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Estate and Business Planning Legal Blog

Thursday, May 28, 2020

How to Effectively Draft Service Agreements

If you are in a service business of some type, it is just as important to have your agreements with clients be in writing as it is with companies that provide goods rather than services.  The agreement can be quite simply but must contain some essential terms, namely a description of the services, the time period covered by the provision of services, and the cost.  

With a service agreement, it is extremely important to be very clear in describing the services which will be provided to the customer, so as to avoid confusion and misunderstandings.  The more specific you can be, the better.  The last thing you want to do is to be under an obligation to provide things which you did not anticipate.  For example, you would not want to say that you will be providing all bookkeeping services to the client.  You would want to specify exactly will be included--for instance, reconciling statements, providing specified reports, etc.  Otherwise, vagueness in what is being provided will lead to problems, if not to litigation.

An agreement should also be limited in duration--for example, 6 months, one-year, etc.  No one wants to be bound to an agreement for a very long time, especially if one has never dealt with a specific customer before.  If the customer turns out to be one who does not pay bills on time, you may not want to continue providing services.  Of course, your written agreement should state when payment is due for services and provide recourse if payment is not made within a specified time.  Of course, it must also be made clear what the cost of providing services will be.

It is always a good idea to include in the agreement a provision allowing termination of services under certain circumstances.  For example, if the customer is not satisfied, the customer should be permitted to terminate the agreement on prior written notice, but be obligated to pay what monies are owed.  Similarly, if the business owner is not happy with a customer, or if the customer is not paying its bills, the business owner should be permitted to terminate.

A properly drafted service agreement is certainly important in making one's business profitable and avoiding litigation.  It is always best to have an experienced attorney draft such an agreement or, at a minimum, have an attorney review one which the business is using or wishes to use.

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