Cancellation Contract: How to Best Handle as a Service Provider

Last Updated: 3/12/25

As a small business owner, you look for those golden clients and work to deliver an amazing customer experience. But once in a while, a client relationship doesn’t work out.

Things come up, like: 

- family issues,
- financial hardships,
- or health problems. 

We've all been there before. 

Cancellations are a not-so-fun part of running a business. This is true for photographers, wedding planners, coaches, DJs, vendors, and all kinds of small business owners. Luckily, there are steps you can take (besides building an awesome breakup playlist) to protect your business finances and reputation when cancellations happen.

I'm Paige Griffith, founder and lead attorney behind The Legal Paige. After working as a federal law clerk, I traded in the traditional law life for a virtual one. I create done-for-you contract templates and resources for small business owners. My mission is to create an online space where the law isn't so scary and entrepreneurs can get legally legit in no time. 

(Law aside, I'm just a small-town Montana mom who loves her kids, traveling, outdoor adventures, and a good game of Catan.)

Now let’s take a look at when and how to use a cancellation contract for your business! 

- What Is a Cancellation Agreement? (AKA Cancellation Contract or Cancellation Clause)

- Cancellation Clause: A Key Part of Your Service Contract

- How to Avoid a Lawsuit Over a Contract Cancellation

- Cancellation Contract: Your Official Breakup Letter

- Must-Have Clauses for Your Cancellation Contract

- Legal Hot Tip: Stay away from “Non-disparagement Clauses” in Your Cancellation Agreement

- How to Effectively Manage Clients Who Won't Sign Cancellation Contracts

- Summary + Cancellation Contract Template PDFs for Service Providers

What Is a Cancellation Agreement? (AKA Cancellation Contract or Cancellation of Service Agreement)

It’s important to set clear terms for a smooth and clean breakup between your company and your client. (For those “It’s not you, it’s me” situations…or the other way around.)

Here are two ways you should protect yourself as a business owner:

1. A cancellation clause: This is a provision in your initial service contract. It outlines how you or the client may cancel the agreement (kind of like a prenup).

2. A cancellation contract: This is a new agreement between parties to terminate an existing contract (kind of like a divorce).

Cancellation Clause: A Key Part of Your Service Contract

A cancellation clause is a section of your service contract that specifies how any potential cancellations will play out.

From time to time, clients may need to cancel their booking with you. Or you may have a family emergency come up. A cancellation clause helps you reduce the sweat and handle these types of sensitive situations professionally.

A cancellation clause gives your client a heads-up about what fees would be refunded, what’s not refundable, and at what point your entire service fee is due.

There are two cancellation clauses to include in your service contract: 

- one for addressing client cancellations
- and another for when YOU need to cancel a contract with a client 

Cancellation by CLIENT Clause

A Cancellation by Client Clause establishes clear guidelines on how and when clients may cancel their contract. This helps you:

- promote transparency,
- protect your business,
- and maintain fairness in your client relationships. 

Here's what your Client Cancellation Clause should include:

- Cancellation Deadline: Lay out a timeframe for when your clients can cancel their contract and receive a refund. This deadline should be based on factors like:
- the nature of your services
- any upfront costs incurred
- final payments due
- and the time required to find a replacement client. 

We usually recommend a deadline between 30-60 days before an in-person service date.

- Refund Policy: Outline the details of your business’s refund policy. Make it clear whether the client will receive a partial or full refund, depending on the timing.

Consider a tiered refund structure. Take into account the amount of work you’ve put in and any costs you can’t recover. (Read more about how to *legally* issue refunds here.)

Keep in mind that retainers should ALWAYS be nonrefundable. (Regardless of when a client cancels with you — keep your retainer.) 

If you want to know more about nonrefundable retainers, check out this blog article: DEPOSITS VS. RETAINERS: ARE THEY REFUNDABLE?

In most cases, it makes sense to retain some or all of the fees clients have paid when they cancel. After all, you held the date for your clients, and you likely turned down business from other potential clients because of them. Lost business is a legitimate, legal reason to hold on to payments. 

This gets a little nuanced, however… If you end up rebooking someone for the same date at an equal or greater cost, you may need to refund the original clients at least their paid fees. (Otherwise, you didn’t actually lose out on money because of the cancellation.) Usually this does not include the non-refundable retainer. 

Also, some state courts have required business owners to give a partial refund for services they didn't perform. (This doesn’t include the original retainer to secure the date.)

Another option is to require a cancellation fee in your contract rather than retaining fees.

Here are two examples of Cancellation by Client Clauses from attorneys at The Legal Paige:

1. Cancellation by Client Clause for Event Vendors

2. Cancellation by Client Clause for Photographers

These and many more contracts including cancellation clauses are available in our online contract shop.

Here is the bottom line when a client cancels: Clients have a right to cancel their agreement with you. But you also have the right to keep certain fees and retainers to recover lost business and be compensated for any services you have already provided to them. (As long as you have the correct language in your cancellation clauses and agreement!)

Cancellation of Services by COMPANY Clause

The second type of cancellation clause you absolutely need in your contract is a CANCELLATION OF SERVICES BY COMPANY CLAUSE. 

