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Boilerplate Protects Your Business

Do you know the term “boilerplate language?” Some people don’t.  The legal term “boilerplate,” is used for terms used again and again. It derives from the sturdiness and protection of the metal plate for boilers. When boilers didn’t have enough boilerplate, they exploded and disaster ensued, like the Sultana disaster, left. 

Small business owners need boilerplate language in their contracts for their own protection and understanding how boilerplate helps can be invaluable. Most standard contracts have boilerplate language that are routinely inserted into most contracts without much thought.  However, that doesn’t mean boilerplate language is not important. Small business owners need boilerplate on their contracts for their own protection. Understanding how boilerplate helps can be invaluable.

Most of the time, full payment waits until after the business has fully performed its obligations. Think of a sit-down restaurant; the customer orders, the restaurant supplies the food, and then the bill comes. That means that, for some period, the customer has what the customer purchased, but the business hasn’t received anything for its goods or services. What happens if the customer decides to not to pay after the food has been served? Contractual boilerplate on your contracts and invoices can provide you with protection should a deadbeat decide to “dine and dash.”

Finance Charges. One vital deterrent to those customers who don’t pay is to make the delay ultimately more unbearable for them than for you. Some businesses do not significantly charge for late payments, believing that usury laws limit the annual rate to just 10% a year, or .833% per month. However, when someone pays late, they aren’t paying interest on a loan (which would be covered by the usury laws); they are to be levied finance charges for the late payment – and those finance charges can be far higher. Your standard contracts or invoices should provide for 1.5% (18% annually), or 2% (24% annually) in finance charges for each month a payment is late. This is both smart business and just: the business recovers some of the indirect costs from the lack of cash flow, and the customer has an incentive to pay sooner. In the not-so-rare case of customers who have other creditors, the higher your finance charge is, the sooner you are likely to get paid. While most small business owners are just happy to get the payment, using your right to impose finance charges gives you a vital tool to get what is justly yours – payment for your goods and services. You can always waive the finance charges for those good clients who have cash flow problems; you can’t impose them later for the deadbeats.

Deadbeats Should Pay for the Lawyers. Another provision to consider adding to your contracts or invoices is payment for the winner’s attorney’s fees by the loser should the case go to court. As consumers of legal services already know, attorneys’ fees are expensive. In fact, in many cases where the collecting for past goods or services are involved, attorneys’ fees are the main driver of settlement:  if defendants know that they have to pay for both their own attorney and the plaintiff’s lawyer, they become highly interested in settling sooner rather than later. Conversely, deadbeats know that they can probably get away with not paying you a lot of money if it more likely to cost you at least as much in attorneys’ fees as the case is worth.

Bay Oak Law can review the boilerplate language in your contract and insure that you are protected.   

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