Verbal understandings are not contracts


coppersIn my business I think it is important to have agreements in writing with my clients so that they know exactly what I will be doing for them in conducting their affairs (and what I will not be doing). I have always said that verbal agreements are no use especially when the parties fall out or one side has a perceived issue.

Many of us look after family members or agree financial arrangements with them, and somehow it seems less comfortable to ask them to enter into a written agreement. Yet why should they be any different? They are people who may have ideas you have not fathomed.

So I confess. My wife and I entered into a financial and verbal understanding with a family member ten years ago, and when it came to the crunch last year, he reneged on the agreement. That has cost us a lot of money. That is the point: where money is involved, people may have an eye for the main chance when greed, and other motives unknown us, kick in.

If you are relying on a family member to repay you or at some stage meet certain financial obligations, have it all in writing no matter how uncomfortable it makes you feel. That is an insurance we all need.

As for us, we have again learned from experience. Trust no one where money is concerned, and get it in writing when you need to. Onwards and upwards!


Getting advice for free

Last time I mentioned those time-wasters who call or email on the pretext of getting a quote, or sometimes even without the pretext, just to get free information. It is so annoying.

However, we can understand that not everyone wants to pay. Many do want a free ride. The downside for them is that even if they do get free information from one of us in an unguarded moment, it is probably of little value.

Think about it. No telephone call or brief interaction will entail a proper exchange of information for the free provider to give any useful advice. Vital facts will get left out, context will be missed and comments will be misunderstood.

If your free-loader has not paid for something, he has no comeback if the advice he got was wrong, whether based on a correct understanding or a wrong one. He has no one to turn to if there is a hitch, even if the free advice is correct. He is floundering in the darkness rather than having paid for advice, help and support which should be of real value. There is no friendly ear to listen to the problems and no helping hand to steady the ship.

Free advice is useless unless it is from a friend. Then it is paid for in another way and given by someone who cares and is committed. You give benefit through your friendship, and you get pleasure from giving too.

If you need free advice from a stranger, make sure you pay for it and have a proper agreement of the terms. Then you know you have something of value.

Business concessions and contracts

The fast food and general store concessions in the Myakka River State Park near Sarasota, Florida

I expect you have seen so-called concession businesses within big stores. They are businesses within other businesses and they sell specialist items such as costume jewellery, scarfs, ties or food. Those sorts of concessions are usually themselves owned by large companies, but small businesses can run concession enterprises as well.

Probably most small businesses who own concessions are in catering, but they may also run confectionery or sweet shops, sell souvenirs to tourists or other staples and essentials. It really is a question of what the particular environment requires.

The idea of having a concession is very attractive. For example you might run the cafe-restaurant in a golf club. Having a constant stream of captive customers would make any catering business owner excited. As always it is important to have a plan and a budget, and to fit your idea to the particular venue.

There will be questions you will want to ask yourself:

  • How much is the rent?
  • How many potential customers will there be? Is there other competition outside or inside the venue?
  • With the level of rent and any extra costs in the contract such as utilities plus my own costs, can I set my prices to be attractive and still make a good profit?
  • Is the length of the contract enough and do I get adequate compensation if it is terminated, for example due to redevelopment of part or all of the site?
  • Should my business rely entirely on the concession or should I have other irons in the fire?

The advantage to the site owner in offering concessions to outside businesses is that they don’t have to worry about being distracted from their own core businesses. A golf club is concerned with making the members comfortable and especially with ensuring that the course is maintained to a high standard. They care more about the state of the greens than about frying eggs for breakfast. However if you are frying those eggs it is up to you to ensure that they are perfect in the customer’s eyes or more especially their mouth.

Similarly, a main railway station’s managers care more about their infrastructure, the tracks and signals and moving the passengers through smoothly. A country park owner cares about the wildlife and the maintenance and does not need to worry about the selling of sodas, food and souvenirs unless there are complaints or litter and trash issues.

