The scope and nature of the contract will vary according to the nature of the relationship. They will also be governed to some degree by the limitations of the relevant  contract laws in your area.

For employees, contractors, and consultants, the primary things to consider within a contract will be the job or project description, and whether they are paid on performance, by the hour, or by the project.

That being said, the details of employee contracts are outside the scope of this article. Any new business should seek legal and industry advice as well as seek to be governed by the laws of the land.

The key issues for contractors and consultants will be the amount of detail in the project. Avoid vague or ambiguous goals or terms.

Contracts should be in place before work begins - especially where there are on-site public liability and insurance issues to consider.

Make Sure Your Contracts are Manageable

Depending on the nature of the business, management can be dealing with hundreds, or thousands - of contracts at any particular time.

Automated contract management software and systems are ideal for a small business dealing with a multitude of contracts. The software available can be tailored to suit most industries today.

While there is an initial cost in terms of times and money, implementing Contract Management Software has  a number of significant benefits that make the initial outlay worthwhile, including:

  • A reduction in future overheads
  • Improved storage and retrieval
  • Better compliance
  • Tighter Security

Contract Management Software enables small business to map the progress of any given contract. It provides small business with an orthodox storage and retrieval system. Contract Management Software also enables better auditing and security for contract documents.

Remote work teams are a newer challenge for small businesses and the contractual arrangements may differ from traditional brick and mortar business. Working with remote teams and freelancers may require a unique set of tools for proper management and in order to enforce their contracts.

Don’t wait until you have a crisis before attempting to set up an effective contract management process. Whatever strategy or tool you decide to use, the goal is the same - to be able to establish, implement and where necessary, enforce the contracts that your business is using to conduct its affairs.

Make Sure Your Contracts are Enforceable

A contract needs to be agreed upon and signed. They also need to pass the scrutiny of legal professionals, the given industry, and sometimes, if challenged, the courts.

Whenever you are entering into an economic relationship with someone else, you want to go in with the confidence that your legal and contractual structures are in place.

Some things that may make a contract unenforceable include:

  • Lack of capacity
  • Unfairness
  • Lack of consent
  • Fraud
  • Evidence of coercion
  • Failure to inform

While some contracts can be enforced when made verbally, many others must be in writing. However, regardless of the nature of the transaction, the smartest decision is to put as much as you can in writing.

Contracts, whether business-to-business or business-to-customer, are the foundation upon which solid relationships are built. This is true whether it is your promise to ship an item or the client's agreement to pay an invoice.

Contracts are binding legal documents and they constitute an agreement to enter into a serious commercial or economic relationship. Moreover, contracts are unique to the circumstances.

They can vary in multiple ways and require intelligent and thoughtful preparation as well as thoughtful management in order to profit a small business enterprise.

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