What is an Engagement Letter? Why is it Important?

POSTED APR 15, 2020

What is an Engagement Letter?

An engagement letter is a signed agreement that describes the relationship between the client and the company. The letter lists the scope of work, deadlines, support requirements, and fee arrangement. The letter should also include a brief but accurate description of the services to be delivered, terms and conditions, deadlines to be met, and the price. It’s a legally binding document that can be used in the court of law in case of a dispute.

Why are They Crucial?

Engagement letters are a business contract between a professional firm and its clients, but they also serve a bigger purpose.

Engagement Letters are Lawfully Binding

Whether you agree to a short-term project or a long relationship with the client, signing an engagement letter is always necessary. If it’s the latter, be sure to get the letter updated and signed annually by the client. This revamps the business relationship and reminds you and your clients of the scope of the agreement. If there are any conflicts, the engagement letter can serve its purpose and resolve those problems lawfully.

Anchor Expectations

Engagement letters establish a framework of services offered by you to your clients. This ensures transparency while letting your clients know what to expect from you. The letter needs to clearly state what services will be completed, how much it will cost, and the estimated date of completion. This keeps projects on track and also specifies how you will perform when additional work is expected.

Eliminate Mix-Ups

A good engagement letter eliminates assumptions and clearly states what to anticipate. Most client interactions are verbal, and the client might think you’ve agreed to certain services and expect you to perform them. But that's not the case. Once you put everything on paper and have your clients read and sign it, neither of you can expect a service or a payment that's not mentioned in the contract. If there’s a scenario where the client asks, "Why did you charge me extra?” or, “What’s this additional service charge?” you can hand them the engagement letter which explains the service and the total cost.

How to Craft the Perfect Engagement Letter?

A perfect engagement letter should have:

  • Client identity
  • Scope of services
  • Service period
  • Fee structure
  • Roles and responsibilities
  • Location-based standards
  • Terms and conditions
  • Confirmation signature

Fortunately, here at Archarina, we developed ArcELM as a simple yet intuitive tool. You can easily drag and drop terms and clauses into your engagement letter from hundreds of templates, which include the scope of every aspect of your business.

Avoid Mishaps

For many, engagement letters are time-consuming chores. With this specialized tool, you can save as much as 70% of the time it takes to do them on a spreadsheet. Choose the right tool that saves you time and money.

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