Litigation can be expensive (like REALLY expensive), time consuming, and detrimental to a business. In many instances it is best to avoid litigation at all costs and instead find other ways to mitigate issues that arise with clients. Here are our top 5 ways to avoid litigation as a small business owner!
Have A Contract And Put EVERYTHING In Writing
When a business starts working with a client it is essential that you put everything in writing within a contract and have it signed by all parties. The contract should include very specific details such as the type of services provided, fees, dates you will be providing services, cancellation policies, rescheduling policies, and so on. Essentially, the contract should cover every part of your business's services. Anything that is not written in the contract is left unprotected! For example, if the client is verbally informed there is a 14-day cancellation fee but it is not in the contract, they will likely not have to pay it. It is an absolute must to put every little detail into the contract so there is no misunderstanding between any of the parties and to ensure everyone is in agreement. The more detail put into the contract gives less room for litigation. Remember, it is always better for you to add it to the contract than to wish you had later.
The best way for a business to have a strong contract is to purchase a professional contract template or seek legal counsel. It is virtually impossible as a layperson to know every legal term, clause, or policy that should be included in a contract... which is what most often leads to litigation issues with a client. Small businesses should opt for contracts that have been legally and professionally created to make sure their contract is strong enough to avoid litigation. Check out our contract template options!
Communicate With Your Clients Throughout The Entirety Of Your Relationship
It is important to keep your client informed and happy throughout working together. The contract is a roadmap for your terms of the services but it does not update the client on how the actual process is going. Your client should be involved with each step of your services, whether that be a confirmation on when you will be arriving day-of as a wedding photographer or a late fee from a venue. The client should know how everything is going and not be surprised by a change. For example, if your contract says “the client will be charged [x] amount of additional fees incurred after 8 hours of services is completed”,you should inform your client right away in person that you have maxed out your hours of coverage under your contract, ask them if they’d like you to stay later, and how much the additional cost is. When there is no communication with the client and you merely send them a random additional invoice days later, it can lead to confusion, frustration, and possibly litigation.
If An Issue Arises, Work With Your Client BEFORE It Escalates
At times an issue may arise that falls outside of the contract or there is a misunderstanding. This can be a tricky situation as the business and client may be adamant that they are ‘right’ about the problem, however being correct will not mitigate the issue. In MOST cases, it is easier to take responsibility as the business owner to work with your client versus arguing about what was misinterpreted as a way to avoid litigation. While it is important to enforce the terms of the contract as it is a legally binding document, be creative in how to resolve the issue. If an exception to the contract is made as a way to avoid litigation (this is called “waiving” a contract provision in legal jargon), it is extremely important to have a Severability & No Waiver clause in your contract which ensures that waiver of one provision of the contract does not constitute a waiver of any other provision of the agreement. Further, put it in writing what provision was waived and why so you have additional documentation.
Negotiate A Settlement
Unfortunately, sometimes the issue at hand is unavoidable and it is time to try to negotiate with your client. Think of ways your client will be happiest such as reduced fees, additional services without charge, a modification of the contract, and more. The main thing you want to avoid during litigation is complete cancellation of the contract and a total refund. If the negotiation is not going well or you need additional help from a professional in order to avoid litigation, you should seek legal counsel whereby they can step in and negotiate on your behalf.
Update Your Contracts To Avoid A Similar Situation In The Future
If issues arise at any point with your current clients, you should review and edit your main client contract for future services. It is important to regularly go through your contracts to make sure they are up to date and edit any clauses that may cause conflict or confusion with clients. Even the best contracts need to be altered from time to time, so it is critical to make changes as soon as possible to help avoid the same problem with future clients. If you choose to also update your existing client contracts, you can do so by means of a contract amendment or addendum.
The reality of running a small business is that client issues can (and will) come up. However, there are steps a business can take to avoid litigation. It may not be the ideal situation to edit contracts or negotiate a settlement but it is more effective than taking on the financial costs and risks of litigation in court. These steps should help! If you are still a little fuzzy on what to do, it's always best to seek out legal advice to keep your business safe and successful!
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.