You should have a contract that covers every relationship you have in your business. Contracts help you protect your rights. Contracts help you limit your exposure. You should make sure your rights are protected. That your liability is limited.
But, contracts should not control how you respond to conflict.
If you are in the service business, or any other business that focuses on the personal touch you have with your clients, there is a difference between protecting your liability, building a system to allow you to provide a better service by documenting your relationship with contracts and how you deal with the disputes that come up with your customers.
Contracts describe what you can do to enforce your rights.
Contracts, when everything goes smoothly are nothing more than a statement of how things are. If you use a customer agreement that is the same with each of your clients, chances are not everything that may come up is covered. Chances are, you will be dealing with situations that are different than you planned. This provides an opportunity to revisit your contract, but it also gives you a chance to be the business you want to be. It gives you a chance to determine how you want to respond.
If your contract says payment is due on the 5th and you can stop work and charge late fees and interest after that date, then, by all means, you can do that. You can do what your contract says you can.
But, should you?
You aren’t required to enforce all of your contract rights immediately.
In most instances, you don’t want to. There is expense involved in enforcing your contract. You can lose customers. You can lose future opportunities. You can lose relationships. You can tarnish your reputation of caring for your customers.
Think of the rights in your contract as the back stop to resolving disputes. You have your rights. You can enforce your rights. But, before that, you can be reasonable. You can care for your customers. You can focus on your relationships. By focusing on relationships, you can win so much more than that.
Let’s say you have a customer who has faithfully paid you for years and never missed a payment. A customer who sends you referrals and sings your praises to all of his friends and clients. What if that customer had something come up and missed a payment to you. They were late by 30 days.
You noticed something was going on because they had stopped responding to emails or phone calls from you. They also stopped asking you for work. You had not had any complaints from them and you had no other information.
What do you do?
Do you immediately call your lawyer and have collection notices sent out to the client? Do you go after your client for all of the fees and expenses and attorneys’ fees you can?
You can. But, you shouldn’t.
This customer has been faithful to you. This customer is one of your biggest fans. This customer is one of your biggest sources of new business. This customer is a good relationship.
Before you go down a path from which the relationship will likely not recover, what if you reached out to your client?What if, instead of mentioning the money, you just asked what was going on? What if you made a friendly phone call to check-in?
You don’t need to mention that they owe you money. They know that already.
Show your customer that they are more than revenue to you. That they mean more to your business than their contribution to your bottom line.
Keeping a long time relationship with a client is much more important than collecting interest on one past due bill. Not to mention, your biggest fan, now has more reason than ever to shout your praises.
The Same Can Be True for New Customer Relationships
What if you operate with long-term contracts for your clients. You offer 3 month, 6 month, and 12 month options of contracts. Of course, each option has its special price points and there are benefits for going with a longer term. What if you have a client who opts to take the 12 month contract (with its discounted price), but after a few months, the client discovers that circumstances have changed and the contract is no linger viable for the client to keep going for the remaining term of the agreement.
The issue is not that the client is unable to pay, but that the client will not be able to use your service for the remainder of the contract term.
You have every legal right to enforce the contract through the end of the term. Of course, you know you will be receiving money for doing nothing, but you have a right under the contract.
Of course, if you enforce your contract rights, you may lose a long term customer (because the customer will likely return when circumstances change). Worse, you may lose an advocate for your brand. Even if your client understands the contractual ramifications of the termination.
Even if your client understands what they signed up for. Even if your client understands that you are well within your rights to continue billing for the remainder of the term. But, your client will still resent you. Your client was hoping for you to be reasonable. For you to understand the situation. For you to work with them to achieve a mutually beneficial result.
If, instead, of enforcing your contract, you work with your client to come up with a solution that works for both of you. That way, you both walk away whole. What if instead of enforcing your rights, you looked for a way to resolve the issue:
What if you adjust the term of the contract. If your client is at month 3 before he needs to terminate, what if you shorten the term and ask the client to pay the difference. In the end, the client saves money because he was not paying 9 months of a contract he couldn’t use, but you also receive what you would have had the customer made the right choice on the length of term.
If you make this offer, you could make someone’s day. You have solved a problem that the client did not think could be solved. You may have (temporarily) lost a customer, but you have gained a brand advocate. And, when your client’s circumstances change, and he finds himself looking for your services again, there is no way he would look anywhere else after you helped him out the last time.
Of course, if the client refuses, you always have your contract rights. If your client is unreasonable, your rights are clear. This gives you leeway to focus on the relationship. You do what you can to preserve relationships, but if the client refuses to listen to reason, you have no obligation to back down from your rights.
This is just good business. This is how you spread your vision through your business.
How Do You Make This Work?
To make all of this work, you need to make sure your contract is clear about what should happen. To make sure that you can enforce your rights, but also that you may not enforce them immediately without waving your rights. You want the option to work with a client if it makes sense, but you do not want to waive any of your rights because you were working out a solution.
Of course, you can also have a dispute resolution policy in your agreement that controls how you come to these resolutions. And, there may be times when you need to enforce your legal rights because it is about the money. Perhaps it is a client who is bad for your business, or a client who is constantly creating issues in your business and you need to terminate the agreement and collect your money. Keep in mind though, that in our connected world, the way you terminate a relationship with a client (no matter what they may have done it) can come back to haunt you in reviews online.
Your contract is designed to protect your rights. But, if you can keep your rights and do the right thing, your contract shouldn’t control your behavior. Protecting your relationships should control how you respond to conflict.