Engagement Letter

DEFINITION of 'Engagement Letter'

A written agreement to perform services in exchange for compensation. Engagement letters are traditionally used by certain professional service firms, particularly in the fields of finance, accounting, law and consulting to define the specifics of the business relationship. Normally, the letter is sent by the service firm to an officer of the engaging company. Once the officer has signed the engagement letter, the letter serves as a contract.

BREAKING DOWN 'Engagement Letter'

Since an engagement letter serves the same purposes as a traditional contract, it is important to carefully lay out the scope of the engagement, any contingencies that must be addressed, completion deadlines, and compensation arrangements. Ensuring that these details are correct at the outset helps to avoid costly misunderstandings later on in the assignment. Since an engagement letter is more informal by its nature, it can be a good way to establish a written agreement where the parties would otherwise be reluctant to enter into a full contract.



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