BUSINESS RESOURCES

WHY TERMS OF TRADE ARE ESSENTIAL FOR EVERY BUSINESS

Every business has customers so every business should have terms of trade that govern the relationship with customers. Terms of trade will make the scope of your relationship with your customers clear and help to avoid arguments and give you tools to more effectively pursue late debtors and limit your liability.

What are terms of Trade?
Terms of trade are the provisions in your contract with your customer. You will always have some form of contract with your customer even if it is an oral, unwritten contract to supply goods and/or services. You should always have a written contract with each of your customers though so that the terms of the contract are clear and certain.

What should be in your Terms of Trade?
The terms of trade for your business need to cover all relevant aspects relating to the supply of goods/services to your customer including for example:

  • What goods/services you are actually supplying ?
  • How the price for those goods/services is determined.
  • If you are delivering goods/services then the timing of delivery and what happens if delivery is not made on the due date.
  • The timing of payment of the price.
  • What happens if the price is not paid on time.
  • What warranties you are providing in relation to your goods/services.
  • Whether you are limiting your liability in any way e.g. excluding liability for certain events such as consequential loss or including a maximum limit on your liability.

Terms of trade are especially important for chasing debtors and maintaining cashflow for your business. This is because your terms of trade set out when you are to be paid and the consequences if payment is not made on time.

The terms of trade must relate to how your business operates and the issues faced by your business. This means you cannot just copy the terms of trade of another business. Terms of trade must be tailored to suit your business.

Supplying Consumers and Unfair Contract Terms
If you are supplying goods/services to consumers and use a standard form contract then it is likely that the Unfair Contract Terms regime in the Fair Trading Act 1986 will apply. If the regime does apply then you must ensure your terms are not unfair otherwise they will be unenforceable.

For a term to be ‘unfair’ three requirements have to be met:

  • The term must cause a significant imbalance between the parties.
  • The term must not be reasonably necessary to protect the legitimate interests of the business; and
  • The term causes detriment.

The court will consider all relevant circumstances to determine if the three requirements are met in relation to a term making it unfair. Some examples of a potentially unfair term is a term that permits only one party to avoid or terminate a contract, to vary or renew a contract or a term that limits one party’s right to sue another party.

Terms of Trade must be agreed to by your Customer
For your terms of trade to form part of the contract between you and your customer, the customer must agree to the terms. The customer’s agreement to the terms can be carried out in a number of ways:

  • The customer may sign a copy of the terms of trade.
  • The customer may sign an order form which states that terms of trade attached are agreed and form part of the contract.
  • The customer orders online and ticks a box to confirm they have read and agree to the terms of trade.

Why Terms of Trade are Essential
Terms of trade are an essential tool for every business since they set out in writing the terms of how you will do business with your customers. Since terms of trade are so important you must ensure that your terms suit your business and are carefully prepared. Time and money spent on your terms of trade is a wise investment given that you will use the terms in every transaction with every customer.

Contact the team at Blackwells to assist you with drafting terms of trade to suit your business.