Contract Disputes And How To Effectively Handle Them
Contract disputes and disputed invoices regarding finished projects concern a considerable amount of companies and professionals. These problematic aspects of client collaboration can be instigated either by clients or contractors. According to contractassistant, Tim Cummins, CEO of the IACCM (International Association for Contract and Commercial Management), stated that around 9% of contracts involve claims and disputes. These contract objections are not formal (AKA lawsuits), which means that the two parties find ways to settle things. Thankfully, formal disputes add up to less than 0.1 % of the sum of contracts.
Of course, there is a variety of reasons that call for contract disputes. Each one of them asks for a different approach. In this article, we will immerse into all the possible methods to handle those disputes as well as discuss the potential challenges that may lead to collaboration issues. Hopefully, this will prevent obstacles from destroying business relations and take the “legal card” off the table.
Reasons & solutions for contract disputes
One of the most easily manageable and commonest reasons for disputes is to send invoices with mistakes. Mistakes in pricing, product amounts, services, taxes, and typographical errors can occur. The accountant’s or yours, these errors should be addressed and fixed. As you can imagine, the ideal scenario is to detect invoicing mistakes before sending an invoice. However, human accounting mistakes happen and can lead to contract disputes. An apology and a revised invoice can mend the situation without creating further confusion. Clients will probably have no issue in accepting the correction, and your professional relations will continue to run smoothly. Of course, you should try hard not to do it again since the repetition of errors shows a lack of professionalism.
The second most frequent client justification for an invoice and contract dispute is sending invoices at a later date than you should have in the first place. In this case, clients protest that they have not received an invoice and therefore have not paid you on time. They may also deny paying you due to this unprofessional behavior. Still, clients that refuse to pay because you have sent your invoices late are not justified except if there is a clause in the contract that indicates otherwise. However, if you want to be professional, whenever you deliver invoices, services, or products late, you should consider applying a discount to the final amount.
Discrepancy in prices
Changed prices for services or products qualify as a serious reason for contract disputes. Contractors and clients should review their initial agreement. If the work was harder than expected, the contractor should contact the client in order to notify them regarding the increase in production costs and, subsequently, the final price. So, an invoice with different rates is not the right way to go. If there is no agreement, the best practice is a discussion between the two parties to find the middle ground and settle the dispute agreeably.
In addition, a more complex motive for a contact dispute is the quality of the finished product/service. First and foremost, the client should indicate with specific examples of how the deliverables are not up to their standards in order to help the contractor understand. Was the work insufficient or the result different from what was agreed? Did you just strayed from the initial scope?
So, if a contractor recognizes their shortcomings and problematic approach to the work, they can offer revisions. The number or extend of revisions should also be stated in the contract. This way, contractors will not entirely revamp a finished project, working on iterations indefinitely.
A contractor that delivered all services included in the contract can still receive complaints from the client. In such a case, the contractor should not be held accountable for the client’s dissatisfaction.
This list of possible contract dispute reasons would not be complete without mentioning the clients that attempt to get away without paying. They may offer most of the above justification and more in order to avoid doing what they have to do, meaning pay the contractor for the products and services. Of course, the contractor should take the civil route and approach the situation with composure. Read more on our article “How to politely ask for a payment with email samples” for more information on this. Hopefully, after communicating extensively, you will not need to take legal action to get what you have worked for.
Valuable teachings on contract disputes
This segment will give you some input on how contract disputes educate you so that you can get better at resolving or even eradicating them. Remember that your past disputes will armor you as a professional and teach you the many ways collaborations can go wrong. This way, you will be able to ensure better and more transparent business collaborations in the future.
The contract agreement is your bible
This may sound like an exaggeration, but the initial project contract can save you from losing time, money, or endless back, and forth contacting. This does not imply that email discussions should be disregarded. Au contraire, you should keep a record of all correspondence in the case of a contract dispute as facts prevail over opinions.
Moreover, pay extra attention to the payment terms and conditions before jumping on a project. By meticulously structuring that section, you will ensure that you and your client are on the same page. Clarify the pricing, the tasks, overall scope, and critical project details for extra assurance.
Then, when contract disputes appear, you will only need to cross-reference possible issues with the signed contract agreement.
Discuss the contract dispute in-depth and in writing
Another reason to keep everything in writing is when the contract dispute turns into a legal case. Then, evidence that shows the contractor’s or client’s flawed argumentation can lead to a resolution without much fuss. Keeping client communication strictly through email can help you in the scenario that a client refuses/delays to pay, without solid reasoning behind their choice.
Reconsider contract terms for future projects
Business difficulties and miscommunication actually build up your professional stamina and offer you valuable experience. You will not deal with contract dispute cases in the same way at the beginning of your career and after 15 years of work. Each dispute brings up different issues to attend to and new terms to add to your contracts. In the end, you will be able to stabilize the way you do business by knowing which traps to dodge, when you need to make amends and when to stand behind your work.
The software solution to your needs
Using an online invoicing software can considerably decrease contract and invoice disputes. “How?” you would ask. The answer lies in the invoice organization, project management, and extensive reporting that software offer. Tracking time and invoices, setting invoice, and payment automations to avoid errors and unsettled debts can resolve contract disputes.
To sum up, you should work according to agreed guidelines, be on time, share progress, and be crystal clear on rates and extra costs. Let us not forget to always set the appropriate payment and late fee terms and add all the necessary information in invoices to prevent disputes from ever arising.