Own A Business? Here's Why You Need Service Agreements

A good rule of thumb for business owners is to have a contract for every relationship. While this might seem like overkill, a waste of time, or too formal for the way you’re trying to operate your business, not having them is most likely going to come back to haunt you at some point down the road. So why not avoid the issue altogether? If you’re company is in the business of providing some type of services, then you need a services contract that you enter into with your clients - it’s there to protect you and provide the terms of your relationship. Why wouldn’t you want that? 

A service agreement is especially important because services are harder to prove than a product. When somebody buys a product, there’s a physical item to show for it. That might not be the case with services, so an agreement makes sure everyone understands what was purchased and will be delivered. 

What Is a Service Agreement?

Service agreements are contracts between a customer or client and the person or business providing the service. It defines the relationship, the responsibilities of each party, the compensation or payment and the services that will be provided, among other things. It provides a level of legal protection to both parties, and makes sure that everyone is on the same page from the beginning. A service agreement might also be called a general service contract or service level agreement.

“Service Agreement” is a very broad term. Almost any service business can utilize a services contract, and you should use one that’s customized to your specific business.
Some common examples: 

• Consulting Services Agreement
• Website Development Agreement
• General Service Agreement
• IT Services Agreement
• Legal Services Agreement
• Accounting Services Agreement

When Is a Service Agreement Used?

A service agreement should be used every time your business agrees to provide a service to a  client or customer. While this might seem burdensome you can set up a contract management process to reduce time and errors and likely increase revenue. If your business sells a product you may also need a form of services agreement, such as a warranty feature that’s offered with the product where you will fix or replace the product if it’s broken or fails to work properly. 

Why You Need To Use A Service Agreement

There are plenty of reasons to use service agreements, regardless of the size of your company. Here are a few:

• You run a business and your time is very valuable, it’s faster and cheaper to use service agreements than it is to deal with sorting out a disagreement or dispute where there’s no agreement dictating terms. If you’ve got too much going on, getting assistance setting up and managing contracts can help your business be more efficient. 
• It will help prevent any surprises when it comes to cost, it’s laid out in the agreement.
• Agreeing to the terms and getting them in writing upfront will reduce potential misunderstandings down the road.
• Misunderstandings often lead to disputes or lawsuits, agreements cut down on potential litigation. 

What Needs to go in Service Agreements

As mentioned above, service agreements are important to protect your business and limit disputes, but what needs to go in the agreement in order to make it effective? Here are some of the terms that should be included in a service agreement to make sure you’re protecting yourself (this isn’t an exclusive list and it would vary from situation to situation):

• What services are being provided
• Who will be providing the services 
• What’s the cost and payment terms
• What’s the time frame for delivering the services
• What type of quality control will there be on the services
• How can the agreement be cancelled 
• What’s the procedure if something goes wrong

Problem Areas With Service Agreements

Even if you business provides services as its core business model, the odds are that you are using some service providers or vendors to make sure your operations run smoothly. With that in mind, here are a couple of areas to watch out for with service agreements:

• Technical language or services that aren’t easily understood.
  • If the services are for difficult or complex problems, make sure to understand what’s being provided and how it works in plain English, and include that in the contract.
• Not reading the agreement or knowing what’s in it, especially if you found one online or used a form generator that doesn't know your specific business.
  • Whether you are providing the agreement or signing the service provider’s agreement, make sure you understand what’s in it and how it works, otherwise you’ll find yourself in an unexpected situation that may not leave you with many options. 
• Long term service agreements.
  • Be careful of long term agreements that don’t allow you to cancel the services. In general it’s probably best to avoid agreements that are for several years, however there are cases where that’s beneficial. You’ll want to try and make sure there is a way for you to cancel without taking on any penalties. 

Creating, managing and reviewing contracts can be time consuming and raise numerous issues. If you’re looking for some help with business contracts, contact us for a free consultation.