So if you are keen on running a concession, make sure your sums add up and the length of your lease is satisfactory. Decide whether you should have all your eggs in one basket. Maybe you should run several concessions in different places, or perhaps you shouldn’t just rely on concessions.

It ‘s all up to you, but as with any business, have a plan. Then go for it if it makes sense.


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Paying the price for our services

Casting a shadow

We all know how important it is to have a contract with our customers and clients so that they and we understand what service we are going to provide. Having established what we are doing, part of that contract is specifying how we are going to be paid.

Sometimes we will specify that we will bill the client when we have done whatever we have agreed to do. Sometimes we will arrange to be paid in instalments, either because it will be a significant job or because it will help the client, or is convenient for a client who will need us year on year. Some businesses can ask to be paid up-front.

What we arrange in terms of being paid has to take account of our own needs. We need a proper cash flow to run an efficient business. We need to plan and therefore we need to have a reasonable expectation of when we will be paid, which we have agreed with each client or customer.

So what do we do when our client has not paid us within the agreed time frame? Firstly we shouldn’t do any more work or provide any more goods. Secondly we need to discuss with our client why we have not been paid. Of course occasionally something will have gone wrong with our service, but that should be something we already know. If the first complaint we have is after we ask why we have not been paid, it is very likely that the complaint is spurious and merely an excuse for non-payment. Of course we have to judge each case on its merits.

If the non-paying client is prepared to discuss why they have not paid, most likely because of cash flow difficulties, then depending on our own situation we could discuss easy payment terms. Sometimes clients will avoid taking our telephone calls, letting them go to voice-mail or using a member of staff to say they are not available. They will avoid our texts. They will ignore our letters.

If the non-payer ignores us then we need to take action quickly. It is no good sitting around waiting to be paid. The threat of not being paid casts a shadow over our own business.

We need to threaten court action and be prepared to follow it up. The process is not difficult, nor is it expensive. If we upset the customer, remember that we were unlikely to get any more business out of them anyway, and who wants a bad payer as a customer?

We cannot afford to be squeamish over collecting due payment for valuable work or supplies. We have to manage our debtors. Bad payers and silent non-payers should not be allowed to ruin our business. Do talk to me if you need help in collecting what is due to you.

Contracts and common sense

Contract blues?

We all love to have new customers, clients or whatever we like to call them. It is good to sign up someone new and begin what we hope will be a great relationship.

Of course we do have to “sign up” our new business in a certain way. Our client (as we will call her) needs to know what we are going to do for her, what the process is and preferably what we will charge. What we might miss if we are not careful is to make it clear what we are not going to do for the price agreed or for the period of the contract. If that sounds a bit odd, let me explain.

Suppose you ask a painter and decorator to give a quote for painting the outside of your house; whitewashing the walls and painting the woodwork. He will give a written quotation and will list out the work you have specified. If you accept that quotation you will not expect the painter to clear out the gutters or replace a roof tile. That wasn’t in the quotation. If you want that extra work done and your painter is capable and willing to do it, you know that will cost extra.

So if you ask someone to host your new website which hasn’t been built yet, you cannot expect the host provider to design and build it for you for the cost of hosting. If that business provides those services, and you want them, you will have to pay a lot more. It will be in your agreement, which should be a written one even if it comes together in the form of an exchange of emails. There should be no ambiguity.

I provide services which involve money matters. I send an agreement to each new client to sign. It says exactly what I (my business) will do for the client, specifies a time frame if appropriate, and generally states the fee I require, and when it is payable. The agreement also says what is not included but could be added on at extra cost if required. That way no one is in any doubt about what work will be done and when. Of course I aim to provide the very best service and that is implicit in the agreement, but the best service does not include “freebies” unless I decide to give them at my discretion. And if I do, I make it clear at the time that it is not part of the agreement.

