Why a Service Agreement is Required for Agencies
A service agreement is more than just a piece of paper; it’s a foundational document that ensures your agency operates smoothly, mitigates risks, and protects your financial interests. Here’s why every agency must have a robust service agreement in place.
1. It May Be Required for Your Payment Processor
Certain payment processors, like Square, may mandate service agreements to continue auto-billing clients. For example:
- Compliance with Payment Policies: After a year of use, Square required us to produce service agreements for all customers to maintain auto-billing privileges.
- Prevents Disruptions: Having service agreements ready ensures uninterrupted payment processing.
2. Protects You Against Chargebacks
Chargebacks are an unfortunate reality for agencies, but a solid service agreement can help shield you from unnecessary losses:
- Refund Policy Clause: Clearly outlining your refund policy in the agreement can protect you from 90% of chargebacks.
- Legal Recourse: If a chargeback arises, the agreement serves as evidence of the client’s understanding and acceptance of your terms.
Learn more about reducing chargeback risks.
3. Provides Legal Protection
Managing ad spend for clients carries inherent risks, from financial concerns to potential damage to a client’s brand or reputation. A service agreement:
- Defines Responsibilities: Specifies the roles and responsibilities of both parties.
- Mediation Terms: Details how and where disputes will be resolved, protecting your agency from undefined liabilities.
Example Clause: Dispute Resolution
Including a section on mediation or arbitration can streamline the resolution process and avoid costly legal battles.
4. Ensures Payment for Minimum Commitments
Many agencies operate on minimum commitment contracts, and a service agreement ensures clients adhere to these terms:
- Clarity on Commitments: Outlines the minimum period clients must work with your agency.
- Enforces Terms: If a client tries to terminate the contract early, the agreement provides grounds for resolution, whether through direct negotiation or collections.
Real-Life Scenario
Without a service agreement, clients might back out prematurely, leaving your agency with unpaid balances. A clear contract safeguards your revenue stream.
Key Elements of a Strong Service Agreement
- Payment Terms: Specify billing frequency, payment methods, and penalties for late payments.
- Scope of Work: Clearly define deliverables and timelines to avoid scope creep.
- Refund Policy: Detail conditions for refunds or the absence thereof.
- Liability Limitation: Protect your agency from risks associated with ad performance or external factors.
- Termination Clause: Outline the process and consequences of ending the agreement prematurely.
Recommended Tools and Resources
- Service Agreement Creation Tools: We recommend using PandaDoc or Docusign for creating, managing, and securing your service agreements efficiently.
- Collections Support: For clients who fail to honor their commitments, we highly recommend Debt Collectors International. They provide a "no recovery, no fee" service and have a network of attorneys to assist in recovering small business claims quickly.
Conclusion
A well-drafted service agreement is essential for protecting your agency legally, financially, and operationally. From compliance with payment processors to safeguarding against chargebacks and ensuring clients honor their commitments, a service agreement is a must-have document.
Ready to protect your agency and streamline your operations? Contact us today to learn how we can help you craft effective service agreements tailored to your needs.