What is a Third Party Payor Addendum and Why You Need One
If you’re in the wedding industry, you’ve likely seen situations where various parties are contributing to paying for your services. It is very common to see credit cards from the parents, or checks from the grandparents to help pay for vendors.
Once a family member pays for a portion of your services, they become what’s called “third party payors”, which means they are paying on behalf of your clients but are not actual ‘Clients’ with a capital ‘C’ on the actual contract.
It is perfectly fine to accept payments from third party payors AS LONG AS they have signed a third party payor addendum (aka a contract addendum). Anytime anyone is paying for your services, it needs to be legally signed and documented. Even if they are paying a one time fee of $200, it needs to be stated in a third party payor addendum. By doing this, you are protecting your business from any potential issues involving payment during the process of performance under the original contract. Remember your clients still need to sign the original service agreement, because they still should be bound to the original terms of the contract like, cancelations, rescheduling, ect.
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 spouse 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.
A few things the contract should include and why!
The significance of a third party payor contract is to cover your business if the event payment goes awry.
- Maybe the event is cancelled or the client wants to end their contract with you, the addendum will help ensure any payments provided by the third party are held to your usual payment standards.
- Another common issue is the third party thinks they are now a client because of their financial involvement, potentially leading to the parent attempting to give you direction alongside the client. This allows for more parties contacting you with information that should only be coming from the spouses.
Your contract should include a couple critical clauses:
- A statement regarding the fees and obligations of the third party, and
- Information stating they are considered a payor NOT a client or contact.
Fees and Obligations
Similar to the primary contacts, the third party payor addendum should specifically mention payment and obligations.
This includes nonrefundable fees and what exactly the payor is paying for. For example, if the parent pays for the retainer fee their addendum should specify it is nonrefundable, just as it states for the primary clients. Likewise, you should specifically state what the third party is responsible for payment wise under the original contract.
If ANYTHING changes to the original agreement, such as the clients upgrade and you need to invoice the third party payor for more money, another addendum needs to be created and resigned by the clients and payors.
Communication and Contact
The addendum needs to be very specific that the third party payor is not a client being attached to the primary contract, but is only someone involved in the payment process.
The third party payor is not involved in the planning of the event or responsible for explaining finances to you. They pay the agreed upon costs and all other communication is through the primary client.. This is going to ensure contact only comes from the clients and there will be no confusion of who is in charge of handling details regarding the event.
If you have payments coming in from different sources and people it is your responsibility to manage that. If you notice a credit card is under another name then you need a third party payor addendum before continuing with that payment. You must always protect your business first and hold everyone accountable even if that is a third party. These addendums are just as important as primary contracts, so you need to have everyone sign a legal document to save your business from any hardships that may come up.
Make sure you are ready for that third party payment with TLP's Third Party Payor Addendum!
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.