He Said v. She Said

By: Stacey L. Romberg, Attorney at Law

Sally recently left her 9-5 corporate job, and enthusiastically began a new event planning business. Sally’s friend, Larry, wanted to be one of her first clients. Larry wanted to hire Sally’s business to plan his wife Judy’s 50th birthday party. Sally found an event planning contract on the internet, and tweaked some of the language. The contract set forth that Judy’s birthday party would be held at the Gigantic Golf Club, with cocktails and dinner for 100 guests. Larry would pay Sally’s business $5,000 for event planning services, to be paid no later than ten days after the party concluded. Sally is thrilled to work with her friend, and to plan her first big event.

Larry and Sally signed the contract, and Sally then contacted Gigantic Golf Club to reserve the space. Gigantic Golf Club informed Sally that it required an advance deposit of $8,000.00 to lock in the reservation. Sally contacted Larry by email: “Hi Larry. I’ve reached out to Gigantic Golf Club, and they need an $8,000.00 deposit. Can you please send me a check for that amount, made out to Gigantic Golf Club? Then I can forward it over to them to secure the space. Thanks!” Larry responded: “Hi Sally. Our contract says I am supposed to pay for everything ten days after the party has concluded. I’d appreciate it if you could please pay the deposit, and then put it on my bill. Thanks.”

Sally is shocked when she receives Larry’s email. She reviewed the contract. The contract stated:  “Larry is responsible for all costs related to the Event.” It also stated: “Upon conclusion of the Event, Sally will submit an invoice to Larry which will be due no later than ten days after the date of the Event.” The contract is silent as to whether Larry’s responsibility for the event’s costs meant that the costs will be paid up front by Larry, or whether Sally was required to initially incur the costs and then invoice Larry for those amounts. Sally doesn’t recall that they ever discussed this issue. Since Sally knew Larry personally, Sally wasn’t worried about getting paid and didn’t pay a lot of attention to the specifics of the contract.

Sally tentatively responded to Larry’s email: “Hi Larry. I’m so sorry for the confusion. Our contract doesn’t seem to address the issue of whether the costs will be paid up front. I’m afraid I cannot afford to incur an $8,000 fee, since I just started my business. Could you please pay it? Thank you for understanding!” Larry responded to this email within five minutes: “You have got to be kidding me! Don’t you remember that we talked about this? I told you that my son Charlie’s private school tuition is due shortly, and I’m tapped out. I won’t be able to make any payments until after the party. You better pay that deposit right away, because it’s too late at this point for me to fire you and hire a new event planner. If you don’t do right by me here, I’m going to go on Yelp and write the most scathing review possible!”

These types of situations, unfortunately, occur much more often than most business owners realize. A well written contract is the key to avoiding these types of “he said versus she said” disputes. Business owners need to routinely use thorough, well-drafted contracts that are prepared by an attorney. Here are seven tips for working effectively with your business attorney to develop a great contract:

#1: Explain any pertinent background information regarding how your industry works, and also set forth your goals for the agreement.

#2: Communicate your main concerns to your attorney about the proposed transaction (getting paid, receiving poor work quality, handling disputes, etc.).

#3: Provide a written outline to your attorney identifying the parties and principal terms of the deal.

#4: Think through how you’d like the contract negotiation process to proceed. Do you want to work through counsel exclusively? Or do the parties want to negotiate directly, and then go back to their attorneys with questions and revisions?

#5: Discuss the timing of the work.

#6: Understand the attorneys’ fees, and how you will be billed for the work performed.

#7: Be mindful of attorneys’ fees while negotiating contract terms. Some issues may be so minor that it’s not worth the attorneys’ fees to argue about it.

If there is a disagreement about the terms of a contract, rather than continuing an email or telephone “war” with the other party, here are some recommended first steps:

#1: Review the Contract Requirements Related to the Issue in Controversy: What does the contract say about the issue being disputed?  Are you sure you are right and the other party is wrong?

#2: Review the Contract Requirements Related to Dispute Resolution:  The contract may tell you how you have to proceed in resolving the dispute. Mediation? Arbitration? Litigation?

#3: Make an Initial Attempt to Calculate your Damages: Litigation is very expensive. In order to decide whether it’s worth it to pursue litigation, you need to know the monetary value of your loss.

#4: Call Your Attorney: Let your lawyer know your preliminary thoughts based on your initial legwork, and then discuss the situation and your options.

Stacey L. Romberg, Attorney at Law, focuses her practice on business law, estate planning and probate. For more information, please visit the firm’s website at www.staceyromberg.com.

