Setting Up a Client Contract: Must Know Information for Freelancers
Freelancers, or independent contractors, must get proper tax registrations, business and occupational licenses and permits from federal, state and local governments to operate legally. Additionally, as freelancer, you will also want to create a standard contract agreement for your services. While a contract agreement isn’t required to legally operate, it’s well worth your while to create one.
A freelance contract shows that you take your work seriously and are willing to defend and protect your output. Besides providing professional legitimacy to your business, a contract can protect you from unforeseen business challenges down the road.
Benefits of a Freelance Contract
One of the main benefits that a contract provides is proof of your agreement in a court of law. If a disagreement with a dissatisfied or non-paying client should ever escalate to a courtroom, you have evidence of the terms of your arrangement. For more information see Getting Your Customers To Pay Up – Part 1 and Part 2.
Beyond legal proof, a freelance contract can also help aid you in tax time. It’s critical to preserve your self-employed status if the IRS or your state revenue agency questions your employment arrangements. If either agency audits you and labels you as an employee instead of a freelancer, it could cost you client work, in addition to time and money you’ll spend trying to petition the assessment. However, if you have a documented history of client contracts, you have proof of your work as an independent contractor.
What to Include in a Freelance Contract
Creating a contract is not difficult, in fact you are likely already covering most of the terms in a verbal agreement.
If you have questions about your specific business or want to ensure that your business is fully protected, consult with a small business attorney. For tips on finding and dealing with lawyers, see How to Find Legal Representation for Your Business from Business.gov.
Below are descriptions of common topics that you can use to draft a contract template for your business:
Include the name and business address, phone, e-mail address and any other relevant contact information for both you and your client.
In this area, detail the job or project description, including specific information on what the client is getting – and what the client is not getting – as a result of this contract. Even if you think it’s self-explanatory, be sure to thoroughly document the agreement to prevent any confusion on either end.
Document the contract dates of service (when the contract goes into effect, and if applicable, when the contract ends).
Document all milestone dates, including when drafts, phases, and completed works will be completed. Don’t skip this step, even if you’re juggling multiple projects and concerned about locking yourself into deadlines. Instead, document buffer dates that leave yourself more than enough time to complete the work.
Rates and Fees
In this section, record your rate structure for the project, which for most freelancers is either an hourly rate or a flat rate, depending on the project. If you are charging an hourly rate, estimate the expected number of hours per project phase and include it in this section. Will your client cover the cost of materials, or is that worked into your fee? Clarify how these expenses are covered as well.
Include a description of your invoicing procedures, including when you expect payment (weekly, monthly, etc.), and if or how penalties apply if your client delivers payment late or not at all.
Ownership, Cancellation, and Re-Dos
Sometimes overlooked, but equally important as the other sections of your contract, is a statement of ownership and rights. Your contract should explicitly say who owns what rights (copyrights, patents, etc.) to the work. Read more about intellectual property rightson Business.gov.
Be sure to include a cancellation clause in your contract that explains the procedure if your client cancels the project. This should include your compensation and ownership rights for any unfinished work.
What if your client is unsatisfied with your work, or wants you to re-do a portion of it? Include a section in your contract on your revision policy.
When you and your client are satisfied with the terms of the contract, both parties must sign the contract to make it legally binding.
Negotiate the Terms
To avoid messy contract negotiations, have a contract template ready to go. Discuss all the terms of your skeleton contract with your potential clients while you take precise notes. Type up what you verbally agreed upon into contract template, and have the client review it for accuracy.
If your client questions or pushes back on any of the details in your agreement, iron those details out before you begin work. Before either party signs, revise or amend the contract to clear up the areas of question. If you can’t come to an agreement with your client on how the work will be delivered, or if the terms are unsatisfactory to you, you can still walk away from the job before any commitments are made.