Formality and Informality in Business – Getting the balance right!

Formality and Informality in Business – Getting the balance right!

By David Reilly, Founder and Commercial Director of Create Ts and Cs                           17/04/2010

As a business owner, getting paid for the work I do is an important part of building or growing the business .  We all know cashflow is ‘king’.

With that in mind, let me establish context for the following;  this blog was inspired by a number of recent visits to the sheriff court combined with observation and personal experience.  The subject matter – which is also a talk I’ve delivered at various events across the central belt of Scotland – positions the idea that an absence of formality within business is more likely to lead to dispute, for example ‘non payment’ compared to business relationships supported by a contract or written Terms and Conditions.

So, what do I mean by Formality and Informality; formality is the presence of a contract, or progression of a business relationship from prospect to customer by way of a written agreement.  The word ‘contract’ implies Terms and Conditions of sale or bespoke contracts written to formalise the business relationship, communicating for example how the business is to be paid or how the business’s IP (intellectual property) is to be treated.  Informality on the other hand, in this instance describes an ‘absence of contract’.  Interestingly, the majority of small claims cases I’d witnessed and the overwhelming number of disputes I encounter on a weekly basis have a common theme, the business engages and transacts with another business ‘without’ the presence of a contract.

On the face of it, informality is an attractive exchange, no paperwork is required, there’s a perception of ‘getting on with the business of doing business’, a no nonsense approach and a chance for you to communicate your ability to be ‘flexible’ to your new client.

When disputes occur, particularly disputes that involve ‘non payment’ it seems the SME sized client tend to emotionally react and can take ‘non payment’ more personally than a larger organisation.  This can result in an emotionally charged dispute, as the individual feels ‘let down’ and ‘disappointed’ as a result of their unpaid efforts.

It’s clear that if you fail to Pay BT or a similar sized organisation, a process unfolds, initially involving letters and reminders, finally ending in termination of services and possible court action.  With departments dedicated to such activities and armies of staff ready to pounce, large companies are geared up for these eventualities.

So, when the individuals or directors of SME businesses reach court, generally within the Small Claims process; a natural clash of jargon ensues!  The law is interested in ‘points of law’, or what business contract exists.  The presence of a legal document or contract can help avoid unnecessary disputes in the first place and assist to communicate within the legal system which requires relevant legal criteria.  The legal system can appear alien to businesses who fail to communicate appropriate legal based arguments.  It’s not about right or wrong, it’s about ‘points of law’.

Arguably the use of contracts to encourage agreement between two companies prior to ‘doing businesses’ is an opportunity to create an environment in order to build trust between two companies, laying the path for future business and increasing the likelihood of success.  Why allocate that much trust to a business or an individual with whom you’ve never done business before!  Perhaps informality or the demonstration of the businesses to be flexible should be delivered after a contract is signed? We all like to over deliver for our clients, perhaps we should attempt to protect ourselves and the business first to ensure everybody gets what they want for the experience before we ‘over deliver’.   Maybe, part of the issue regards a businesses fear of requesting a contract reflects our own perceived value of our business.  If we believe we do a good job and can deliver a quality product or service, is it only reasonable to request formality or a contract from a potential customer before we deliver our services.

Create Ts and Cs provide a bespoke set of Terms and Conditions for your business at a fixed price, this unique approach to individualising commercial Terms and Conditions allow Start up and SME sized businesses the opportunity to protect themselves, manage risk and guard against future unnecessary disputes at an affordable price. Download: terms & conditions | privacy policy