5 Key Clauses in a Client Agreement

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Table of Contents

• 1. Scope of Services 
• 2. Payment and Payment Terms
• 3. Limiting Liability
• 4. Dispute Resolution
• 5. Terminating the Client Agreement
• Key Takeaways

A client agreement is a legally binding contract between your business and the clients you provide your services to. The clauses of a client agreement: 

• set out the rights and obligations of both your business and your client;
• set out the expectations of both parties; and
• depict how any issues should be handled. 

A client agreement is used across various industries, and therefore, it is essential to ensure that you tailor your agreement to suit your business. This article will outline the five key clauses you should include in a client agreement.

1. Scope of Services 

Your client agreement should accurately reflect the scope of services you provide to your clients. Your scope of services should clearly set out the work you agree to do and any results you will achieve for your client, outlining your entire working relationship. 

Having a clear description of your services allows your clients to understand what they can expect from you. Where your services may vary from client to client, you must be able to tailor the scope of services to each client. This may be through an “order form” or other attachment to the agreement setting out the proposed services. 

Ensuring the services that you are (and are not) providing are clear can help avoid problems later down the road, including any potential disputes.

2. Payment and Payment Terms

Your client agreement should clearly outline your payment terms for your services to meet your financial obligations and guarantee cash flow for your business operations. Your agreement should outline: 

• how much you charge for your services; and 
• when payment is due.

This allows your clients to be aware of payment before agreeing to engage you for your services. You may:

• charge an hourly rate and invoice your client at the end of each month;
• provide a fixed fee for the total project and invoice your clients according to particular project milestones;
• require full payment upfront; or  
• take an initial deposit from your client and then invoice your client for payment upon completing your services.

You should also consider what may happen in the event that your client does not meet your payment terms. 

For example, if your client has any overdue invoices, you may cease providing your services until they make payment and charge interest on any overdue invoices. 

3. Limiting Liability

A limitation of liability provision in your client agreement explicitly defines your limitations on your liability for the services you provide. Including a limitation of liability clause is an important risk management tool. Consider your services and aspects of your business that contain risk and use a limitation of liability clause to protect yourself from such risk. 

For example, say you engage third parties to assist you with providing part of your services. In that case, you should acknowledge in your client agreement that your services may be contingent upon third parties and limit your liability for the actions of third parties as their actions can be outside your control.

You can limit your liability in a variety of ways, including:

• placing a financial cap on your liability, limiting the amount of money you are liable to pay to your client; or 
• putting limits on your liability by excluding your liability for any indirect or consequential losses your client may suffer. 

However, you must consider whether the relationship with your clients will be captured under the Australian Consumer Law (‘ACL’). If so, you must ensure that your agreement does not contain any unfair contract terms, including any unbalanced or one-way limitations on liability or indemnities. 

4. Dispute Resolution

While the possibility of a dispute with your client may seem unlikely, it is best to have a well-drafted dispute resolution clause. This ensures that you are prepared to resolve a dispute if one arises. Your client agreement can prevent you and your client from resorting to taking each other to court, which may be an expensive and time-consuming process. 

For example, your dispute resolution clause may require you or the client to inform the other party of the issue and meet to try to resolve the issue before taking more severe action.

If the initial meeting does not resolve the issue, then your client agreement can clarify that you and your client must try alternative dispute resolution methods. These could include mediation or arbitration before resorting to going to court.

5. Terminating the Client Agreement

Your client agreement should include clear guidelines on how both you and your client may terminate the agreement. Otherwise, there can be confusion over when or how the agreement may be terminated. 

A termination clause typically outlines that either party can terminate the agreement if the other breaches the agreement. You should also consider whether you or your client can terminate the agreement for:

• convenience, meaning to terminate without reason, cause or breach; or 
• any other reasons and any specific timeframes involved. 

Further, your termination clause should outline what should happen once it is terminated. 

For example, if your client does not pay for your services upfront, your termination clause should include any payment terms upon termination to ensure you are paid for the work you have completed. Where you are providing your client with access to your services or other materials, you could also set out that your client must stop using your services or return your materials upon termination.  

Key Takeaways

Your client agreement is an essential legal document defining the relationship between your business and your clients so that you both have a clear understanding of the arrangement. It is crucial to ensure that your client agreement is tailored to suit your business and includes the key clauses on:

• the scope of your services;
• how your clients must pay you;
• the limitation of your liability;
• the dispute resolution process; and 
• how the agreement may be terminated. 

If you need assistance drafting or reviewing your client agreement clauses, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.