Why Your Business Should Use Contracts or Engagement Letters. Canada 150 Recommendation #39

Monday’s= Small Business

How do you make sure that your customers understand what you do for them and what you do not do for them?

In my experience, there are some customers who will not clearly remember a conversation or a meeting. There is nothing better for your protection than “having it in writing.” You should have a standard contract or a letter that both you and your customer sign, which explains the scope of the work you are going to do, how much it is going to cost, when the customer is going to pay and any warranties or guarantees. If there are any changes to that agreement the changes should be initialed.

I have two examples, one from the flooring installation industry and one from the tax preparation business.

  • A customer is in a hurry to get their flooring down because they are behind schedule in a new home construction. The installer says that the conditions are not right for the installation, the humidity is too high and the floor is not level. The customer says that they do not care – just install it. A year later the floor has buckled and the customer believes that it is the flooring installers fault. If the flooring installer had followed my advice,  then he had the customer sign the invoice indicating that if installation went ahead in these bad conditions the warranty was void. If the installer does not have that documentation then the customer has a good case – because the floor is buckled.

 

  • In my tax practice I had a client who wanted to claim a donation receipt which I knew was issued for an amount greater than the amount of money that changed hands (You may recall the donation scam issues from a few years ago). I said that I would not prepare the return unless the client signed a letter I drafted which said that, “Debi told them not to claim the deduction and they were going to save the refund in an account so they could pay it back to the Canadian government when they asked.” So the return was filed, the letter was signed and the return was accepted by CRA. Three years later the return was reassessed (as I expected) and the donation disallowed. My client called and said “You did my return wrong.” I sent her a copy of the letter she had signed when the return was filed. My client was surprised about the letter – she had totally forgotten that she had signed it. If I did not have that letter I would be paying the interest and the penalties due to the disallowed donation.

You can reduce the amount of aggravation in your life by making sure that your customers understand the terms of your relationship.

 

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