Inadequate trading terms, or terms that don’t apply because customers or suppliers saw them too late, are two of the biggest reasons why businesses don’t get paid by customers
Simply ensuring that you have clear trading terms, and that you have drawn them to your customer’s attention, helps to minimise debt collection problems. Key areas to consider include:
There may be other areas that are important in your particular circumstances. For example, your terms might need to protect your ownership of intellectual property. In some industries, it is standard practice to set out how any dispute will be dealt with (eg by binding arbitration).
But it’s no good having well-drafted trading terms if they don’t apply. You need to prove an offer was made to contract on your terms, and the offer was accepted.
So make sure your terms are in writing. If there’s nothing in writing there will still be a contract, but it will be difficult to prove what its terms were. Then make sure your procedures mean your customer agrees your terms before the contract comes into existence, and that you have evidence of this.
Ask all new customers to complete an account opening form which includes a copy of your terms and conditions, or sign a statement confirming that they have read and agree to your terms and conditions. Or post your terms of business where contracts are entered into (eg at your cash tills) and draw customers’ attention to them.
A common mistake is to put your terms and conditions only on invoices. This is not effective for new customers, as the invoice isn’t seen until after the contract has been agreed.
Sometimes you want to avoid being the person making the offer. This is an important protection if you are selling at a distance: for example, you are making sales from your website, or from a catalogue or other marketing literature.
Make it clear that putting details of your goods and services on your website or in your catalogue isn’t an offer to sell them. Instead, customers are offering to buy your goods and services when placing an order – you are not making an offer to sell. That means that if your goods and services have been wrongly priced, or misdescribed, you can refuse the offer and there is no contract.
Review your terms of business at least once a year, every time there is a change in trading law, and every time you introduce a new product or service, or a new means of promoting or delivering it.
If in doubt, take legal advice.
For further information on getting paid, see: