In Pursuit of Profit
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In some instances, service providers may only require contracts for specific services or longer service durations. Furthermore, contracts will almost certainly be required for clients deemed high-risk from a credit rating perspective. While researching providers, inquire about whether a contract is required and what kinds of stipulations are included in a standard contract.
The question then becomes, “Should you sign a bookkeeping services contract?” To answer this question, it is important to evaluate the pros and cons of having a contract and determine whether the positives outweigh the negatives for your individual organization.
Cons of Forgoing a Contract
The most obvious downside to signing a contract is that it locks the client into a set service period. For companies that are new to outsourcing bookkeeping services, this can be intimidating because they may worry that they do not yet know what to look for in a quality provider. The risk, therefore, is that not doing enough research or asking the right questions beforehand can result in a situation where they feel stuck with their bookkeeping services provider until the contract duration is up.
Similarly, companies switching from a provider that they were unsatisfied with to a new bookkeeping company may be concerned that they will not have the flexibility to keep looking for a better option if this provider falls short of their expectations as well.
Contracts typically have a termination penalty, allowing the client to get out of the agreement early by paying a fee. While this technically offers the flexibility that business owners tend to prefer, it does so at a cost (often a steep one at that), making it a drawback to using contracted services.
Lastly, a contract limits the scope of the services to be provided. Therefore, if a company is highly satisfied with the services it is receiving and wants to expand the scope of the agreement, the contract will have to be amended and re-signed or an entirely new contract must be signed.
Pros of Signing a Contract
While anyone can claim to have bookkeeping proficiency, true experts will have the measures in place to protect themselves and the work that they are doing. In this way, a contract validates the legitimacy of a financial services provider, setting them apart from dubious “fly by night” operations.
The biggest benefit of signing a contract is that it protects both parties’ interests, giving rights to both sides and improving enforceability over a verbal agreement. Therefore, if the bookkeeping or accounting company does not provide services as promised, a written contract protects the client in the same way that it would protect the provider if the client refused to pay for services rendered.
Many business owners understand this basic principle of contracts, but what they fail to realize is that embedded in benefit is another positive. For freelance bookkeepers or smaller accounting companies signing a contract ensures that the provider will have the capacity to do the work that is promised. Month-to-month service providers may see their workload flux with year, peaking around tax season and receding later in the year. Without a contract, a provider can suddenly refuse to provide services if other, more lucrative, opportunities arise. However, a contract pre-books the time needed to complete financial projects, allowing service providers to manage their capacity in a way that is mutually beneficial for themselves and their clients. In this way, an agreement facilitates long-term planning, improving ongoing strategic financial decision-making.
A contract also clearly explains the scope of the services being provided, which ensures that nothing will be overlooked throughout the duration of the contract. Some contracts will not only outline specific services to be performed, but also important milestones and deadlines to be met throughout the agreement. This improved organization is the main reason that contracts tend to result in improved customer satisfaction.
Furthermore, a contract typically locks in an agreed upon rate, which can save an organization money if rates increase significantly during the contract period. Contracts will vary when it comes to payment amounts, timing, terms, and increases, making this an important area to examine before signing. If you disagree with the payment portion of the agreement, it may be negotiable depending on the service provider. Discuss any concerns that you have in order to find an equitable solution before signing.
What should be included in a bookkeeping contract?
As a legally binding document, a bookkeeping or accounting contract should include anything necessary to define the business relationship. For starters, a contract should include the service provider’s standard terms and conditions. It can then be customized with specific information pertaining to the individual agreement, such as:
A bookkeeping service contract will often span a year or less. Signing a contract for any longer typically does not make sense because so much can change in the daily operations of a business within a calendar or fiscal year, making it difficult to anticipate what kinds of future needs the organization will have. Signing a shorter contract allows the scope of work being performed by a service provider to evolve with the business, creating a better fit for both parties.
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