Customer Contracts and You - Part Two

As I mentioned in my last post, I see several very common situations that result in contract disputes between my business clients and their customers.

The second time I see a problem is in cases where the contract is either itself vague or where the customer legitimately did not understand what the terms of the deal were.

Ideally, a contract very clearly and unambiguously tells both sides what they have to do. “Company X is going to communicate with your insurance carrier and perform whatever work they authorize,” it might read, and then conclude with, “and Customer Y is going to turn over the insurance proceeds plus the deductible.” I am surprised how often contracts, even those used by very large companies, leave out this level of simple, clear communication about what is being exchanged. A customer who assumed something was included that was not, or misunderstood how they had to pay for the services, is very likely to be troubled when they realize what they actually agreed to do.

Even if your contract is clear, it is also important that the customer understand it. Colorado law will typically hold someone to a contract they signed whether they read it or not, but you don’t make money if you have to sue each customer to enforce the contract. You want to deal with people who understand exactly what is expected of them up front. They will be far more likely to follow through than someone who had some other strange ideas about what was happening.

Communication About the Deal

I previously noted that one of the very common situations I see underlying a contract dispute between a customer and a company is where the customer did not really understand the terms of the deal. It is worth thinking about how good a job your sales staff is doing on educating your customers from the get-go.

Many businesses rely on sales professionals to close deals. And, while I mean no disrespect to the profession, at least one study has suggested that there is one type of position “for which honesty was not correlated with better performance: sales.” See http://freakonomics.com/2015/02/26/the-maddest-men-of-all-a-new-freakonomics-radio-podcast/. That does not mean that salespeople are inherently dishonest; but it does suggest that dishonest people appear to do at least as well in sales as honest ones, and thus are harder for your company to identify. In all other areas, the study found honest employees tended to score higher than dishonest colleagues.

The temptation, particularly when the sales staff consists of independent contractors who are compensated with commissions based on closed deals, is to close the deal by whatever means necessary. If your sales staff is not ensuring you are doing business with customers who understand the deal and actually want to take advantage of it, then you might be sowing the seeds for a large harvest of bad debt and negative on-line reviews down the road!