#204 - How Missing T&Cs Quietly Erode Your Profits
Drafting contracts is one of my favourite things to do, and therefore it follows that I love talking to you about all things contracts. If you’re a longtime listener, you’ll know that I emphasise the importance of small businesses having properly tailored contracts in their business to protect them legally.
While there’s a risk your eyes may glaze over at the mention of tailoring your T’s & C’s, today I’m talking about what I think is a pretty sexy angle when it comes to contracts: money.
Yes, the hard cash that can silently slip away if your business's terms and conditions are not watertight, or if they’re lacking altogether. Let's uncover how this happens and what you can do about it.
Direct Profit Erosion: The Tangible Costs
When you lack properly tailored T&Cs, you might find yourself in sticky situations where clients question or challenge your invoices. Without clear boundaries outlined, clients can be surprised by charges, leading to disputes. All these disputes usually end with reduced invoices, which means less money for you.
Next, we have scope creep, particularly in creative industries. Without explicit definitions in your services, clients can easily ask for more than originally agreed, leaving you either unpaid for extra work or, at best, disputing invoices. This cycle is exhaustingly familiar and expensive.
Revisions or changes done for free follow closely. If your T&C's lack clarity on when additional charges apply, you're essentially working pro bono. And lastly, the ever-dreaded write-offs or bad debts are a harsh reality of sloppy T&Cs, undeniable when clients refuse to pay for surprise bills.
Indirect Profit Erosion: Hidden Costs
Legal fees are often indirect but significant. You'll end up paying for advice or representation when disputes occur. Much of this could be circumvented if the investment was made initially to draft a proper set of T&Cs. Your time, which is arguably your most valuable asset, is often wasted resolving these issues. Every moment spent managing disputes is time diverted from revenue-generating activities. Then, there's the damage to client relationships. Failing to meet client expectations due to vague agreements can severely impact your business, ruining chances of positive referrals and repeat business. Lastly, the morale and productivity of your team can suffer. Continually dealing with unhappy clients takes its toll, leading to a demotivated workforce.
The Solution
The key lies in understanding and auditing your legal documents. Know what gaps need filling and seek professional help if necessary. A competent business lawyer can tailor documents to your precise needs, ensuring no two businesses have the same one-size-fits-all T&Cs. It’s important to not only have these tailored legals in place, but you need to know when and how to implement them. Your T&Cs are not just legal jargon designed to protect you in rare instances—they can actively safeguard your profits. Spend the time to understand them, train your team and integrate them seamlessly into your business processes.
So, consider this an invitation—not just to review the legal framework of your business—but to think about your profits and how to protect them. Properly tailored T&Cs aren’t just about avoiding lawsuits. They're about ensuring that your hard-earned money isn't slowly disappearing due to preventable missteps.
QUESTIONS OF THE WEEK:
What's the difference between contracts, agreements and T&Cs?
The answer is simple: there is no difference! Lawyers, myself included, often use these terms interchangeably. A contract is an agreement, and these are essentially your terms and conditions. So, whether you call them a design agreement, coaching agreement or simply business T&Cs, it’s all about ensuring they are tailored for your business needs.
Should I display my business T&Cs or client agreements on my website?
That's a hard no from me. The documents you have with your clients are entirely separate from your website’s terms and conditions. These client agreements are for when clients engage your services and need to be securely agreed upon, perhaps through a CRM or sent individually for signing, rather than publicly available for everyone online.
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[00:00:00] Tracey: Welcome back to the podcast everyone. Thank you for joining me for another episode. I am gonna talk about one of my favourite topics today, and that is contracts. No surprises. Drafting contracts is one of my favourite things to do, and therefore it follows that talking to you on here about all things contracts.
It’s one of my favourite topics. If you're a longtime listener, you will have heard me talk time and time again about the importance of small businesses having properly tailored contracts in their business to protect them from being sued, to protect them from refund requests, to ensure they're complying with the Australian consumer law.
[00:01:00] I talk about it a lot. I get that some of you find that a bit dry, not particularly sexy. I get it. Today I'm gonna dive in and talk about what I think is a pretty sexy angle when it comes to contracts, and that is money. The money that you are losing when you don't have properly tailored contracts or as I call them, T's and C's in your business. I will dive in and answer two questions at the end, like I'm doing in this new season of the podcast. One of those questions is going to relate to the difference between contracts, agreements and T's and C's. I'll come to that. So let's dive in and let me share with you how I see missing T's and C's, or inadequate T's and C's quietly eroding your profits in your business. Two ways, direct and indirect. I'm gonna get straight to it.
[00:02:00] The first thing that I see, so often when business owners don't have properly tailored agreements or T's and C's in place, is they end up in situations where clients have a platform to question invoices and to challenge items on invoices. Without those proper T's and C's, boundaries are not clear. Expectations are not managed, so what's included in services and excluded in services isn't clearly outlined. So that means that you are leaving yourself ripe for dispute when you send an invoice to a client, which itemises the work you've done or relates to a particular phase or stage of the services you're providing and there were no clear boundaries. There were no clear guidelines in your Ts and Cs because either they're non-existent or they're inadequate, which means when the client gets the invoice, they're a bit surprised. So they reach out to you to have a conversation and they say things like, I wasn't expecting to be charged for that. I thought that would be included.