Attend Stacey Romberg’s Biz Fair class “Business Law Essentials” at the 22nd annual Biz Fair on Saturday, September 29 at Renton Technical College, RSVP today: bizfair2018.eventbrite.com

5 Tips to Ensure Your Business Gets Paid

 

By: The Export-Import Bank of the United States

According to a U.S. Bank study, “roughly 82 percent of small businesses actually fail due to inefficient management of cash flow.”  One of the catalysts for inefficient cash flow is outstanding invoices, which continues to be a major pain point for small businesses that try to remain financially healthy. Costs associated with late payments—such as interest costs or legal fees—must be avoided, and when domestic business turns into foreign business, collecting payment can be much harder, so we’ve identified some tips below to ensure your business gets paid going forward.

1. Develop a Systematic Payment process

It’s critical to set up an easy-to-use payment process system to allow your customers to receive automatic notifications, emails and alerts. For example, if a due date is coming soon, an email can be sent out automatically to the buyer or an alert can be sent to the exporter notifying them to call the buyer. Calling has served as a great customer service technique because it allows the exporter to establish a more personal relationship with the buyer.

2. Incentivize customers

As you start to build a relationship with your foreign buyer, it may be wise to incentivize a customer to pay earlier than the due date by providing a small discount on the total invoice price.

 3. Communicate with your company

An exporter’s credit management process needs to be understood by everyone in the organization because there may be times when other internal departments play a part in collecting the payment. For example, an exporter’s sales group may communicate with the client more than the finance department, so being able to communicate, educate and enforce the payment process from all departments may help the exporter collect final payment.

 4. Document, document, document!

Make sure there is an efficient document management system when collecting invoices (especially the signed invoices) and other payment conditions/notices. Each invoice must clearly state terms and conditions, but before sending out an invoice, have a lawyer review the initial invoice template with stated terms and conditions (and if modifications need to be made, have it reviewed every time for consistency).

5. Research, research, research!

Finding out information about a foreign buyer may be difficult, therefore, leveraging your relationship with the U.S. Department of Commerce local offices or your local trade association may help when doing your research on whether or not the potential foreing buyer is in financial good standing. Local credit bureaus or local Chambers of Commerce groups may also be avialable to provide information on foreign buyers and they also may have industry background data on payment tendencies (such as average days sales outstanding). Finally, visiting the foreign buyer in their home country may give an exporter a better idea of whom they are doing business with and helps to establish better relations.

EXIM Bank offers export credit insurance, which helps the exporter mitigate the risk of foreign buyers not able to pay. With export credit insurance, EXIM Bank will cover up to 95 percent of the invoice and, in addition, will vet potential buyers to ensure they are in good financial standing. For more information on export credit insurance, click on this link to set up a free consultation with an EXIM Bank specialist in your local area!

Join John Brislin from the Seattle Regional EXIM Bank at the “How to find customers outside the U.S.” seminar to learn more about how to get paid at Biz Fair on September 30.

Tips for Success in Choosing a Business Structure

By: Stacey Romberg, Attorney at Law. www.staceyromberg.com

Choosing a business structure can be a daunting task! I recommend that entrepreneurs, in making their selection, analyze the following four factors:

Evaluate Your Risk

Does your business idea involve some risk of liability? If so, in what sense? And how much risk? For example, do you want to lead rock climbing excursions? Or to provide a more common example, suppose you want to operate a cross training gym? The risks involved in these types of businesses are clear – the participants may be injured. On another note, suppose you are a wedding photographer? You could be on the hook if the photos don’t turn out well and the bride and groom become angry and litigious. Generally speaking, if your business involves a great deal of potential risk, a business entity such as a corporation or a limited liability company (LLC) may prove helpful in shielding you from individual liability.

Evaluate Your Business Relationships

Breaking up is hard to do! Most couples, when they get married, incorrectly assume that their relationship will last forever so no prenuptial agreement is necessary. Similarly, many business owners assume they will always be able to work together well so there’s no need to spend money on legal fees to develop a corporate Shareholders Agreement or LLC Operating Agreement. These agreements govern the relationship between business owners, and can spell out what will happen if business owners are deadlocked or how a business owner may exit out of the business. A breakup of a business relationship can resemble the dissolution of a marriage, with all the accompanying drama, stress, and expense. If you are going into business with another person, enter into that relationship with caution and a solid legal agreement in place.

Confer with Your Certified Public Accountant (CPA)

Be sure, as you consider what business structure to form, to consult with your CPA about the tax implications of the various business structures. It’s important that you understand all the financial facts regarding your potential tax liabilities before making a decision.

Confer with Your Business Attorney

A business attorney should form any business entity other than a sole proprietorship. If your business is not formed properly, you may be disappointed to discover that, in the event of litigation, the business entity fails to shield you from personal liability because the structural documents are insufficient, inappropriate, or not being consistently followed.

Stacey L. Romberg, Attorney at Law. www.staceyromberg.com This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.