By Tristan Blaine, Esq.
Contracts. The word stirs up such excitement, doesn’t it? But seriously, contracts can actually be sort of fun when you think about all the possible uses for them and you realize how empowering it can be to use them effectively. But not only is it empowering, a contract can help you save or earn serious money. How? Well, to start with, it can help prevent a client from skipping out on the bill, and save on the time and money that may be necessary to track down payment.
To be clear, this post is not meant to be legal advice, and some or all of it may not apply to your situation. I don’t recommend drafting your own contracts. The best way to use this information is to take it to a small business lawyer and discuss how it relates to your freelancing business. Try to find a lawyer who has reasonable pricing and flat fees (they do exist, and I’m one of them!). It probably shouldn’t cost more than $500, unless you have a particularly complex situation. If that still sounds like a lot of money, keep in mind that it’s likely a tax deductible business expense. And having a great contract could easily help you save or earn thousands of dollars, much more than what you would be spending for legal help.
Also note that the client may not necessarily agree to any of these provisions, in which case you should decide whether to drop the provisions or drop the client.
All that said, here are 6 important contract provisions you should know about to save and earn more cash.
1. Detailed description of scope of work
This one is pretty basic, but is often overlooked. Describing in detailed and specific terms what you will do for the client makes it clear that anything other than what’s in the scope of work will cost the client more money. So if the client tries to say they thought your flat rate included, for example, several rounds of revision until the client feels satisfied, you can point to the scope of work that (hopefully) says your price includes only one revision. Often the client will then concede and pay you for the extra work.
2. Intellectual property provisions
Make sure you are up to speed on what intellectual property rights you have in your work (a topic for another post; or find a good intellectual property lawyer), and that you clearly state in your contract what rights you are and are not giving to the client. Generally, if the client wants more (or all) of your rights, they should pay you more.
3. Clear payment terms
Another seemingly obvious one, but have you included exactly how and when payment is to be made? If not, the check could get “lost in the mail.”
4. Late fees
Part of the payment terms, but this one deserves its own category. Late fees are a great way to incentivize clients to pay on time, every time.
5. Limitation of liability
You may not be thinking about what happens if your client sues you, but unfortunately it’s a possibility. But did you know you can limit the amount of money the client can sue you for to only the amount they paid you? Yep, just make sure you have one of these nice little provisions, and you could save some serious cash.
6. Liquidated damages
Sounds complicated, but it’s not really. It’s simply a way to make it easier to enforce the contract in case your client violates certain provisions. You see, sometimes it’s hard for a court to determine how much one person should pay the other for not following the contract. For example, if the client uses your intellectual property but doesn’t credit you as you had agreed, how much is that worth? Maybe it’s your lost profits, but it’s often hard to figure out how much profit you would have made had they credited you properly.
To deal with this you can simply stipulate “liquidated damages” of a reasonable dollar amount or percentage of your fee, and this is the amount that the client would likely have to pay you for breaching certain parts of the contract.
Fun stuff, right? Let me know if you have any questions or comments on any of this!
Tristan Blaine is a “freelance lawyer for freelancers,” which is a fun way of saying that he has his own law practice and works primarily with freelancers and small businesses. He also created a website, Law Soup, for everyone to get some quick answers on a variety of legal topics.