When you enter into a working relationship with others, it’s very important to have a contract. Each contract will vary greatly depending on the type of services you provide, but in general every contract needs these basic components.

Detailed Description of the Services You Will Provide

It’s essential to very clearly describe the services that will be provided. The more detail you can put in this part of the contract, the fewer misunderstandings will occur. This is very important, especially if you are charging on a per-project basis instead of only hourly. You don’t want scope creep to ruin any profit-making potential.

Complete Description of the Relationship between Both Parties

This is the area where you mention the nature of the business relationship, in terms of whether or not you are an independent contractor or an employee. Spelling it out here will protect both parties from IRS issues later. However, keep in mind that acting like an employee/employer, no matter what this section states, is what the IRS really cares about.

Responsibilities of the Service Provider

Spell out in great detail which dates you’ll have the work completed by, and what your responsibilities are to the client in regard to getting the work done. How will it be submitted to the client? What constitutes finished work? Be very specific in this area. It will help protect you as well as help you feel done each day when you know what constitutes “finished.”

Responsibilities of the Client

Spell out what the client must do so that you can do your job. For example, state that the client must get you the information you need by a certain date each month, and say how the client should contact you when they have questions. Be very specific and exact in this section so there is no mistake about what the client needs to do to ensure that you can do your work in a timely manner.

Important Due Dates

Restate the important due dates for both sides of the client/service provider equation. The reason you want to state this again is that it’s an essential component in being able to work together cohesively without issues. These dates will ensure that it all happens without a lot of back and forth or problems.

How Payment Will Be Processed

State how and when you will bill the client and how and when you expect the client to pay you. If you want to be paid via PayPal then you should say so, otherwise they may not be prepared to pay you this way – which can cause delays. Spell out all the terms, the amount and how and when it all happens.

Terms for Termination

Tell the client how they can terminate your agreement, and state how you can terminate the agreement. If there is an end date to this contract, state that here too. If there is going to be a rate increase at any point (if it’s an endless contract), state it here as well. This way the client is aware of what will happen in the future, giving them the opportunity to leave the contract if they want to.

Non-Disclosure Agreement

This is something that is good for both parties – you agree not to tell people you work for the client and the client agrees not to state what they pay you to people they recommend to work with you. Whatever you both want in this agreement to protect both parties in terms of non-disclosure goes here.

Ownership of the Deliverables

State in this section who owns the deliverables. Usually you will put words to the effect that deliverables are owned by the client once payment has been processed. This will help prevent non-payment or claims of ownership of the work when payment has not yet been submitted. This is the best way to protect your hard work and their intellectual property.

Legalities

It’s super important to include any legalities that are required by your state or country. It also is good for the service provider to include a line that states any court proceedings and all laws will be determined by your state, city and county. That way if a problem happens you won’t have to travel for court.

Finally, always ensure that both of your names, business names, addresses, phone numbers, and emails and if applicable tax ID numbers such as your EIN (this is an employer ID number, although you do not need employees to have one). This is preferable to use than your social security number.

Sometimes the legalities of doing business as an independent contractor can seem daunting. But don’t be overwhelmed. It’s not hard to make a contract at all. A contract can be very simple or very complicated (it’s up to you), but the important point is that you do have one. Many of the reasons you need a contract as an independent contractor are listed below, but take note that this list is not exhaustive. You can likely think of some additional reasons on your own.

* To Avoid Misunderstandings – Having a contract to look at when a gray area comes to light about what is expected, can help you avoid costly misunderstandings of what is supposed to be accomplished during the relationship.

* To Define the Relationship – While you can’t make a contract stating someone is an independent contractor then treat them like an employee, this can help both parties understand more their roles and place within the work.

* To Institute a Description of Responsibilities – If both parties have a good description of what each is to do, when they are to do it, how the deliverables should look and who is going to do what, this can help create a well-oiled machine for your business processes.

* To Bind Each Party to Their Particular Duties – If everyone knows what they are supposed to do, the work will go much more smoothly. Define deadlines, the work, and more in this part of your contract to ensure that everyone is on the same page.

* To Establish a Time Frame for the Work – Avoiding scope creep is an important part of a contractor’s job. Giving all work a time frame will help avoid problems. You may want a contract for a year for ongoing work, or even an unlimited contract that gives information about what to do if you go over the specified work.

* To Help to Secure Payments – Contracts can set in stone the payment you’re expecting and give you recourse if something goes wrong with the payment or work.

* To Provide Recourse If Problems Develop – When anything goes wrong, each party can go back to the contract to identify the issue and find the solution to resolve it.

* To Establish Professionalism – When you set up a contract and have procedures identified and processes established, you look more professional and people will take your business more seriously.

Contracts are an important part of doing business and can help protect both parties from issues that may arise during the course of the relationship. Not only will the contract help, but the process of creating the contract between the parties can help establish the relationship better. Developing clear, collaborative contracts helps ensure compliance and a great relationship today and in the future.