If a family member pays for a portion of your services, they become what’s called a “third party payor”, which means they are paying on behalf of your clients but are not on the actual contract. As a small business owner, it is perfectly fine to accept payments from third party payors AS LONG AS they have signed a third party payor addendum. But how do you add and send these contracts to the third party, legally? Well, you have a couple options similar to those used to send original contracts with just a few different steps.
Okay, What Is a Third Party Payor Addendum?!
A third party payor addendum is essentially a contract signed by the third party (aka anyone paying who is not the client) that puts legal conditions on their payment and involvement with the client’s original agreement. The contract of the primary client does not change but instead adds another document to include the new payor. For example, if the parent of the bride pays the retainer for your services, they will need to sign a third party payor addendum stating that they agree to pay the fees but are not considered a new client added to the original contract unless stated otherwise.
It is important to note that the third party payor addendum is a SEPARATE document from the client’s original contract and should be treated as such. The addendum can make references to the original contract and can include some information from it—such as the payment terms that the third party is agreeing to, but the original contract is usually not be sent to the third party. Due to the confidentiality of the original contract, it is best practice to only have the clients have access to the entire original agreement. The addendum is then shared with all parties (the clients, the third party payor, and you as the business owner), but is only signed by the third party payor. An exception to this is if your clients do not care about the confidentiality of the original agreement. Then, you can send that contract and the third party payor addendum to everyone involved. Just make sure ONLY the clients sign the original contract and ONLY the third party payor signs the addendum.
How Do You Send These Documents, Legally?
After constructing your contract, there are a few ways you can have it legally signed. You can send it via a secure and private electronic system, such as HoneyBook, Dubsado, an Encrypted Document from Google, or anything else that provides accessibility only to your clients. If you are going an electronic route, make sure that the addendum has a clause specifying that an electronic signature is legally binding similar to a hard-copy contract. If your CRM system allows, send the original contract to the clients to sign and, once that agreement is signed by both you and the clients, then make a new contract where you will put the third party payor addendum that references the original contract (which has already been signed) and explains the payment terms that the third party payor agrees to, but that only you and the third party sign. If your CRM system does not allow multiple contracts under one project, you may have to find an alternative route to having the third party sign the addendum.
Your other option is either an encrypted document that can be sent online or a traditional paper and hard-copy contract. Obviously doing it in-person would entail the third party meeting with you in-person and signing the addendum together. If you go this route, you need to have multiple copies of the addendum, (one for yourself and one for the third party payor). If you go the traditional paper version route, it is HIGHLY recommended that you scan this document into a software to have a digital and physical copy. Whatever option you choose, it is important to keep everything consistent which means if the original contract is electronic then the addendum should be as well. This avoids any speculation as to why there are differing documents if brought to legal counsel.
However, you choose to have documents signed is perfectly acceptable. The legal world is definitely moving towards electronic and digital contracts but if that is not your style, hard-copy signatures are still great! Just remember electronic contracts need to specify that digital signatures are just as legal as paper signatures, and they need to be sent via a private and secure platform. As for hard-copies, there needs to be multiple copies for each party and they should be digitally recorded for extra safety if the master copy is destroyed.
- HoneyBook - Get 50% Off the first year with the TLP discount
- Dubsado - Choose 20% Off yearly or monthly, with the TLP discount
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.