[00:03:00] I didn't think that would extend so long. Things like that. And what happens there is that business owners spend time and energy dealing with those types of issues.
So the result then is often a reduced invoice. You had to write something off, so you've just lost money. That's the first one. The second direct cost is scope creep. And I see it time and time again with creative businesses in particular. There's no clear boundaries, there's no clear particularisation of what is included in the services and what is not included in the services. So it's really easy for a client to say, Hey, can you take care of this, please? Can you take care of that, please? Where's this, when am I getting that? And often in my experience, the creative gets so immersed in the work that they're delivering for the client, that it's not until much later that they realise, oh my gosh, I've done all this extra work, that was outta scope.
[00:04:00] And either they then don't invoice for the work because they either feel guilty or bad, or there's no capacity to invoice for that work under the Ts and Cs that they did have. Or on the other hand, they do invoice for the work and we go back to 0.1, which is clients disputing or delaying the payment because they weren't expecting it, because there's no clear boundaries. So it's a vicious cycle, those two together. Payment disputes, scope creep: they're two of the most common direct costs that I see business owners suffer when they reach out to me because they don't have tees and Cs in place, or the ones they've got don't work. They're inadequate.
The next direct cost will come as no surprise, and that is revisions or changes that have been done for free. So again, it's an extension of the scope creep when we don't have clear parameters in our T's and C's around what you are getting, what you're not getting, when you're gonna have to pay more. So when I'm gonna charge you an hourly rate for work that's out of scope.
[00:05:00] If that's not clearly set out, again, business owners tend to find themselves in a position where they're either working for free or refer back to 0.1. They're issuing invoices to clients and clients are disputing them or delaying them. So taking care of those endless revisions for free because if you're not being paid for them, you're doing it for free, is the third direct cost that I wanted to share with you and the fourth direct cost I wanted to share with you today is just write-offs, bad debts. Crystal clear accounting 1 0 1, when you're issuing invoices and they're not being paid, at some point your accountant or your bookkeeper's gonna ask you what you're gonna do about it, and you need to make a decision.
Are you going to continue to spend time and energy chasing the client trying to get it resolved or are you gonna write it off? So they're the four most common direct costs that I see business owners suffer absolutely as a result of not having properly tailored T's and C's in place in their business.
[00:06:00] Payment disputes and delays, scope creep, working for free with revisions and changes, which just seem to be unlimited and bad debts that are written off, they're the four. Pretty basic. When you think of it, you're probably nodding along and thinking, yeah, that makes sense. That makes sense. Let's talk indirect costs, then.
This is one that I do talk about a lot, but I really wanted to be targeted in this short and sharp episode to really draw your attention to the practical implications of not having proper T's and C' s in place in your business. The first one is the legal fees. The businesses pay for advice when things go awry or for representation when they're involved in dispute resolution. So that can be negotiation, mediation, arbitration, whatever it might be before you get to legal proceedings. Those legal costs are an indirect cost. Of your business not having properties and C'S in place.
[00:07:00] Trust me when I say that money is far better spent on your business lawyer at the beginning, getting those T's and C's drafted and tailored to your business and spending some time with your business lawyer so that you understand how to use them.
The money's far better spent there than it is later at the backend when things go wrong and you're in reactive mode. The second indirect cost is your time, your time, and sometimes the time of your team spent handling these issues. Just think about it, how long does it actually take you away from the tools, so off the job, when you have to deal with a client who's complaining, who's challenging your invoice, deal with a client who's perhaps becoming disgruntled and unfriendly towards your team members and you've gotta get involved, when you have to go back through the emails or back through your file or your working documents to be able to put a chronology together to explain to your client, Hey, this is all the work we've done. And it's not uncommon for clients to say to me, gosh, the work we've done is actually far more than we even invoiced for and they're challenging the invoice.
[00:08:00] Imagine what they'd say if we actually charged for everything that we'd done. Gosh, I've heard that so many times. This time spent navigating that and managing that is time taking you away from the tools. It's taking you off the tools. It's taking you away from revenue generating activity. That is a big indirect cost. The third is the cost your business suffers when you have damaged client relationship. You've no doubt heard me talk a lot about the value of not just meeting, but exceeding client expectations, the value of that positive reinforcement, reviews, word of mouth, referrals, repeat clients. Every small business owner wants that. It's priceless.
[00:09:00]However, when you get into a situation where a client's disgruntled, their expectations haven't been met, they're unhappy in relation to the bill that they've received, not only do you have Buckleys of exceeding their expectations, you are now scrambling hard to just meet their expectations at some sort of mediocre level. So, on no version does this end well for you as the business owner in terms of wanting those positive reviews or word of mouth referrals or repeat client work. It's damaged and we all know that unhappy clients tell more people about their experience than happy clients do. It's a ripple effect that no small business can afford, so that my friend is a significant indirect cost to not having proper T's and C's in place in your business that can be wholeheartedly avoided when you have a solid framework and solid T's and C's in place that you can use to navigate those potentially tricky situations. You can diffuse it and you can preserve the relationship.It's vital to have a platform to support you doing that as a business owner. The fourth indirect cost that I wanna touch on is the cost to your team.
