A good client contract doesn't have to be complicated. Here's how to create and enforce agreements with your clients—and protect your business in the process.
If you work with clients, chances are, you’re at least somewhat familiar with client contracts. But just because you know what a client contract is doesn’t mean you always use them. Or, when you do use them, that you’re creating a written agreement that protects you and your business.
And it makes sense! With all the legal fine print, client contracts can be intimidating.
But they don’t have to be. At its core, a client contract isn’t meant to create traps with confusing legal jargon. It’s supposed to outline essential details like project scope, deliverables, payment, timeline and other contingencies—and to protect your business if one of those details goes awry.
But how, exactly, do you do that? How do you create a contract that gets you and your client on the same page? And if your client violates the agreement, how do you enforce the contract terms—and make sure you’re protecting your business?
Why Are Client Contracts Important?
First things first: Before we jump into how to create (and enforce!) a client contract, let’s start with why client contracts are so important.
Client contracts are a must for your business for a few different reasons, including:
- They get you and your client on the same page: Before you start working with a client, you want to ensure you both have the same expectations around the relationship and/or project
- They clearly state the key details of your working relationship: Client contracts help iron out the nitty-gritty details of the engagement (like when the client needs to pay you and when you need to turn in key project deliverables), which creates a legal road map for how the project will unfold
- They protect your business: Written contracts are legally binding documents—so, if your client doesn’t abide by the contract terms, you can take legal action (and vice versa)
How Do You Write a Client Contract?
Here’s a look at the basic steps you’ll need to take to create a simple and effective client contract:
1. Include Contact Information of Both Parties
For a written contract to be legally binding, it has to clearly state who is legally bound by the agreement—or, in other words, you’ll need contact information for all parties involved.
Every contract should include the legal business name, main contact, physical address, billing address, and contact details for both the client and the contractor/business owner. Make sure to use your legal business name. For example, if you incorporated or formed a limited liability company (LLC), be sure to use the exact name that’s on this paperwork.
Continue to use both your and your client’s names throughout the contract. Leaving generic terms like “client,” “third-party” or “service provider” in the agreement will make it sound significantly more impersonal—which isn’t a legal issue, but could put off some clients.
2. Specify Project Terms and Scope
As mentioned, contracts are all about outlining the nitty-gritty details of your agreement. It’s important to be as specific as possible about what you’re being hired to do, how you’re going to do it and what the expectations are on both sides.
For example, let’s say you’re drawing up a contract to redesign a website for a client. What is the scope of the project? Are you responsible for the redesign and the redesign only—or are you also responsible for writing the copy and sourcing images? What assets do you need from the client to get started? How many revisions does the redesign include—and what happens if the client wants an additional revision round?
You can never be too specific when outlining the details of your project. The goal is to set expectations and guide the working relationship with clear and predefined parameters. While it might seem like overkill, getting into those specific details is important for you and your clients.
You don’t want to end up feeling like you have to work out of scope—and you don’t want your clients to feel like they aren’t getting what they paid for.
3. Establish Payment Terms
Want to get paid for your work? Then don’t leave out the most critical element of a client contract: payment terms.
There are several areas to consider when establishing payment details in a client contract, including:
- How you’ll be paid: Are you going to be paid by the hour or by the project?
- Minimum/maximum hours: If you’re going to be paid by the hour, you’ll want to include your minimum and maximum number of hours. That way, you’ll get paid for the time you set aside for the project, even if your client minimizes the project. It will also prevent scope creep and ensure fair compensation if your client decides to put more work on your plate.
- Project deliverables: If you’re getting paid by the project, it’s important to outline the deliverables you’ll be responsible for and what that project rate actually covers—again, to prevent scope creep.
- Billing schedule: In addition to your hourly or project rate, clearly outline the billing schedule. For example, if you’re getting paid by the hour, will you bill on a defined schedule (e.g., every week or month)? If you’re billing by the project, will you invoice after hitting certain milestones—and, if so, what are they?
- Payment schedule: The billing schedule outlines when you’ll be billing the client—but you also need to include a payment schedule. The payment schedule outlines how long the client has to pay you after receiving your invoice (e.g., 15 or 30 days). You’ll also need to outline any penalties the client will face provided they don’t abide by the payment schedule, like a late payment fee.
- Acceptable payment methods: If you only accept certain methods of payment (e.g., FreshBooks Payments, a business check or direct deposit), you’ll also want to include it in your contract.
4. Set the Schedule
In addition to billing and payment schedules, you’ll also want to clearly outline any deadlines associated with the project, including project milestones and final deliverables. If the client needs to provide anything for the project, make sure to specify what you need from them and when you’ll need it provided by.