Only too often I hear of fee disputes across all sorts of trades and professions where businesses and their customers have fallen out and the customer is disputing the bills. This is usually because either the agreement was not clear or it was a verbal contact. Sam Goldwyn was right.  If it ain’t written down…

Getting over telephone blues

Friendly telephone manner

You might have gathered from an earlier post that I had personal experience of running into trouble with an alleged rolling contract with the telecoms provider. I have now been advised that I have won my appeal to the OFTEL Ombudsman and the telephone company concerned has agreed to waive the penalty charge which they had sought to impose.

This just goes to show that persistence pays off if you stand up to these giants when they try to impose unfair charges, and especially when you have not agreed to their new contracts. You do have to put together your case well, though, and not to lose your temper when seemingly talking to people who are not listening.

In an act of generosity, I am not going to share with you the name of the telecoms company but will say that it is not BT.

Have you had this sort of trouble? What did you do?

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Telephone warning for start-ups and all small businesses

Sumerian contract: selling of a field and a ho...

Image via Wikipedia

When we start our shiny new businesses we are eager to get all the basic services in place, and these days that includes our telephone and broadband services.

Read the small print

It is tempting to choose the best price over recommendations from others. After all, cash flow is important. What you need to know is that the telecoms giants may expect you to agree a contract for twelve months or longer. You might say that is fair enough. After all, most business customers would expect to be tied for a reasonable term to make it worthwhile. Make sure you don’t find yourself or your business being billed for a penalty charge when you give notice that you wish to change provider.

Unfair competition

You may find that your business is supposedly on a twelve month rolling contract, which probably means that you have to give twelve months notice of termination, especially if you are within the first two years or so of your contract. If you don’t, the telecoms company will expect to make a penalty charge for taking your services away. Yet how can you give twelve months’ notice in the expectation of shopping around in nearly a year’s time? Would you not worry about continuation of service? A loss of service is every business’s nightmare.

Hope on the horizon

Fortunately, the rules may be about to change. The UK regulator, OFCOM, stated via press release on 3rd March this year:

“Ofcom is concerned that rollover contracts make it harder for customers to switch providers and consequently reduce the benefits of competitive choice.
For individual customers, this can mean that switching is made unattractive as the costs involved are unexpectedly high.

For the market generally, it means less competition as it is harder for competing providers to attract customers on rollover contracts and therefore their ability and incentive to create lower cost and higher quality services is reduced.

Ofcom is proposing to amend its existing rules in relation to contract terms to prohibit opt-out contract renewals in any form in the land-line and broadband sectors.”

Caveat emptor

The messages to take are:

  • Be very careful of the conditions of any contract with a telecoms provider.
  • Complain to OFTEL if you find yourself in a rolling contract with a penalty clause if you don’t give a long period of notice.
  • As with all purchases, take care. Buyer beware!

I would be very interested to know if you have had this sort of problem with a telecoms company and how you managed to resolve it. Is this a problem in countries other than the UK?

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Why DIY contracts, partnership and shareholder agreements are bad news

It may be one of my recurring themes, but sometimes I am really surprised at how often I have to mention the problems with using someone else’s template or altering up another contract to save professional fees. I do not think I protest too much. This is not because I want to protect the income of the legal profession or some in my own line of business. It is just that there is no substitute for paid professional and insured advice.

I frequent quite a few on-line forums and am a member of several networks as are many of us. Time and again I see people asking for drafts of contracts for clients, of Non-Disclosure Agreements, Patent Agreements, of Partnership and Shareholder Agreements. In fact you name it and someone is trying to save money with some DIY bit of paper.

I have mentioned elsewhere that faulty partnership and shareholder agreements can be costly in terms of tax, but I have also seen a situation where an amateur partnership agreement led to dissident partners gaining an interest in the land and premises of the business which were owned by the other partners, simply because of some vague wording as to the interest they acquired upon introducing partnership capital.

Most of the agreements we may enter into in this area are supposed to define our rights. The time when these become most important is when the parties fall out, there is a dispute or disagreement or someone reneges on their undertaking. As soon as there is a major break up of a business, every party and especially those in breach of their agreement will be out for everything they can get; that is human nature. Unfortunately that may be a lot more than some deserve. There will be winners and losers and those who were trying to honour their part may end up the losers. The important thing is to know always and exactly what every party is entitled to.

