What is a service contract and why does it matter?
A service contract is a legally binding contract between you as the contractor and your customer. The agreement clearly outlines what services you will provide, whether pest control, HVAC or another type of service, and how the customer will pay you for these services.
Service contracts are important because they protect your business and your customers. As the business owner, you will have proof of the services you agreed to provide, so your customer cannot claim you promised to do more than you did. You will also have evidence of the amount they agreed to pay. This proof gives you a significant advantage if you have to fight a legal battle to get the payment or defend your business against false claims.
At the same time, your customers will appreciate a service contract as it offers them the same protection. With the contract, you cannot claim you would charge more for your services or include fewer services. If you do, they have proof to support a legal battle. Because potential customers want to work with contractors and companies with service contracts, the simple act of using one will help you attract more customers, boosting your business.
Therefore, a service contract protects your business and helps you bring in more customers.
There is also another type of service contract in the home services industry you may also want to offer. These are service or maintenance agreements that outline future maintenance and inspections you will perform, as well as their cost. This type of service contract helps you accrue repeat business and gives customers peace of mind while offering convenience for both parties.
What is a service contract?
As mentioned, a service contract or service agreement is an agreement you make with your customers. In the instance of your business, it will outline the services you will provide to the homeowner or commercial customer. It will also include the compensation that the customer will pay in exchange for your services.
Importantly, service contracts can be verbal or written, but it is in your best interest to always opt for a written one. Oral agreements are sometimes enforceable, depending on the circumstances, but they can be hard to prove and lead to, “he said, she said” situations. It is much wiser to always opt for a written service contract.
The other type of service contract, a maintenance agreement, is also crucial for home services businesses. These let you offer extended services, such as annual maintenance on the homeowner’s HVAC system or twice yearly pest control inspections. These commonly compare to warranties, yet the two are slightly different.
Is a service contract worth it?
Service contracts will almost always be worth it for you as a business owner. To start, they provide you with legal protection in case the customer challenges you work, makes false claims regarding agreements, or fails to pay you the agreed-upon amount.
In the case of the maintenance or service agreements, these are also important for your business. One of their primary benefits is helping you keep customers long-term. You do not have to worry about them finding another professional to take care of their servicing needs in the future, as they already have an agreement with you to do so. This reduces the effort you need to put into customer retention.
Service contracts of either type can also help you attract customers. Customers like the security that comes with a contract, so they will choose companies that offer them. They also appreciate maintenance agreements, as they eliminate the need to worry about finding a contractor to take care of future issues and then have to communicate with them or of prices increasing.
The bottom line is that service contracts let you bring in more customers, protect you, and help you keep customers long-term, making them worth it. From the consumer standpoint, the FTC offers specific guidelines for choosing whether a service contract or warranty provides value.
Major trends influencing service contracts – how do you write a service contract?
Writing a service contract can be fairly straightforward or incredibly complicated, depending on the resources you use. Using a template, such as the one included here, makes it incredibly easy. If you are using a template, all you have to do is:
- Download the template
- Fill in the relevant information, including your company name, the services you’re providing, and the cost
If you decide to write a service contract from scratch, the process will be more involved. You will need to make sure you include all of the elements outlined in the next section. The most crucial elements are the terms of service, relevant dates, and parties involved, i.e., your business name and the homeowner’s name.
The individual pieces of a service contract – what are the basic terms of a service contract?
Whether you choose to use a template or write your service contract from scratch, you will want to ensure that it includes the required basic information:
- Basic information of both parties: This includes your company name, address, phone number, and email address, as well as the same information for your customer.
- Service description: You need to outline the work you’ll perform as part of the contract, being as specific as possible. In the case of maintenance agreements, this should include the number of services you will provide and the intervals between them.
- Dates: The contract needs to include the date that it is signed and the duration it covers. In the case of a long-term maintenance or service agreement, this may be a year or more.
- Payment terms: The contract should include how much the customer will pay for your services and when you will expect payment. Payment can be made before completing the services, after rendering the services or divided into installments before and after.
- Cancellation: Especially in the case of maintenance services planned for the future, the contract should outline how either party would cancel the contract and what penalties would apply.
- Warranty: The contract should include any guarantee or warranty on your services and what the process is for the customer to request warranty service.
- Resolution: Ideally, your contract will include a brief outline of how you and the customer will resolve any disputes.
- Confidential information: Depending on the service you provide, there may also be a confidentiality clause. This is more common for services such as accounting that deal with sensitive information than home services. It is still worth considering, though, especially if your company uses proprietary techniques.
Can you sign a service contract legally online?
Yes, it is entirely legal to sign a service contract online. This has been the case since the passing of the 2000 Electronic Signature in Global and International Commerce Act. This law lets you complete most of your operations online, except for the services themselves. That can help you reach more customers, as not everyone can be home while performing your services. It also saves you time and travel costs.
The only caveat is that you must have a valid, enforceable service contract for an online signature to be valid. This is also true of a physical signature.
What is the difference between a warranty and a service contract?
It is common for people to compare service contracts with warranties, especially in service contracts for future maintenance. While both provide future service or maintenance related to the original service, there are some crucial differences.
According to the Federal Trade Commission, warranties are part of a product or service’s original price, while service contracts cost extra; this is the leading legal distinction.
There is also a difference in terms of how you look at what each of these covers. Warranties offer service if something goes wrong or not as expected. For example, if you installed a duct incorrectly and it stopped working because of that, the warranty would cover reinstallation.
By contrast, service contracts are plans to take care of future care and issues, which may or may not be from something going wrong. They can include regular maintenance and inspections, such as inspecting those ducts at set intervals.
Sometimes, service contracts also serve as extended warranties. In this case, their term would start after the warranty ends, and they would have similar coverage as the warranty.
Conclusion: why you should care about a service contract.
The most important reason to care about a service contract is to protect your business and attract and maintain customers. Having a legal contract protects you from false claims or missed payments. Service contracts also bring in more customers, as they like the peace of mind that comes with the contract. Maintenance-based service contracts can also help you retain long-term customers.
To further retain customers, make sure they have a way of communicating with you, such as via the messaging tools in Podium Starter. You can even use Podium Webchat to make it easier to answer customer questions, including issues about service contracts.