There is a trendy term that seems to find its way into one of the more popular questions our firm gets: What are the most common loopholes you see in contracts people are using? Loopholes are gaps or ambiguous terms in a contract that allow one of the parties to escape its duties, get out of the contract or not act in accordance with what was intended when the contract was signed. So where are West Michigan small businesses creating loopholes?
One of the biggest loopholes that I have seen is not having a contract at all. There are still many businesses that are conducting business on a handshake or without a formal agreement. Whether those not using contracts feel that contracts are intrusive or too costly to formalize, they are still leaving their business vulnerable. It becomes extremely difficult to enforce a contract when there is nothing in writing.
Even some of those that are using contracts have over simplified contracts. Your agreements don’t have to be 25 pages long filled with legalese and multiple points where initials are required but they should cover the basics enough that there is no question as to how those terms are going to work.
One area that has a tendency to be under developed in most contracts is the most important part and that is pricing and payment terms. It is no secret that you want to get paid for the work you are doing. Putting a single line or nothing in your contract about how the payment terms will work accomplishes nothing but creating potential problems.
How much you are going to be paid; a breakdown of how that total was calculated; specific times when payments are due; and repercussions for not making payments are examples of some of the terms that should be included. These terms will keep everyone on the same page, limit potential disputes and prevent loopholes. Terms can also be included to help ensure that payment in full is received.
Contracts and small businesses are flexible. Contracts can be drafted with any terms imaginable and small businesses don’t have the bureaucracy of big businesses so they can adjust to customers’ and clients’ needs. Having contracts in place shouldn’t be viewed as a burden because they can still fit what your small business is doing. But having them will make sure that everyone involved follows through with what you are already agreeing to.
A Grand Rapids small business attorney can review your contracts and point out any and all potential loopholes that they might have. Maybe the contract you are using needs only a few adjustments or maybe you need a redraft. In either case, do you really want to go forward with those potential issues sitting out there on the horizon? Closing those contract loopholes isn’t a painful process and will eliminate those potential issues.