Attorney, Author, and Business Consultant for the Comic Book Industry

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Five Good Reasons Freelancers Need Contracts

Added on by Gamal Hennessy.

By Gamal Hennessy

Before I had to focus all my attention on releasing my new book*I wrote an article about getting paid as a freelance professional (See Solving the Payment Problem). One of my main tips was getting your payment terms in writing. Recently, another contracts lawyer (my apologies I couldn’t find the author’s name on the site) recently posted a similar article entitled Why Freelancers Should Bother with a Contract. The article focused on the ways you could be hurt by agreeing to contractual terms you don’t know about because you didn’t use your own contract. I agree with the article and I encourage you to read it (it’s very short). I’d also like to offer my own reasons why every freelance professional should have a contract in place for each of their clients and vendors.

If you want more advice on freelance and small business contracts,

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Five Ways Contracts Can Improve Your Business

  1. You want clear payment terms. This one was important enough to get its own article. Unless your business is not designed to make money, or if you enjoy spending a lot of time chasing clients for missed payments, it helps for you and your client to know how much they’re paying, when they need to pay and how they need to pay. Those points all go in the contract.
  2. You want clear deliverables. A client can order one service and then expect another. They can order one product and then change their mind. You can deliver the agreed upon product and the client could come back with endless requests for modifications, alterations and “one last change”. This pattern of behavior can be reduced with a contract. If your deliverables are in writing, there’s less chance for a dispute when they come back wanting more. You can always give it to them, of course, but with a contract you have the option of getting an additional fee for the additional work.
  3. You don’t want to rely on memories, email chains or texts. Contracts do not have to be in writing to be enforced. Contracts can be created without the formal process of writing and signing something. You don’t want to deal with any of that. Memories and informal agreements suffer from a lack of accuracy, subconscious bias and interpretation. A written agreement can remove most, but not all of those problems.
  4. You want accurate records for your taxes. At least once a year, you have to account for the truckloads of money you made to the IRS and your state taxation authorities. You could rely on Paypal and Fiverr CSV files, invoices and other receipts, but if you have a contract with each client and payment terms in each contract, it might be easier for you to figure out, and explain if need be, where your income came from.
  5. You want to improve the perception of your business. Certain things make a business appear more professional. Your website, your logo, your address all send a message to your potential clients, vendors and competitors. When you put a contract in place with each client you increase the perception of legitimacy in your enterprise. This is more psychological than legal, but it can save you troubles in the long run.

I can feel your cynicism seeping through the internet. You’re right: 

  • Contracts take time to draft and negotiate.
  • Contracts are not guarantees that your business deals will go well.
  • I do have a bias towards you getting a contract because I have a business writing contracts.

All these things are true, but they don’t reduce the value of having a written agreement in place. Whether you get your contracts from me or someone else, there are plenty of good ways contracts can enhance and protect your business.

Have fun.

Gamal

If you want more advice on freelance and small business contracts,

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PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE SPECIFIC CONTRACT ISSUES OR QUESTIONS, DISCUSS THEM WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.

* In case you didn’t know, I’m a writer in addition to running C3. My fourth novel, Smoke and Shadow, came out this week. It’s doing pretty well so far but it’s not selling like Harry Potter so I’m going to keep my day job for now…

Solving the Payment Problem

Added on by Gamal Hennessy.

By Gamal Hennessy

As a freelance professional or a small business owner, getting paid on time can be the difference between surviving for another month and financial disaster.  For many of my clients, getting paid is just as important as finding new clients. Some of them don’t have the time or the resources to find new clients because they spend so much energy chasing after the money they are already owed.

This isn’t an issue unique to my client base. There are many articles revolving around the freelance payment problem (See She Waited 120 Days to be Paid and Would You Settle for Half of What You’re Owed?) I’d like to offer three techniques to navigate around the payment problem, including the method that I use with my own clients.

Three Paths Around the Payment Problem

1)    Set out clear payment terms in writing before you start a job: A small business owner has to wear many hats. At times, administrative tasks are done in a stripped down fashion or ignored altogether to maximize time and resources. Formal and comprehensive contracts often become a casualty of this process, because negotiating a deal can be confusing, stressful, time consuming and might result in lost business (See You Signed the Contract, but Do You Know What it Says?). But not having a contract can be more detrimental in the long term. Without a written agreement, the terms of your engagement are based on vague and biased recollection. Without clear payment terms, you could be at the mercy and cash flow of your clients. Without an actual contract, your legal remedies could be limited.

2)    Take advantage of human motivation when defining your payment terms: I have observed a specific aspect of human nature in my practice. When a client wants something, he has more incentive to pay. After the client gets what he wants, he has less incentive to pay. If you structure your payment terms to receive payment weeks or months after you deliver your goods or services, you are working at a disadvantage. I will explain my method of adapting to human motivation below, although I realize not everyone is in a position to be paid before the work gets done.

3)    Know which jobs to walk away from: Instinct and experience can warn you when a potential client might pose a payment problem. If your background and reference check of your clients reveal red flags, or if you get the sense in your initial discussions with your new client that cash flow might be an issue. It might make sense to pass on the job and focus your attention on the paying clients. (See Twelve Tips for Contract Negotiation) When you do work for someone who isn’t paying, you not only lose time chasing them down for money, you lose time finding and servicing those clients who are actually growing your business.

If you want more advice on freelance and small business contracts,

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The Tennis Method for Payment Terms

            As a lawyer, people expect a certain amount of cold blooded professionalism from me. In almost ten years of independent practice, no client has questioned my payment terms or been late in paying me. I think the method I use is applicable to other types of small business, so I’ll share it with you. Please feel free to modify it for your needs.

            The tennis method gets its name from the back and forth dynamic of my business process. A typical engagement has six parts.

1)    First contact: A client finds me through a referral or an online post and requests a free consultation online or over the phone.

2)    Engagement letter: Once I understand what the client needs and I determine I can do the job, I send the potential client an engagement letter laying out the service I am willing to provide and the payment I require for that service.

3)    First payment: The client expresses their agreement to the engagement letter by paying ½ of my fee upfront.

4)    Work: I perform all the tasks detailed in the engagement letter (See C3 Services)

5)    Second payment: When the work is done, I notify the client and the client delivers the second portion of the fee.

6)    Delivery: Once final payment is received, all the deliverables are sent to the client.

            Notice how the dynamic plays into human motivation on both sides. Once the client pays, I have the incentive to start working because she gave me money and because I know I won’t get the rest of it until I do the work. The client pays because they know nothing will happen until they pay and after they’ve made the first payment, they don’t want to throw their initial money away by not getting the work. Everyone stays honest and everyone gets what they want.

Fit to Taste

            Every small business may not be able to utilize the tennis method. The goods or services you have might not lend themselves to this process. You might not be in a position to dictate payment terms (See David and Goliath in Contract Negotiation). But in extreme cases, it might be better to walk away from a deal you won’t get paid for than to stick it out, hope for the best and not get paid (See How to Reject a Bad Contract). Getting paid is an important aspect of small business and you can only work so many hours in a day. Get a deal in writing that protects your business and let someone else deal with the problem clients.

Have fun.

Gamal

If you want more advice on freelance and small business contracts,

sign up for the C3 Newsletter

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE SPECIFIC CONTRACT ISSUES OR QUESTIONS, DISCUSS THEM WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.