Handshake Deals are Bad for Business: Why All Small Businesses Need a Standard Contract
It’s fairly rare that you will hear a lawyer speak in absolutes. In general, lawyers tend to answer every question with the response, “It depends.” However, at Wakefield Law, we aren’t holding back from this absolute: If you own a business, you need a standard contract.
In our collection law practice, we have represented businesses of all types, big and small, and far too often we see deals done without a written contract. Sometimes, this is because the company just never got around to drafting one. Other times, the company has a perfectly good contract, but employees aren’t trained to get a signature before performing any services or providing any goods.
Then, the day comes when a customer doesn’t pay his invoice. You call and call, and you just can’t get the money that’s owed to you. That’s where a collection attorney comes in, and it’s time for your contract to do its work.
What’s the Big Deal about a Written Contract?
You may have heard that a “handshake deal” or an oral contract is still a binding contract. In fact, that’s true. An oral contract is a perfectly valid contract under the law. However, it can be incredibly difficult to prove in court, and it comes with some distinct disadvantages.
Sometimes, clients come to us with a signed promissory note (this can be as simple as “Person A purchased a car from Person B for $3,000.” scrawled and signed on the back of an envelope). They want to know if they have a valid contract to enforce. Again, the answer is yes, there is a valid contract. But, there are some important provisions that, when left out of a signed contract (or, in the case of a handshake agreement, when there is no written contract at all), the court is left filling in the blanks with default contract terms provided by statute. These statutory provisions may end up getting your business far less than it deserves.
1. Make Sure Your Written Contract Provides for Attorney’s Fees.
Without an explicit written provision for attorney’s fees in your signed contract, you can’t pass on your legal fees to your customer when they default on the deal. Wouldn’t it be nice to hire an attorney as soon as a customer fails to pay, to pass off the burden of tracking down and calling customers to get invoices paid, and to know that your contract provides that your former customer is responsible for attorney’s fees? With a simple Attorney’s Fee Provision in your written contract, a lawyer can pursue your outstanding debt in court and pass on your legal fees to the debtor.
2. Provide For Late Fees, to Incentivize On Time Payments, and Compensate for Your Trouble.
Have you ever had a customer who consistently pays late? Legally, you can’t be collecting late fees on those payments unless it’s expressly stated in your signed contact. Before that customer ever defaults on the deal, she may actually be incentivized to pay on time by the late fees provision in the contract. If not, and you still end up needing the help of an attorney to collect, you can tack those late fees onto the final bill and get compensated a bit for your trouble.
3. Amp Up the Interest, So Even Debts that Hang On Far Too Long Can be Worth Collecting.
As we mentioned, there are certain default rules written in Virginia statute that take the place of missing terms in a contract. If your contract doesn’t explicitly state an interest rate that accrues when debts go unpaid (or if you have no contract at all), Virginia’s default interest rate is six percent per year. Want to collect a higher interest rate? Make sure it’s included in your contract. Interest is an important tool to make sure that customers pay off their debts in a timely fashion and to make even very old debts worth collecting.
Can’t You Just Download a Template Contract Off the Internet?
Of course, you can find anything on the internet, but should you? Probably not. Contracts are an incredibly important part of your business’ health and sustainability. Without them, we have seen businesses crash and burn because of out-of-control accounts receivables. A basic contract downloaded off the internet may not even contain enforceable provisions in the Commonwealth of Virginia. It’s important to hire an experienced Virginia attorney to draft a contract that is specific to your business needs.
How Much Does it Cost to Get a Contract Drafted by a Lawyer?
We know that the idea of hiring an attorney can send some business owners running for the hills. Newer business owners may actually want to hire an attorney, but they think they can’t afford it. At Wakefield Law, we want your business to be successful. That’s why we make sure that getting a contract drafted properly is affordable and accessible to all business owners. We charge a reasonable hourly rate for contract drafting, and we do so efficiently, to keep your costs low. The initial consultation is free, so you have nothing to lose by giving a call! If you have been taking the risk with handshake deals, or if you think your contract could use a little bulking up, give Wakefield Law a call at 703-771-9740. We are here to help!