How Your Cancellation Clause Works?
There is an essential element in a contract that can save you from potential headaches and disputes—the cancellation clause. As a service provider, having a clear and comprehensive cancellation clause in your contracts is crucial for protecting your interests and ensuring a smooth business relationship. From time to time clients may need to cancel their booking with you, or you may have a family emergency come up. Knowing how to handle these kinds of situations will level up your business!
Two Types of Cancellation Clauses: (1) Cancellation By Client Clause and (2) Cancellation of Services by Company Clause
There are two cancellation clauses you should include in your service contract: one for addressing client cancellations and another for when you need to cancel the contract with your client.
Cancellation By Client Clause
Let's start with the client cancellation clause because that will be the clause you will be referencing most in your business journey. It is essential to establish clear guidelines that govern the circumstances under which a client can cancel their contract. By doing so, you'll provide transparency, protect your business, and maintain a level of fairness in your client relationships. Here's what your client cancellation clause should address:
a) Cancellation Deadline: Specify a reasonable timeframe within which clients can cancel their contract and still be eligible for a refund. This deadline should be based on factors such as the nature of your services, any upfront costs incurred, final payments due, and the time required for finding a replacement client. We usually recommend having a deadline between 30-60 days before the in-person service date.
b) Refund Policy: Outline your business’s refund policy in detail. Clearly state whether the client will receive a partial or full refund, depending on the timing of their cancellation. Consider including a tiered refund structure that accounts for the amount of work already completed or any unrecoverable costs incurred. Keep in mind that retainers should ALWAYS be nonrefundable. So regardless of when a client cancels with you, you should keep your retainer. If you want to know more about nonrefundable retainers check out this blog: Deposits vs. Retainers: Are they Refundable?
Here is the bottom line with client cancellations: They have a right to cancel their contract with you but you also have the right to keep fees and retainers as liquidated damages for lost business as long as you have the correct language in your contract. You held the date for your clients, and you likely turned down business from other potential clients. Lost business is a legitimate legal reason to keep payments clients have made to you! Before you proceed with a cancellation with your client make sure you are communicating what your contract says about fees and retainers. It is important they know the ramifications of canceling your contract!
Cancellation of Services by Company Clause
The second cancellation clause you absolutely need in your contract is a Cancellation of Services by Company Clause. While it's unfortunate, there may be circumstances where you, as a service provider, need to cancel a contract with a client. This could be due to a family emergency, illness, or realizing that the client really just isn't the right fit for you. Because these situations do come up it's crucial to include a company cancellation clause that outlines the conditions under which you can terminate the agreement. Here's what your company cancellation clause should cover:
a) Cancellation Conditions: Clearly define the circumstances in which you can cancel the contract. This could include scenarios such as unforeseen emergencies, ghosting by the client, breakdown of communication, injury, or inability to perform the services as agreed.
b) Refund Policy: Specify whether the client will receive a full or partial refund if you, as the company, are the one canceling the contract. Consider accounting for any costs already incurred or refunding any prepaid amounts beyond your reasonable expenses. Unless you have provided a substantial amount of work for the client (like an engagement shoot or hours of planning) then you would likely be refunding them the full amount including the retainer.
c) Substitute Service Provider: In many cases it is industry standard to try to find a substitute service provider for your client or assist them in finding an alternative solution. If this is something you offer you will want to 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, it is important that you notify the client as soon as you are aware that you will need to cancel. Sometimes canceling may cause clients to write bad reviews so you want to handle each situation delicately as possible. Being clear in your communication is key to ending the relationship on a positive note.
No matter if your client is the one canceling or you are the one canceling you will want to have your client sign a cancellation contract. A cancellation contract ensures that you have signed written proof that your client understands that the contract is canceled and they are agreeing to terms regarding any refunds that are owed. When you combine a cancellation contract with the terms of your cancellation clauses in your existing contract, you are setting yourself up for legal success with your business.
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.
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