It’s an icky feeling when you need to cancel a contract with a client, but sometimes you gotta do what you gotta do. It’s good to include a Cancellation of Services by Company Clause in your service contract in case of:

- a family emergency
- you getting sick
- or realizing that the client just isn't the right fit for you. 

For these situations, your Cancellation of Services by Company Clause tells clients when you can terminate an agreement. 

Here's what your COMPANY cancellation clause should cover:

- Cancellation Conditions: Clearly state the circumstances when you can cancel the contract. This could include scenarios like:

       - unforeseen emergencies
       - ghosting by the client
       - breakdown of communication
       - injury
       - or inability to perform the services as agreed 

- Refund Policy: Explain whether the client will receive a full or partial refund if you, as the company, cancel the contract. Think about the work you’ve already put in and what clients should receive back from any prepaid amounts.

In most cases, it’s probably best to refund them the full amount they’ve paid (including the retainer) if you cancel. An exception is when you’ve already done a substantial amount of work for the client (like photographing an engagement shoot or hours of event planning).

- Substitute Service Provider: Depending on your industry, it’s often good practice to look for a substitute service provider (or some other solution) for your client if you can’t complete the job.

If you offer this, outline the terms and conditions of finding a substitution. Usually, the client would need to sign off on and agree to your proposed substitution. 

For company cancellations, we recommend you notify the client as soon as you’re aware that you will need to cancel. (No stringing them along!) Sometimes canceling leads clients to write bad reviews, so you handle each situation as delicately as possible. Clear communication is key to ending the relationship on a positive note.

How to Avoid a Lawsuit Over a Contract Cancellation

We can all learn a thing or two about cancellations and refunds from a real-life courtroom drama between a couple and a wedding photographer in Wisconsin¹. 

Their business relationship went sour months before the big day, and the parties decided to go their separate ways.

The couple ended up suing the photographer for their money back. Based on the contract, the photographer could keep all the money her clients had paid if the clients canceled. 

On the other hand, if the photographer canceled, she would need to refund them their money (except the retainer fee). The problem was, it wasn’t so clear WHO canceled the contract.

Here’s the sequence of events:

- During a heated phone call, the photographer told the couple she was “done” with them and that they needed to find a new photographer.
- Later, the couple emailed her, requesting their money back, minus the retainer.
- The photographer emailed back, stating that she understood that the couple was canceling since they requested a refund.
- The couple replied, agreeing to cancel only if they received a refund.
- The photographer kept the money.

So, who really canceled? And who keeps the money?

The judge ruled that asking for a refund wasn't enough proof that the clients canceled the contract. 

So, the photographer had to refund everything but the retainer.

Here’s how YOU can avoid such dilemmas as a photographer:

1. Clarify Cancellation Terms: Clearly outline in your contract how both you and your clients can cancel.

2. Use Email for Notices: Send all cancellation notices via email to keep a record.

3. Get Signed Agreements: Have your clients sign a cancellation agreement, delivered by email. Make it clear that by signing, they agree to the cancellation terms.

Again, communication is key. A cancellation contract is an important piece of communication that we’ll look at next.

Cancellation Contract: Your Official Breakup Letter

We’ve talked about including what-ifs of cancellations in your initial service contract. But once either you or your client decides to go your own way — what’s next?

When the breakup is getting close, it’s important to ask your client to sign a cancellation contract.

A cancellation contract is a stand-alone agreement, separate from your original service contract. 

A cancellation contract gives you signed, written proof of the canceled agreement. It helps you and your client confirm the termination and get on the same page about any refunds.

It replaces any previous written or verbal agreements between you and your client.

A cancellation contract covers important topics like:

- refunds (whether it’s $0, partial, or full),
- limiting clients from filing lawsuits, and
- confidentiality agreements

A cancellation contract helps you maintain professionalism and avoid a messy end to a business relationship.

Below are some important elements to have in your cancellation contract. We include these in our written-for-you, customizable cancellation contract templates.

Must-Have Clauses for Your Cancellation Contract

- Forfeit of Retainer and Fees Paid OR a Refund of Retainer and Fees Paid: Lay out what will happen with fees paid by clients—whether it’s a partial refund, no refund, or (in very rare cases) a full refund. 

Address "non-refundable retainers" and "liquidated damages" (the amount of money that a client agrees to pay to cover your business losses from the cancellation).

- Company’s Release of Contractual Obligations: Emphasize that, with the cancellation contract, your company is no longer obligated to perform services on the date you agreed to.

- Mutual Release of Claims: State that neither you nor your client will pursue legal action based on your previous contract or payments due.

- Representations and Warranties: Confirm that both parties are able to enter into the cancellation contract willingly and understand what it means.

- Confidentiality: Highlight that all negotiations of this cancellation are between just you and the client. (You may do things a bit differently with each client who cancels depending on facts and circumstances). Keep in mind that this clause DOES NOT prevent clients from writing reviews on the services they’ve already received from you.

- Venue & Jurisdiction: Specify in advance where any legal proceedings would be handled.

- Severability: Clarify that if any part of the contract is found invalid under state law, the rest of the contract is still valid.

