Engagement Letter

When it comes to professional interaction, it’s always advisable to formalize even the short-term relationship. Such a legal document usually protects parties against unscrupulous actions on both sides and ensures productive cooperation. That is why sparing extra ten minutes for crafting an engagement letter is a wise business decision in any professional setting.

What Are Engagement Letters?

An engagement letter is a legal document that binds two parties, usually professional service providers and their clients. This document provides the framework in which the client-business relationship works. It also establishes the scope of work that the professional is obliged to provide and the size and schedule of payment the client is to pay.

An engagement letter is frequently used to formalize the services of attorneys, real estate agents, or CPAs and enforce the client to pay fees upon completing the agreement. The engagement letter templates usually consist of such details as information about the parties, a clearly defined scope of tasks, requirements and obligations of both parties, fee amounts, and the period of validity of the document.

When to Use an Engagement Letter

This legally-binding document is conducted by the client who seeks professional advice in a respective field. In most cases, it plays the role of a traditional contract between two parties. An engagement letter, in its essence, is less formal than a proper agreement as it stays away from jargon. Still, such a contract remains legal and can be used during disputes.

Any individual is encouraged to utilize an engagement letter for any type of engagement, particularly if it is entangled with any professional services.

Although an engagement letter is usually associated with such business professional services as liability insurance, audit, accountant and investment consultancy, and attorney, the scope of engagement letters is not limited. Several engagement letter types are frequently used for specific circumstances. The following engagement letters are among the most widely-used ones.

  • Accountant (CPA) / Bookkeeper Engagement Letters

This document is usually offered by a CPA firm or a professional that performs tax, audit, or other bookkeeping duties on behalf of a client.

  • Attorney Engagement Letters

These engagement letters are used for various services performed by legal experts with a strictly defined scope of responsibilities.

Creating a new engagement letter is required when the scope of services is altered. A legally-binding engagement letter is a tool that CPAs and other service providers should use in all cases as it safeguards them from getting sued in case of unpredicted events.

Why Is It Beneficial to Use an Engagement Letter?

Conducting an engagement letter is not only a matter of good business ethics. Using the contract enables setting limitations of an entity or other parties to deliver out-of-usual services.

Although even a well-crafted and thought-through engagement letter can’t provide a hundred-percent guarantee of resolving any disputes and freedom from litigation, it’s much a safer option than going without any engagement at all as it is a legally binding document. The convincing reasons to go for an engagement letter are as follows:

  • Having a clear layout of obligations and services prescribed to an executor diminishes the number of misunderstandings and quarrels that may arise during the cooperation period and ensures a healthy relationship.
  • Having written and mutually concerted terms and conditions help to set boundaries for both parties. Moreover, it is possible to avoid scope creep with a well-established engagement letter. The engagement letter may also include any possible future services not included in the current contract.
  • For clients, an engagement letter offers certainty in the professional services to be provided, their size, and schedule. The fee structure for all due services and contingencies is listed and predefined in the contract. If the engagement entails a non-disclosure agreement, correctly identify this in the engagement letter.
  • Mitigate the risks with a written contract, such as undefined professional liability insurance for a loss during unexpected events. In this manner, the firm can protect itself against any claims in court.

What Information Should Engagement Letters Include?

The contents are usually similar to most engagement letters across all professional services. Thus you can freely use a basic template for completing it. You can find a sample engagement letter on our website. The general engagement letter has the following obligatory components.

Introductory clause

The first section is usually dedicated to introducing the parties engaged in business relationships. Both receiver and recipient can be a private individual, group, or entity, and it’s required to state this part clearly.

Services to be provided

Provide extensive information regarding the scope of services you offer to the client and its limitations. This way, you will be able to set boundaries against clients’ set expectations and protect yourself from scope creep. Keep the list very precise and descriptive.


The engagement letter is limited and has its start and due date. Besides, you’re encouraged to provide the expected service delivery dates if specified.

Fee arrangement and billing type

The document must clearly state the payment amount for services and the recurring amount. The good-established agreement will consist of the fee summary for the agreed services and the additional fees for extra services.

The engagement letter also allows clauses to describe the awaited implications for a late fee or agreement termination.

Client’s obligations

Usually, clients must provide a piece of personal information, for example, accounting records or financial information, for the service provider to fulfill the services. In this case, the engagement letter may list down expected actions from the client.

Client’s signature

To confirm that both parties are aware of and agree to the terms stated in the letter, the document must be signed by both a client and a contractor.

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Download your fillable Engagement Letter template in PDF.

How to Fill Out an Engagement Letter Form?

If you still have questions regarding completing this form, this simple manual will guide you through each step.

Step 1. Specify the date of the letter

First, state the date when the letter is prepared.

Step 2. Identify the sender

Clarify the contact information of a recipient. This address will be used to send out invoices or notice for iterations to a contract.

Step 3. Introduce the parties

Clarify the participants of the agreement, namely the client (company or private party) and the service provider, who plays the role of a client, and who is a service provider.

Step 4. Define the start and end dates

State what are the commencement and closure dates of the agreement.

Step 5. Describe the services

Define the scope of services the service provider is to provide upon the agreement.

Step 6. Specify the termination terms

Determine the plan of action if any party decides to end the agreement before the due date. Define the number of days required to send a notice.

Step 7. Describe the compensation structure

Specify what a preferable type of payment for the services is. The provider may be paid hourly or for the entire project. If the parties’ negotiated terms of compensation are specific, be sure to indicate it in the letter. Add the retainer amount if applicable.

Step 8. Add the payment terms

Clearly describe the way the payment is to be delivered to a contractor. The payment may be issued upon the invoice from a provider or for completing specific tasks.

Step 9. Indicate the insurance clause

Optionally, the service provider may require insurance. Clarify if proof of insurance is required from a client.

Step 10. Add the client’s and provider’s signatures

Lastly, both parties must sign the document. Provide the print name of the representatives on both sides and the title if needed.

Frequently Asked Questions

Below are listed some of the most common questions related to the topic of an engagement letter.

When to use a retainer?

Retainer or the down payment is an amount of money the client pays in advance to show their commitment to cooperation. Include the sum of the retainer in the engagement letter to secure that the client won’t change their mind.

What period is the engagement letter conducted for?

Usually, the commencement and end date of engagement letters are both stated in the documents. The professional firm will offer a client an annual agreement for most long-term engagements.

However, if the services are more likely to be unaltered for a more extended period of time, it’s possible to conduct an evergreen agreement with an open closure date. Thus the contract remains in action until any parties express their will to terminate the engagement.

What is a terms-and-conditions addendum?

It is usually a firmwide set of terms and conditions attached to any engagement letter within a firm. It covers all general terms on behalf of the service provider, including payment due, termination, liability, and dispute resolution.

Published: Jun 23, 2022