[00:10:00] So if you have a team that have worked for the clients or that are supporting you in an admin role or, or whatever the case may be, you run the risk of your team feeling undervalued. If a client's challenging invoices, if you're not hitting the revenue you need to in the business, whatever the implications might be, you have a team to consider. That can't be underestimated. And sometimes it can feel demoralising for that team member when they have a client saying that the work that that team member devoted to the client's not worth the invoice. And sometimes you can have team members who just feel so low vibing and so devalued coming into work to have to deal with really unsavoury situations, so we can't underestimate that. So they are four really significant indirect costs that your business suffers when you don't have proper T's and C's in place.
[00:11:00] The legal fees you pay for advice or representation, your time spent handling it, strategising, resolving, it's time off the tools, it's time away from revenue generating activities, damage to your client relationships and the ripple effect and to the impact on your team feeling undervalued. I. So there you have it. Not only are your properly tailored business contracts and Ts and Cs so vital for your business for all the reasons I usually talk about, compliance, long-term, sustainable success, proper foundations, you don't wanna be sued, all of that, yes, but also the costs. There are actually real direct and indirect costs that you can point to right now in your business that your business suffers in real time because you don't have proper T's and C's in place. The direct costs, the payment disputes, the delays, the scope creep, the working for free with revisions and changes, and writing off bad debts, and the indirect costs of the legal fees for paying for representation, for paying for advice. your time.
[00:12:00] They are all really, really important considerations that most business owners will consider as far more appealing, far more enticing to avoid than the dry, often not sexy, don't get sued, comply with the consumer law and all the other things that I talk about.
So I get it. So I hope that by sharing this with you in this really short and sharp episode, I'm appealing to whatever you find most significant in your business. Whether it's your appetite for risk and being sued, or being legally compliant, or not wanting to lose money, not wanting these things to eat into your profit. Wherever you sit, there's a really good reason for all of you to wanna take steps right now to make sure your business Ts and Cs do what they're supposed to do. So the solution here, know how to audit your legal documents, know what you're looking for, know how to identify gaps, know what is important, know what's gonna support you. And if you don't know, reach out to your business lawyer and if you don't have one, reach out to me.
[00:13:00] Let's have a conversation. Let's start talking about what you've got in place, what we need to do to set you up for success. Make sure your Ts and Cs are tailored for your business. No two businesses are the same. Then once you've got them in place, make sure you spend time knowing how to use them, learning how to use them if you don't know, but knowing how to use them and make sure your team know how to use them. So having fabulous documents is one thing. Knowing how to use them is another. When I work with clients, I always spend time on both. We develop the documents and we spend time on implementation.
We make sure once the fabulous documents are in place, that the business owner and the team know how to use them. We've developed really seamless implementation processes and systems so that nothing falls through the cracks and every client gets the documents in the right order every time, and that my friend, is what delivers real peace of mind when it comes to business.
[00:14:00] Now two questions. The two questions I'm gonna answer today, as promised at the beginning, one that relates to the difference between contracts, agreements, and T's and C's. So clients recently asked me, Tracey, what is the difference between my business contracts, my business agreements and my business terms and conditions?
The answer is none. So lawyers like me use those terms interchangeably. A contract is an agreement. They are terms and conditions. So you can actually call your business agreement whatever you want to, so long as it's tailored properly for your business, whatever's on brand, whatever feels aligned for you is perfectly fine.
So you could call your agreements, your design agreement, your coaching agreement, your client service agreement. You could call them your design terms and conditions. You can call them your design contract, client contract. So you see there's just nuances on the actual title of the document, but in essence, they're exactly the same thing.
[00:15:00] So that's the first thing. The second question is, should I be displaying my business T's and C's, or my client agreement on my website? And the answer is no. It's a hard no for me. So your website terms and conditions are very different documents. It's a very different beast with a very different purpose, entirely separate to the agreements that you have in place with your clients.
Those are the agreements that either need to be agreed to if your business uses Dubsado or a CRM like that, then you'll have a sequence in place that complies and your clients will be agreeing to things along the way. Otherwise, your design agreement or your business, Ts and Cs will get sent out for signing to a client, or they will accompany your proposal or your scope of work when you send them out. So the business and CS and the client agreements are the agreements or documents you have with your clients when they're engaging you, that's very separate to what's happening on your website.
I hope you have enjoyed this very short and sharp episode. Thank you for joining me. If you know somebody that you feel would get value out of listening to this as well, please feel free to share.
[00:16:00] I would be ever so grateful because together that's how we get the podcast into the ears of even more business owners. As always, thank you for joining me. I'll catch you next time.
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