- Counterparts/Facsimile Signature: Acknowledge that electronic signatures are valid and can be signed at different times by all parties. This ensures that the contract is legitimate even when signed remotely.

You can have ready-to-fill-out templates in your business toolbox with The Legal Paige’s CANCELLATION CONTRACT bundle.

And don’t miss my tips in this podcast episode of The Legal Paige if you’re facing a cancellation situation with a client. I share tips on how to navigate sticky client situations while providing excellent service and protecting your small business.

Legal Hot Tip: Stay Away from “Non-disparagement Clauses” in Your Cancellation Agreement.

Nobody likes a bad review from a previous client — ouch! If you’ve heard of a “non-disparagement clause,” you might wonder if this could be helpful as part of your cancellation contract when a client breaks off an agreement with you.

You usually see a “non-disparagement clause” in employee or business-to-business contracts. It can protect a business from disgruntled employees or partners writing bad reviews or talking negatively about the business.

You SHOULD have a “non-disparagement clause” in your EMPLOYMENT CONTRACTS and B2B (business-to-business) contracts. However, it does NOT belong in your client cancellation contract. 

It is actually illegal under the Consumer Review Fairness Act (CRFA) to have a client sign one to prevent a review. 

Instead, I recommend thinking of customer reviews as an opportunity to address concerns and focus on quality and improvement in your business. Exceptional service and exceeding client expectations are the focal points.

To learn more about why you shouldn't implement a non-disparagement clause to prevent reviews, check out this blog article: “Can A Non-Disparagement Clause Prevent A Bad Review?” 

How to Effectively Manage Clients Who Won't Sign Cancellation Contracts

Let’s say you have a client who wants to cancel their contract with you. 

You've prepared a solid CANCELLATION CONTRACT from The Legal Paige for them to sign. 

But here's the twist—they either ghost you or outright refuse to sign it. 

What now?! Does your original service contract still hold? Can you cancel without a formally signed cancellation contract? Let's talk about it.

The first thing you should do is let the client know in writing that signing your cancellation contract is the formal way to terminate services with you. Remind the client multiple times (at least 3!) of this policy. Explain to them that you do not refund any money until the cancellation contract is signed.

When it’s clear that they’ve either ghosted you or have outright refused to sign the cancellation contract for whatever reason, you’ll want to confirm in writing that their contract has been terminated. This is usually done via email. 

Why confirm in writing? Verbal agreements may hold weight in some circumstances, but when it comes to canceling a contract, having written confirmation is crucial. 

A well-drafted cancellation email or letter gives you tangible evidence that both parties have agreed to terminate the original contract. That’s even if you're the one officially confirming it at their request. This action provides clarity, prevents misunderstandings, and helps protect your rights and obligations.

Key items to include in your cancellation confirmation email: 

1. Clear Intent: State that your client is canceling the service contract according to the Client Cancellation Clause. 

2. Reference the Original Contract: Mention the date and title of the original service contract. This provides a point of reference and makes it clear which agreement they are canceling.

3. Cancellation Date: Specify the effective date of the cancellation (the date you or your client notified the other about canceling. cancel). This tells when the termination takes effect and helps establish timelines for further actions or obligations. Additionally, attach the original email or correspondence in which they requested to cancel the service contract. 

4. Acknowledge non-refundable fees and payments: If there are any consequences or obligations associated with the cancellation, such as nonrefundable retainers or fees, mention them explicitly. This is so both parties are aware of their responsibilities. Additionally, make sure you state any refunds of fees they are entitled to and how they will receive them.

Following these steps and saving all emails between you and your client would create proof in court that the client asked for and acknowledged the cancellation. 

When it comes to canceling a contract, the absence of a signed cancellation contract does not mean you are left powerless.

Though it may not provide the same level of protection as a signed formal cancellation contract, a well-drafted cancellation confirmation can still terminate an agreement.

Get moral and legal support from me on how to handle a canceled agreement in this podcast: “Episode 158: Need to Cancel Your Contract? Here’s How to Do it Legally!” — Listen Now.

The Legal Paige Take

As a small business owner or service provider, cancellations with clients can feel yucky. 

But you can set yourself up for smooth transitions out of client relationships with these three tools: 

1. A cancellation clause. This is an important piece to include in your initial service contract. It lays out your policies and expectations if a cancellation comes up. 

Here are some fill-in-the-blank cancellation clauses we’ve drafted for you.

2. A cancellation contract. This is the document you use when it's time to cancel (either because your client wants to cancel an agreement or you have to for personal or business reasons). A cancellation contract solidifies the cancellation of an agreement and ties up loose ends. 

These cancellation contract templates take out the guesswork of what to say when an agreement is canceled.

3. A cancellation email if a client refuses to sign a cancellation contract or just isn't getting around to it. This should detail your policies and what happens next with refunds and other factors. You can get our go-to collection of email templates for difficult client situations here.

These tools can help you feel better during the inevitable, occasional cancellation. Remember to focus on an excellent customer experience as much as possible. 

You’ve got this!

¹Beau Serchen v. Diana Ornes Photography LLC.