Business Law & Compliance

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Vital legal considerations for your business when outsourcing

4 Mins

Subcontracting or outsourcing your business processes is a very popular practice today for businesses, big and small. It means, as a director, you can save money on offices, wages, various company bills and logistical nightmares. It’s smart and efficient to bolster the weakest parts of your business by hiring contractors with proven expertise.

Be explicit, not vague

Trusting another business or several businesses to deliver what you need from them, to represent your brand to your customers or clients, means you have a clear expectation of standards and what is going to be delivered and by when. You need to communicate this, in writing and get it signed by the relevant person in authority. That expectation needs to be explicit, it has to be a Service Level Agreement (SLA).

A SLA is the proof that you need to fall back on if there is an unacceptable drop in standards or performance from the supplier. From this document you can argue about payment reduction where work falls short of stated results or if unsatisfied that the brief has been fulfilled as asked.

There needs to be dates on the expected delivery of those results too – don’t leave it open ended. A schedule or perhaps a time tracking sheet should be used to ensure that those unobserved working hours are accounted for satisfactorily for the payer.

There will also be the understanding of liabilities and how to deal with business losses, whether from under performance, negligence or lost assets from the contractor.

It’s worth knowing that sometimes it is the contractor who will want to offer you the terms of the service, so whilst there maybe room to negotiate, be mindful of what you need for your business from the service provider.

Read more on outsourcing:

The price is right

This is so important. There has to be an understanding of the fee structure and payment terms from the outset. The worst thing that can happen is that your business is held hostage over a misunderstanding in payment policies, which does happen.

In really bad disputes, assets you assumed belonged to your business may not be accessible or not handed over. Imagine if you did not have access to your company artwork and branding or a data list you relied on for business.

It would be hard to move forward. Payment terms range from a proportion up-front, payment on receipt, or up to 90 days and anything in between – it’s sometimes best to find out the norm for your sector.

Whilst many who outsource presume it’s best to hang on to the cash as long as possible (to gather interest – buffer the capital etc) a good relationship can sometimes be built on the faster payment terms.

Money can be an awkward subject and with SMEs it’s sometimes the case that the client invoices without knowing exactly when to expect the money. This is a stressful position for the client and one that can ultimately lead to confrontation.

Continue reading on the next page for information on data issues and asking questions you may have missed.

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