How to Use Contracts to Ensure You Get Paid
February 16, 2016
Freelancing has many pros and a few notable cons. One such con is dealing with clients who don’t pay you on time – or at all. Working with these types of clients can create serious problems, resulting in wasted time and effort.
Most freelancers have worked with clients who suddenly disappeared when the invoice was sent. However, this doesn’t mean that it’s an inevitable part of the job. Learning how to work with contracts will help you ensure that you’re paid appropriately for your time, effort and skill.
I’ll admit, when I was new I wasn’t savvy about contracts. I had a few disappearing clients or some that were just plain unreasonable. Once I learned the importance of contracts, I started making them a regular part of my life. My issues with clients diminished significantly, and I altogether avoided clients who don’t pay.
Why Contracts Are Important
Contracts should be considered a requirement for all new clients. Contracts explicitly lay out all of the terms of the agreement – primarily what you’ll provide and how much you’ll be paid.
Learning how to create and work with contracts can often be intimidating, but it’s simply another skill that you need to develop on the path to success. Working with contracts develops a strong business sense.
Contrary to popular belief, you don’t need a lawyer to make a contract legally binding. In order to be legally binding, according to the Small Business Association, your contract only needs to contain two elements:
- All involved parties must agree on the offer being presented by one party and accepted by another.
- Something valuable must be exchanged for something else valuable.
That’s all you need to have a legally binding contract. Of course, having a lawyer involved will help strengthen a contract, but you don’t need to be held back by not having a lawyer involved.
The Clauses Freelance Contracts Need
Contracts are one of the required types of legal documents all freelancers need. They’re also one of the most intimidating legal documents. However, building contracts will ultimately streamline communication with clients by clearly laying out the terms of your agreement.
Contracts are built largely with clauses that dictate terms of the agreement. Below are some of the clauses that your contracts should have:
Explicitly stated rates and prices
This is the most important part of the contract. You and the client should formally agree on the complete rate for the service that you’ll be providing.
Don’t surprise your client with a rate when you send them the contract, it should be agreed upon during the early stages of negotiations. Your contract should also stipulate if payment is due up front, upon completion, or half paid up front and half paid at completion.
If you work on an hourly basis, your contract should also include a minimum and maximum amount of hours that the project will take. The minimum hours ensure you receive a certain rate even if you finish early, while the maximum protects the client against endless billable hours.
Terms for payment and invoicing
Break down exactly when payment is due and how payment should be made. Are they sending you a check, using PayPal or direct deposit? Will payment be made in one lump sum at the beginning, or in multiple installments?
For recurring clients, consider working on a retainer in which you automatically charge their account every month.
A clear ‘kill fee’
What happens if the project is canceled once work has begun? Adding a kill fee clause protects you against losing time spent on a half-finished project. The exact amount you charge for a kill fee is up to you. Some freelancers have elaborate systems based on when the project is canceled, others charge somewhere between 25-50%.
Terms of revisions or rewrites
Sometimes a project that you thought was done ends up being sent back multiple times for revisions or rewrites. This can be due to a miscommunication, poor instructions or working with a perfectionist.
While revisions are a natural part of being a freelancer, your contract should protect you against endless revisions. Generally speaking, freelancers offer 2 or 3 revisions.
Write this into the contract and make sure the client understands the limitations.
Your contract should stipulate who owns the copyrights, and when that ownership is transferred. For most freelance agreements, the client will own the created content once the final payment is made.
Enforcing The Contract
Creating and signing a contract is often all that needs to be done. A written, signed contract will keep most clients and freelancers working to uphold their end of the agreement.
However, you may still encounter situations in which the client violates the agreement. If you’re lucky, a polite reminder will put them back on track. In some situations, you may have to enforce the contract.
Enforcing a contract means filing a lawsuit against your client. Generally speaking, the court will review the contract to ensure that it’s valid. As long as there are no contract defenses, the contract will be upheld. Having a contractual agreement usually prevents a long, drawn out trial.
Should you need to enforce a contract, involving a lawyer is strongly advised.
Contracts Will Protect Your Business
Taking the time to draw up contracts between yourself and clients clarifies the scope of the project and ensures that you’ll be paid. The vast majority of businesses who will sign your contract will uphold it.
In fact, asking clients to sign a contract will help weed out undesirable clients in the first place. Make contracts a regular part of how you do business and you’ll be sure to get paid.
Do you use contracts with new clients? Has it helped make sure that you’re paid? Would you recommend any other clauses that freelancers should use? Let us know!
about the author
Chelsei Henderson is a content marketing consultant helping freelancers and entrepreneurs build successful companies in the digital world.