As an entrepreneur, you have many relationships that make up your business. You have referral relationships. You have networking relationships. You have business relationships. I have said many times before, there should be a contract for every relationship in your business.
Some Relationships Don’t Need a Written Contract
With some relationships (such as referral relationships), that contract doesn’t need to be in writing. It is more of a social contract. You aren’t required to send referrals when you receive a referral, but it is customary to consider whether that referral source would be a good fit if the opportunity presents itself.
In fact, a contract requiring referrals would be an example of overburdening your business with legal. You don’t want an obligation. There is no required exchange.
Your referral relationship is based on a mutual admiration and respect for what each member of the referral relationship brings to the table. So, don’t put that in writing. Work together. Build relationships. Do your job well and others will refer business out of respect for you and a recognition that you will provide quality service.
Now that we have talked about what doesn’t need to be in writing, you may be asking: is there some rule of thumb for when I should put my agreement with some other person in my business in writing?
As a lawyer, my gut reaction is to tell you that “it depends”. But, that isn’t why you kept reading is it? So, let’s talk about how to determine whether there is a reason to put an agreement in writing.
If you have an agreement with another party where the transaction lasts for more than a moment in time, you should put your terms in writing.
The reason for this rule of thumb is that, if the transaction lasts for more than a moment in time, how can you sort out what happens after the transaction has passed? How do you deal with a disagreement or some other issue arising out of the transaction?
With service companies, it is clear. The transaction involves work and money in exchange for work. You will be dealing with what is created, warranties over the work, and the general terms and how the service company earns the money it charges. Some companies, however, involve more creative legal thought to determine whether a contract is necessary to your business processes.
Fleeting Transactions Don’t Need a Written Contract
Say, you buy an ice cream cone from your local ice cream parlor. This is a fleeting transaction. It is a small transaction. No matter what happens after you buy that ice cream (whether you drop it or it makes you feel a bit ill later), there will likely never be any issues with the transaction. The transaction is fleeting.
You purchase the food. You eat the food. Transaction over.
If you have a bad experience, you won’t go back, but you probably won’t make a big deal about getting your two dollars back. If anything, you may make a call to the Health Department, but you will likely not take any legal recourse over an ice cream cone.
Further, when it comes to food, if you were to feel ill a few hours after the ice cream cone, how would you possibly (with a contract or without one) prove that it was that ice cream that did it? On top of that, contract or not, it is not worth pursuing since it was such a small transaction.
Retail Purchases Last Long After the Sale and Need a Written Contract
Some transactions, however, which may seem like fleeting transaction aren’t. In those cases, you should consider some type of written policy that fits your circumstances.
I am, of course, talking about retail products. Clothes are a common example. But not the only type of product that may lead to any issues down the road. Some products are expensive. Some are not. But, with any retail product there are several things that will make the transaction continue well after the money is exchanged at the register. Not the least of which is that you will use the product. It will (should) last for a while after your purchase. Because of that, you should consider where you are in the supply chain of your product.
- Do you make the product? You should consider a warranty.
- Do you sell the product? What is your return and exchange policy?
- Did you invent the product? May you consider some type of disclaimer of how the product should work.
- Do you allow checks to be used for payment? What is your policy for bounced checks?
- Do you make any guarantees with your product? Make sure you limit your guarantee and have a policy to enforce it and keep your customers from taking advantage of your guarantee.
Does your product work that way? Do you have any issues that will extend the transaction beyond the time of purchase?