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
What to include in your trading terms
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:
- Specifying when payment will be due, what interest will be due on late payments, and so on.
- Making sure you can recover as many of the collection and litigation costs as possible, if you aren’t paid.
- Limiting your liability if you are unable to supply the goods.
- Explaining what will happen if only part of an order is delivered, or if a delivery contains faulty products.
- Stating that you retain ownership of goods until payment has been received.
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 arbitration). You can include an alternative dispute resolution clause (to avoid going to court) in any contract.
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Your terms must apply
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.
- 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.
- 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.
- If you are supplying information online, have a separate 'pop up' page with your terms and conditions that has to be scrolled to the bottom of for a customer to accept.
- 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.
Control who’s offering and who’s accepting
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, if 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 trading terms regularly
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.