Bizarrely I have even seen situations where amateur contracts have been exported and have been supposed to have the same meaning in another land. The law in the other country will be different and anyway an agreement in one language may lose something in translation in the eye of a judge, who may anyway have to rule that the law of the second country trumps the agreement anyway.

If it might rain and you need an umbrella, do you try to make one copying someone else’s design? No, you buy one that suits your purpose and your needs and from an experienced manufacturer of brollies. Why should it be different when people need a legal agreement?

Have you heard some sorry tales re dodgy contracts? I would be interested to hear your views.

© Jon Stow 2010

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Related posts:

Why we SHOULD reinvent the wheel – business agreements and contracts

Pitfalls in faulty contracts – partnership and shareholder’s agreements

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Saying “Thank you”

I guess I would not like to work in a large chain store. I imagine that at busy times, especially at the check-out it can be a pretty relentless slog, and at other times rather boring. I expect that any little gesture of appreciation gives a lift in mood to a bored or overworked shop assistant.

This morning I went into a well-known motor accessories chain to buy a packet of “dust caps” for the tyre valves on my car as some person who had lost theirs has helped themselves to mine. These dust caps were difficult to find, but luckily the place was quiet and asking for directions twice from helpful assistants (but it is a big store) I found what I wanted. Obviously I thanked both people and had a nice chat with the lady on the check-out, and I thanked her for the helpful service.

This seems a trivial matter to relate, but I do always make a point of showing my gratitude even to the bored and busy in shops. Why? I like to be thanked too. I also thank the suppliers of goods and services I receive, whether it is the owner of a business or the delivery driver; whoever is the person I am dealing with. It never does any harm, there is no downside, and I might get even better service.

There is another way of thanking our suppliers and contractors and that is by making sure they are paid promptly. It is insulting to make people wait for their money after they have delivered their service or product. Late payment makes people feel less valued or respected. Actually, quite apart from getting ourselves a bad reputation by paying late, our suppliers may decide not to refer us and refer another customer instead for that juicy contract. We do ourselves damage by not showing our gratitude with thanks and with prompt payment.

How do you feel when someone takes ages to pay you or your business for a product or service you have delivered? Do you feel, as I do, that the client or customer is disrespectful and doesn’t value you? Do you also like to be thanked properly? I know I do. What do you think?

© Jon Stow 2010

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Letting clients go

Quite a few years ago I worked for a very large firm of accountants. One of the less pleasurable aspects was in dealing with difficult clients. There were clients who paid their bills late of course, there were clients who didn’t take advice, clients who let their affairs get into a mess, and, worst of all, clients who were downright rude.

In a large firm of accountants, each client is allocated to a partner or director. Some of these clients will have been won by the partner etc. and some will have been inherited. Either way, beyond the annual Christmas card, the contact between our bosses and their clients was generally fairly minimal. It was the staff who had to take all the flak, the bad behaviour and the rudeness.

I believe there comes a point with some clients when one really has to review whether they are worth having both in terms of fee recovery and the stress of having to watch the clients’ backs with frankly no gratitude or any form of appreciation, as the clients go their own sweet way. This is true of large firms such as my own former employer, though of course the partner may not protect the staff or even the firm when there is a theoretical loss of revenue no matter how difficult or unpleasant the client.

With smaller businesses though, it is really within our control. If we have had enough of the client in terms of stress, because all the other sorts of bad behaviour cause stress, it is best to tell the client to find someone else.

Dropping the Pilot by Sir John Tenniel, from Punch, March 1890, showing Chancellor Bismarck leaving the German ship of state, watched by Kaiser Wilhelm II.

At certain times we need to be strong and insist the client finds another adviser. There are often protestations and we may be told “things will change”, but sometimes enough is enough. Be polite as possible but get the message over. Let the client sail on into the sunset on his or her own. With less to worry about we can concentrate better on our marketing to find new, better and more appreciative clients.

© Jon Stow 2010