Although businesses vary in terms of how well they document their relationships with their customers, most business owners have at least a vague sense of the importance of doing so. However, if asked to articulate why that felt it was important, I believe that most business people would give an abstract answer about “protecting themselves”.
This answer reflects a common underlying context that business people (and even many lawyers) have about using contracts generally. This context can be described as ‘managing distrust’. From this context, the contract has life and meaning only in the event of litigation or some unforeseen eventuality. Moreover, the contract is perceived as having nothing to do with better customer relationships or improved margins. From this perspective, businesses often satisfy themselves with form agreements which are abstract, boilerplate provisions which may bear no relationship to the realities of the customer relationship or the practices of the business in relationship to its customers.
While I believe that identifying and planning for unforeseen risks and contingencies is not to be ignored, I also believe that a properly thought out and drafted form contract can assist a business in the following ways:
1. Clarifying Expectations with Customers. A clearly communicated understanding between parties regarding their expectations from each other helps to establish a foundation of trust. A clear contractual promise to your customers about what they can count on you for helps to create trust and confidence in you and your products and services. Conversely, clearly spelling out the limits of a customer’s expectations also sets the appropriate groundwork for a relationship with your customers. Where this pays off is that often customers will exploit areas where their expectations were not clearly limited. When this happens, most businesses feel compelled to make some concession in favor of the customer for the sake of the relationship, even where they are legally on solid ground to do otherwise. Having the limits of a customer’s expectations clear helps to limit the occasions when those concessions need to be made, thus adding money to the bottom line.
2. Establish Standard Operating Procedure. Your form contract should reflect the operating procedures you actually use. However, the process of creating the form contract may also identify places where the procedure is not standardized or is unclear. It is generally less efficient and effective to have your employees needing to improvise every time with every new customer. The form contract will help to solidify and establish a structure for a standardized procedure, which creates efficiency and ensures quality.
3. Disciplining Your Negotiations with Customers. A well thought out contract with standardized terms and conditions of doing business is a structure for disciplining the negotiations between your sales team and the customer. The desire to be approved of and to please another person is a basic human dynamic that influences any negotiator. This may be particularly true of salespeople, who are trained to be (and perhaps by disposition are) empathetic to the needs of the customer. A set of standard terms can help serve as a backstop against being overly influenced by these concerns.
Viewing your company’s form contract with these potential benefits in mind will help it be a useful tool, rather than an abstract piece of paper in a file drawer. If your company’s form contract is not doing all it could, please contact me at ljdevries@devries-lawfirm.com or visit my website at www.devries-lawfirm.com
