Without terms of trade, disputes over late or unpaid bills become difficult to manage. By clarifying your terms to your customers you are establishing a sound basis for managing the credit relationship. It is clearly better to establish agreement from the start – not when they owe you money. This way both parties are protected.
If you run a straightforward business in a well-established industry then you may be able to copy or adapt from similar businesses the terms of trade commonly used in the industry. However, if your business is more complicated, there is a greater need to get the terms of trade correct. If your business involves large transactions or if you are an exporter, then you will likely need terms of trade closely tailored to your particular needs.
No matter what your business is, it is advisable to get legal advice and to make sure that your terms of trade are practical, inclusive and binding.
A lawyer can advise you on what you need to include, such as:
- Payment terms (including delivery costs) and penalties for late payments.
- Claims and time limits for return of goods.
- Any other issues affecting your particular business.
- A suitably worded clause that clarifies when the goods actually become the property of the customer.
Terms of trade are not one-sided, a contract can be cancelled if the trader has given the customer misleading information or does not deliver the goods as agreed. It is therefore important that you fulfil your side of the agreement.
Business is often a balancing act, between the need for inclusiveness and the need for simplicity. It is important to remember that you are trying to gain customers, and that it would be advisable to keep the language simple and short and not too complex for the customers, as that may be off-putting.
Under contract law your terms of trade only become binding upon the customer if the customer accepts the terms. Credit contracts need to be in writing as you need a signature. If purchasing via the internet, then by clicking on the ‘I accept these terms and conditions’ button to access a website, you have agreed to the terms of trade.
Terms of trade are essential in credit management. There are four parts:
- Checking potential customers;
- Settling terms of trade;
- Securing your payment;
- Ensuring you get paid.
The best way to avoid disputes and unpaid debts is to establish some standard procedures for checking on the creditworthiness of customers. Whether you deal with consumers or with other businesses this will typically involve asking them to fill in a credit application form and then doing some checks.
We recommend that you discuss your terms of trade with us, and we can help develop terms that will offer you the best possible protection.
In some circumstances you may have delayed payment, and you can secure your payment by way of registering an interest over the goods through the Personal Property Securities Register – ask us for more details.
Your terms of trade will be ineffective if they are not enforced. Customers are likely to take their lead from the way you enforce your terms of trade, and how well you manage your debt collection process.