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When a business engagement has been set up and both parties are content, an engagement letter is drawn up. Here we set out what is expected from an engagement letter and what should be included.
What is an engagement letter?
An engagement letter is a written agreement between a client and a company. The document describes the business agreement and all the terms. The key purpose of an engagement letter is to set up expectations.
Download this engagement letter template at Lawpath
When should I use an engagement letter?
An engagement letter can be used by a person or a professional in an industry. This document is generally used when a service is being provided to a client as an independent contractor, rather than as an employee. Engagement letters are frequently used by accountants, solicitors and investment banks to limit their liability when offering guidance.
Engagement letter vs contract
A letter of engagement serves a very similar purpose as a contract. Although the purpose between parties is similar, a letter of engagement is much less formal than a contract. The document will generally avoid using legal jargon and terminology than a contract, despite still being a legal document. Despite the informality, an engagement letter is entirely legally binding in a business deal.
What is included in an engagement letter?
An effectively written engagement letter set the framework in which the client relationship is managed. Typically, an engagement letter should include:
- Identification of yourself and the person, entity or business who the letter is addressed to.
- Scope of service to aid in the migration of scop creep.
- Summary of the service and the terms for each service.
- Specify when the engagement will begin and end.
- Billing information.
- A clause should the fee not be paid on time, or if additional services are required.
- The responsibilities of both parties.
- Dispute resolution.
- Confidentiality clause.
- The professional standards which govern the engagement.
- Confirmation of terms.
What not to include in an engagement letter
If a dispute should occur between you and a client, a signed engagement letter can offer legal protection for both sides. A well drafted, signed engagement letter can save your business from financial ruin. That is why it's so important to write an effective engagement letter, here's what not to include:
- Marketing or boastful language.
- Vague all encompassing language.
- Language that expands rather than limits liability.
- Ambiguous legal jargon.
- Abbreviations only people within the industry would understand.
- Outdated templates that no longer reflect your business or services.
How effective is an engagement letter?
An effective engagement letter will help a client feel reassured and know what to expect from the arrangement. An effective engagement letter will make clear all the costs involved and will set out everything agreed and not agreed.
An effective engagement letter should clearly lay out what's included with your services, reducing scope creep. Using an engagement letter can help reduce professional liability insurance, for this reason many insurers require the use of one.
Do I need a lawyer for an engagement letter?
Lawyers are technically not required to write an engagement letter, but they can be extremely useful towards the end of the process. There are many engagement letter templates and samples available on the market. These can be used to help build an engagement letter. Although generally every case and every business is different. Hire a lawyer to look over your engagement letters before you put them in use.
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How do I write an engagement letter?
An engagement letter must include the following to make sure you are fully covered:
Always prepare your engagement letters with a simplicity a child could understand. Using simple language limits questions and stops any lines becoming crossed. Make sure you're clearly specifying what you promise to deliver, what the payment process is like, and any details involving timelines and invoices. There should be no way that your client can misinterpret what you will and won't do.
Clear payment terms
Clearly set out if you have an hourly rate or if you charge a flat rate. Specify how often you'd like to be paid and when you expect to send out the invoice. Set out late payment fees, early termination clauses, or what happens if the services can't be delivered for reasons out of your control.
What is needed from the engagement
Before you start the engagement, make sure both parties have everything they need. This is not just information, but access to contact information, keys or accounts. Also make sure both understand the project, the desired result and the time frame.
Where to get free legal documents and templates like an engagement letter
Writing a letter of engagement may be a little daunting, if you haven't had much experience in writing up legal documents. There are many engagement letter templates out there, they can help you know you to perfect this document. Here's where to find some online.
- Lawpath. Lawpath is an online legal resource aimed at smaller businesses. Customers can look through free samples but must sign up for a plan to access all their customisation options.
- Law Depot. Law Depot offers a wide selection of free online documents to download and customise, including an effective engagement letter.
- LegalVision. LegalVision offers users unlimited use of free legal document templates, including engagement letters.
- Wonder Legal. Customers can browse hundreds of legal document templates on Wonder Legal's website, all of which can be customised and downloaded.
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