As a photographer, you have most likely had clients cancel their booking, often at late notice. Whether it is because of the rain or a bad hair day, it is essential to have protections in place that minimise your losses when a client cancels. This article sets out how you can do so, namely security deposits and cancellation clauses, and how you can use them most effectively.
Security Deposits
A security deposit is where a client agrees to forfeit a portion of the purchase price if they cancel your services. Security deposits are typically 10% of the total purchase price.
You may demand the deposit up-front and have the amount go toward the total purchase price. Alternatively, you may secure the client’s payment details and specify in your contract when and how much you will withdraw from their account in case of a cancellation.
Security deposits are a great way to discourage cancellations in the first instance. It means that if a client cancels their booking at an early stage, you receive compensation for any initial out-of-pocket expenses and loss associated with potential bookings you could have profited from.
However, it is crucial to consider that hefty security deposits can sometimes deter potential clients. Therefore, you may specify when clients can cancel without losing their deposit. For example, many businesses require a minimum of 48 hours’ notice to avoid penalties. However, smaller projects booked well in advance may have longer periods for free cancellation.
If you require a security deposit, you must specify the following:
- the cost of the security deposit;
- how the client can pay the security deposit;
- when the security deposit is required; and
- when the security deposit will be forfeited.
Cancellation Clauses
What is a Cancellation Clause?
A cancellation clause or policy is a condition in your terms and conditions set out when and how clients can cancel their booking and any fee they may incur.
You must clearly specify the timeframe for when a client will face a cancellation fee. This timeframe can be tiered so the client will not incur a fee within a certain period. For instance, cancellations:
- within 4 weeks of the booking, clients receive a full refund;
- within 1 week of the booking, clients lose their deposit; and
- within 48 hours of the booking date, clients must pay a certain percentage of the purchase amount.
You must also specify the amount of the cancellation fee.
How to Calculate a Cancellation Fee
While, as the business owner, you can decide how much to charge clients as a cancellation fee, there are some legal limitations.
Firstly, cancellation fees must genuinely reflect the reasonable costs you have suffered due to cancellation. If the fee goes beyond these costs to the extent that they are unfair to the client, they may be considered a penalty and be invalid.
There are two ways to determine a reasonable cancellation fee:
- wasted costs; and
- lost net profit.
Wasted Costs
Wasted costs refer to all the money you spent while preparing for the booking that you cannot recover due to the cancellation. These costs may include the following:
- administration to set the booking;
- travelling to the shoot location; or
- hiring an assistant.
Lost Net Profit
Lost net profit is the amount of money you expected to have earned if the booking proceeded, less any costs you would have incurred in performing the rest of the contract. For example, your cancellation fee may be the agreed price for the photography project, less the costs spent towards purchasing a specific lens.
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Are Cancellation Clauses Binding?
There are some instances where a cancellation clause may not be binding. The two most common are:
- when the clause is unfair; and
- when the client cancels for reasons beyond their control.
Unfair Clauses
Under Australian Consumer Law, a standard form contract will be invalid if it contains an “unfair clause”. This includes unfair cancellation clauses and fees.
Your cancellation fee is likely to be considered unfair if it:
- causes a significant imbalance in your client’s rights;
- is not reasonably necessary to protect your legitimate interests; or
- would cause detriment to your client.
Therefore, your cancellation fee must reasonably reflect the costs you suffered as a result of the cancellation. This will largely depend on the nature and scale of your photography services and the upfront costs involved. For instance, the cancellation fee for photographing a two-day football tournament will differ from a one-hour booking to shoot personal headshots.
Client Cancels for Reasons Beyond Their Control
If a client cancels a booking due to an incident that neither party is responsible for, the contract is “frustrated”. As a result, you will not be able to enforce your cancellation clause.
A typical example is where an extreme weather event prevents a client from showing up to the shoot location.
However, suppose your photography services rely on certain weather conditions or natural light. In that case, you should include a clause in your terms and conditions that addresses bookings that must be rescheduled or cancelled due to poor weather.
Key Takeaways
Security deposits and cancellation fees are two key ways to protect your photography business from client cancellations. The specific details of these measures, including how much they are, how clients must pay them, and when clients will be obligated to pay, must be made known to clients before they book your services and clearly set out in your terms and conditions. They are both effective in ensuring you receive compensation from clients who cancel at short notice, but only where the amount reasonably reflects the actual costs you incur as a result of the cancellation.
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Frequently Asked Questions
Cancellation fees can be calculated by determining the wasted costs or lost net profit.
Wasted costs are costs spent while preparing for the booking that you can’t recover because of the cancellation.
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