Many people start up in business and lose site of the prime objective – profit!
Starting up a new enterprise is exciting and we do so to improve our lifestyle and to provide employment for others. Many businesses that would otherwise have been successful are often crippled by poor cashflow and fundamental errors made in dealing with others. After all, there is no business school and whilst people are often very good at what they do, they are often ignorant about what is required when forming contracts with other businesses. You may be a plumber, electrician, accountant, candlestick maker or whatever but once you branch out on your own, you are first and foremost a businessman(woman).
There are five basic rules to forming a contract and if you stick by these you will dramatically reduce your exposure to risk.
1. First and foremost, whatever you do, always get your agreement in writing. Generally, everything is fine at the outset when you are dealing with people and whilst verbal orders are binding, memories are often short or differ on what was actually agreed. A short pencil is far better than a long memory so make sure that you always get everything in writing.
2 Always provide your customer with a written quotation and send it to them with a copy of your Terms and Conditions*
3 If your customer is happy with your quotation, ask them to give you a written authority to go ahead, get a purchase order and the name of the person who is giving you the order if possible. Some companies do not use Purchase Orders but you should always get a written authority to commence the work.
4 Probably the most important stage and the one where most people go wrong. Once you have received your Purchase Order/written authority to proceed, send a letter of acceptance to your customer saying that you have received their order and that you have accepted this in accordance with your terms and conditions. This will bind the order to YOUR terms and not those of your customer**
5 Finally, always get either a signed delivery note or a satisfaction note from your customer. This is vital, to prove that you have either delivered the goods or that they are satisfied with the work.
If you follow these five golden rules then you won’t go far wrong and you will dramatically reduce your exposure to risk. Remember always to get things in writing, it doesn’t matter if your customer is a friend or if you have dealt with them for years, make no exceptions.
* Terms and Conditions are vitally important to your business for a number of reasons but unless you impose your terms on the contract then you could be working under your customer’s terms and conditions. You could also have problems with retention of title claims if your customer goes into liquidation.
** If you do not bind the contract under your terms and conditions, your client may claim that the contract was given under their terms and conditions. How can this affect you? well for example, their terms might state that payment will not be made until 90 days after the date of your invoice and this could cause you significant cashflow problems.
As always, if you need advice on any of the above, just give us a call!