I love you, but I’m not your lawyer. This is for your educational purposes only and does not constitute legal advice. You should not act, or refrain from acting, on the basis of this content without first consulting a lawyer.
In this episode, I wanted to share a situation that happened to someone I was recently speaking to where one really, really tiny mistake cost her $25,000. So I don’t know about you, but that is painful to me to hear and my heart just really went out to her when she told me about her situation, but I want to share this story with you, without going into too much detail. But I want to share it with you because I want you to learn from her situation, from her mistake, and so hopefully you’ll never find yourself in a similar situation.
So a while ago, I received a call from someone and she’s a service provider and she had entered into a contract with a client that was for $50,000. So it was a really, really big project and her payment terms were set-up where she would get paid 50% of that upfront, and then the remaining 50% towards the end of the project. She’d gotten the $25,000 in, she started doing some work. The bulk of the work wouldn’t really happen until closer to the project delivery date, but nonetheless, they had done some work in the initial stages.
Then, the client came back and said, ”Unfortunately, the project needs to be canceled,” and she needs to terminate the contract, and the client was pretty reasonable, in my opinion, because the client had said, “Listen, I will pay you for the work that you’ve done. However, I would like whatever balance is left from the $25,000 refunded back to me.”
So normally my first question is “Well, what does the contract say?” So in this situation, she had a contract, albeit it was pretty bare-bones, but she did have a contract that did say that any fees that were paid to the service provider were considered non-refundable.
However, and here’s the big thing, she did not have a signed copy of the contract from her client. What they had done was they had sent out their terms, along with the invoice. The client had paid her the $25,000, but they had skipped, or actually missed the step of making sure that they got a signed copy of the contract in their files.
This isn’t the first time that I’ve heard this happen. I have had clients come to me as well, where, you know again, I’m like send me a copy of the contract and they go back and they realize holy moly, I don’t have one. It’s going to be really difficult for this service provider to enforce terms that have not been acknowledged by the client.
So when we think okay, let’s fast forward and say let’s say she doesn’t pay her the $25,000 back and she kind of holds firm that this is non-refundable. Well, this is going to escalate, potentially, and this will potentially go to court and like I’ve said a million times over the first thing that a judge is going to ask to see is a copy of the contract, and if you don’t have one or you don’t have one that’s signed, then it’s going to be very, very difficult for you.
Now, not only did she not have a signed contract, but she didn’t have the $25,000 to pay her back. Once the money had come in, the money had been spent already on different operating costs for running the business. So she was in a very difficult situation because even if she wanted to refund the money, she didn’t have the money to give back to her. So what do you do in a situation like this? You know, it’s a tough spot to be in, and what’s frustrating is it’s something that could have been so easily avoided if she had had the right systems and processes in place in order to get a signed contract.
Now anytime you come across situations like this in your business, it’s important to walk away and ask yourself, ”What is the learning lesson here? What am I going to do to learn and improve so this doesn’t happen again?” So in this situation, what I would recommend is A) beef up the contract, but then B) get a system in place or a software in place that has the right checks and balances, so you know every time you onboard a new client, these little things are being crossed off that list.
It can be something as simple as creating a checklist for yourself in your Asana. I mean, it could just even be a note that you have that you say every time a new client comes, we send them an invoice, we send them the contract, we make sure that these are paid, the contract comes back signed, that we countersign, that we save a copy in this file, and we keep a record here, so that you know that you could just go with your eyes closed and pull up these documents should you ever need it.
It is so simple and can cost almost nothing, between all the free electronic signing softwares you could use. Most of them have ver, very minimal fees associated with them. Then you can use even more comprehensive systems. The actual tool that you use really doesn’t matter.
When I first started out, I was using a combination of Square invoices and HelloSign, and then an Asana checklist, and since then I’ve evolved and I now use Dubsado, so it’s a more kind of all-in-one system. It literally makes sending out a contract and following up, and the due dates and everything, making sure I have everything really, really easy.
But my point is the tool doesn’t matter. It’s really the idea of having the system in place, which is why when you purchase one of my templates at YourLegalBFF.com, I don’t just throw a contract template your way and send you on your merry way. No, not only do you get step-by-step video instruction, but I walk you through my three-step process for setting up contracts in your business.
The first step being getting organized. Now, there is this concept, it’s a French term and probably going to mispronounce it, called “mise en place,” basically means “to put in place,” and it’s a phrase that they use in the culinary world to really think about gathering all of your tools, prepping all of the stuff that you need before you start cooking. And I don’t know if you guys used to watch Rachael Ray’s 30-Minute Cooking. It kind of reminds me of when she would like take her basket, and walk over to the pantry, and collect all of the ingredients she was going to need for that meal. It’s kind of the same concept. Before you start doing anything, you want to get organized.
So in this first step, I walk you through how to think about what are going to be the Terms and Conditions for your business? What are your payment terms going to be? Your refund policies? Your termination procedures? What is your rule about rescheduling things?
Once we’re organized, we then move on to the step two, which is to customize. Now, if you put in a little bit of time and effort in step one, it’s gonna make step two a whole lot easier, and this is where the magic happens. This is where we dig in, we work through the template, we customize it based on the decisions you made in the prior step, and you get video step-by-step instructions and a whole bunch of other resources to help you through that process.
And finally, the third step is to systemize. Now this is kind of been the subject of this episode, where we’re talking about how do you set up a system for yourself so that not only are you getting contracts out faster, which hopefully means you’re getting them signed faster, but you’re avoiding costly mistakes like the one that was the subject of this episode. So I’ll walk you through some of my favorite softwares and things to be thinking about so that you make sure that you have all of your contracts in order as you move along in your business.
What is the main lesson here? You guys, having a contract is super important, but if you’re not going to have a system in place to get those contracts signed, to store and keep records of these signed contracts, it’s not going to do you any good. So with that said, if any of this resonated with you and you’re like, “Oh my gosh, I need to get my act together!” I would really encourage you to put that on your to-do list and get it done before you send out your next client contract.
Thank you so much for being here and I’ll talk to you next time.