Keep everything in writing. You must have heard that saying more times than you care to remember. What happens though you get a call from a client asking you to do a two-hour job urgently or when you pitch to a potential client who appeared happy with your proposal but then becomes too busy to return your calls?
More often than not, we'd say 'yes' to that quick job and enthusiastically connect with that potential client in the name of relationship-building. Without a signed contract, however, there's no guarantee that the client will pay for that small project or that the potential client is legally bound to give you their business even after they seemed happy with your work.
Verbal agreements are part and parcel of building a business, in this region and around the world. In most cases, start-ups depend heavily on their network of contacts to jumpstart their business. But are verbal contracts worth the risk?
When asked how much her company has had to rely on verbal contracts, Loulou Khazen Baz, Founder and Chief Owl of Nabbesh, said she relied on verbal agreements "many times, until you get disappointed and then you realize that there is no substitute for written contracts and agreements."
Nabbesh is an online skills marketplace that connects skilled individuals to opportunities matching their skills., KhazenBaz won du's business reality TV show 'Entrepreneurs', which, among other things, awarded Nabbesh with a start-up capital and an office at Dubai Silicon Oasis - no doubt all under written agreements.
So what do legal experts around the world say about the validity of verbal contracts? They say verbal contracts are legally binding. The clincher is that they are hard to prove in court and without proof, the whole case becomes a 'he said/she said' scenario that doesn't necessarily ensure the right party gets penalized.
When it comes to the Emirates, though, things are pretty much clear cut. The UAE companies' law states that an oral agreement isn't admissible in courts. A written document, in both Arabic and English, is the only way you could prove your case.
The perils of this lack of legal foundation are something that Salim Dahman, owner of Kilma Creative Studios experienced first-hand. The threat it posed to the company was enough for Dahman to take a tougher stance against verbal contracts. "One thing the business has taught me is that even a written email confirmation is worth nothing. We would rather lose business than work based on verbal agreements. The first two years of our business was affected because we worked with people based on verbal agreements and we ended up looking like the bad guys when we asked for our dues."
Kilma Creative Studios is Dubai-based a production house that focuses on urban and electronic music. They offer artist management, as well as audio mastering and production, studio design consultancy and international artist booking services.
With the music industry in the UAE still in its infancy, however, no doubt a notable portion of it stills works on word-of-mouth and oral agreements. Instead of treading the risks of a verbal contract, Dahman not only makes signed contracts a prerequisite, he insists on having witnesses too.
"As a Muslim, a written, signed agreement (for any kind of commitment) with witnesses is a compulsory part of our religion. I apply this principle with every job we undertake just so there are no future problems. We lose a lot because of this, but the ones who sign, stay on for the long haul."
While Kilma employs a strict rule against verbal contracts, other companies continue to do business this way. Mom Souq Founder Mona Tavassoli, for example, says the website heavily relies on verbal agreements, but that these are mostly done with loyal clients and suppliers.
"All of our partnerships start out as verbal contracts. In some cases, we formalize them. In others, things move too fast and we find that we have finished a project successfully without even signing the MOUs. There are certain groups of suppliers and clients that we have long standing relationships with and a verbal contract is enough to get things going," she says.
Mom Souq is an online bazaar and community where families can share unwanted baby products with other parents, get parenting ideas and find bargain deals on baby items.
So are verbal contracts worth the risk for small businesses? Yes and no. Although it is ideal for you to operate only with written and signed contracts, not all situations allow you to be so diligent, especially when you are just starting out and would like to extend your clientele as much as possible. If you are finding yourself cornered by verbal agreements, only allow yourself to work in these circumstances with clients and suppliers with whom you've had previous contracts. Even then, have template contracts you can send at the ready. Don't worry about tainting relationships. Where you have no legal protection, business really is just that: business.
Zawya BusinessPulse 2013