For example: “[Your business] will deliver the first comp three weeks after receipt of X asset from [your client]” or “meeting the stated schedule is dependent on the client reviewing submitted drafts and responding with requested edits within 48 hours of receipt.”
5. Decide What Happens If a Contract Is Terminated
Sometimes, projects don’t work out the way you expect them to—but if your client decides to pull out of the project (i.e., break the contract), you want to make sure your business is protected. And, of course, get paid for the work you’ve already completed.
In the contract, include a stipulation that clearly states that any received payments are non-refundable should the project be terminated for any reason. This is crucial if you’re planning to invoice throughout the duration of the project. It will help ensure you don’t put in a ton of work, only to have the client terminate the project and refuse to pay you.
You can also add verbiage that states if the project is delayed for a certain period of time (e.g., more than 30 days), you will bill for all work completed up to that point—and that invoice will need to be paid in accordance with the contract’s payment terms.
If you’re charging by the project, you may also want to include a “kill fee”—a fee that the client will be obligated to pay (typically 25-35% of the project cost) if they decide to terminate the project early.
6. Determine Who Owns Final Copyrights
While this won’t apply to every business or client project, if you’re creating original work for a client (i.e., a graphic or web design project), you may want to define the copyright terms for the final deliverable and any earlier drafts or comps.
Generally, the service provider owns the rights to any produced work until the final payment is made. Then, once payment is settled, those rights are transferred over to the client—and they can do what they please with the work. If you’re concerned about copyrights or want to establish a different copyright engagement, make sure to outline it in your contract so that your client is on board before you start.
7. Add Some Legalese About the Working Relationship
If you’re working as an independent contractor, you may want to include language that says you take full responsibility for paying your own taxes.
Why is this important? Companies can get into trouble with tax agencies for incorrectly categorizing employees as contractors. Including language in your contract that says you’re an independent contractor and will be paying your own taxes will help them avoid any potential issues come tax time.
While you can identify yourself as an independent contractor using whatever language you’d like, feel free to use this contract template:
“It is understood by the parties that Contractor X is an independent contractor with respect to Company Y and not an employee of Company Y. Company Y will not provide fringe benefits, including health insurance benefits, paid vacation or any other employee benefit, for the benefit of Contractor X.”
8. Specify Your Choice of Law and Venue
In the U.S., contracts can actually specify where disputes will be handled and which state’s laws will govern those disputes. This could be helpful if you and your client are located in different states. Unless you have a specific reason for picking another state, just choose your own state. That way, if you do end up having to settle a dispute, you won’t have to spend any additional time, energy or money traveling out of state.
9. Consider Adding an Arbitration Clause
Ideally, you’ll never face a contract dispute. But if you do, you may want to settle it through arbitration—in which case, you should include an arbitration clause in the contract. If any disputes arise related to the agreement, a neutral third party will hear the evidence from both sides and make a decision.
The benefit of arbitration? It’s typically faster, simpler and easier (although not necessarily cheaper) to schedule than courtroom litigation. It can also be less hostile and more private than taking the dispute to court. If you think it’s the resolution method you’d prefer, consider including the arbitration clause in your contract.
It’s important to note that even if you don’t have an arbitration clause, if you and your client have a dispute, you can still choose to use an arbitrator as long as you both agree. Although if the relationship has deteriorated, it could prove challenging to get on the same page by that point.
If you need the exact verbiage for your contract, you can use this sample arbitration clause courtesy of the American Arbitration Association.
10. Have Both Parties Sign the Contract
Contracts are only legally binding if they’re signed by both parties. So, once your contract is complete, make sure to sign—and collect a signature from your client—before moving forward with the project.
How to Enforce Your Contract—and Ensure Your Client Complies
A signed contract is legally binding. As such, a signed contract is typically all it takes to ensure the client upholds their end of the agreement.
There are, of course, exceptions to that rule. If you find yourself in a situation where your client is in violation of your contract, there are a few steps you can take to enforce it, including:
- Talk to the client: Your client may not realize they’re breaking the contract. For example, they might have forgotten the payment terms or are running behind in getting you the assets you need to complete the project. In those cases, a polite reminder may be all it takes for them to uphold their end of the agreement.
- Talk to a lawyer: If your client refuses to uphold their end of the contract, talk to a lawyer. A lawyer can review your contract to ensure it’s enforceable and give you insights into your rights and any next legal steps.
- File a lawsuit and/or move forward with arbitration: Enforcing the contract may mean taking your client to court or moving forward with arbitration. While this situation is not ideal, it’s sometimes necessary to get clients to comply and/or pay out your contract.
Protect Your Business With a Client Contract
Client contracts are an important part of setting expectations with your client, outlining project details, and ensuring you’re paid for your work. And now that you know how to create (and enforce) contracts, you’re armed with the information you need to protect your business rights.
This post was updated in August, 2020.