Get your business a competitive edge with the right terms of trade
What are terms of trade and why are they important?
Terms of trade are ‘just what they say on the box’; they are the terms of the contract between a seller of goods or services and the buyer. Terms of trade are used in all types of business and in all industries, ranging from retail sales to trade services to manufacturing and wholesaling. If you are, say for example a builder; you will likely enter into terms of trade with your suppliers, with the people you are building for, and potentially with subcontractors. Each of the agreements with these parties are the terms upon which you are trading with them.
To make sure both the buyer and seller are on the same page about what the terms of business are, it is important that they are clearly stated in writing and given to the buyer at the very start of the trade, before a commitment to purchase is made, to ensure that they are enforceable.
What should be in my terms of trade?
Terms of trade vary from industry to industry, so there is no one size fits all. While they will all address when and how payment is required for goods or services, and remedies for default in payment, they differ largely in terms depending upon the goods or services being sold and factors such as whether the Consumer Guarantees Act applies, whether certain minimum legal requirements apply (eg. tradesman contracts for work and materials to which the Construction Contracts Act applies), and many other factors.
Having said that, common terms included in terms of trade are:
- Who the parties involved are
- The goods or services to be provided (as specifically as possible)
- The price (and any possible variations to it), and whether it is a fixed quote or just an estimate
- Payment terms (eg. within 14 days or 20th of the following month, and how payment is to be made)
- Where credit is involved, a personal guarantee, retention of title over goods supplied and possibly a security interest from the customer under the Personal Property Securities Act
- Default interest, suspension of delivery and recovery of debt collections costs;
- In the case of sale of goods/services to a business, contracting out of the Consumer Guarantees Act
- Delivery times, delays and delivery costs (and who pays) and insurance in transit;
- When does the buyer become the owner, and at what point does the risk for the goods pass to the owner?
- Exclusion of certain types of liability (eg. economic and consequential loss) and limitation of liability (eg. limiting liability for faulty goods/services to a specified proportion of the price)
- Customer privacy waiver to authorise you to conduct a credit check
- Who is to own the copyright in any works that you produce in carrying out the contracted works
Ideally the terms will fit on one A4 page so that they can be placed on the back of an order form.
Why are terms of trade important?
The value of good terms of trade sometimes only becomes apparent when things go wrong. But as the saying goes; hope for the best and plan for the worst. Disputes often arise that could have been avoided if there had been clear, written terms of trade from the start.
And often if a business does have terms of trade, they unknowingly are not legally enforceable because they have not been effectively included in contracts with customers, and therefore do not bind the customer. Their terms of trade may be printed in, or on the back of, an invoice. But legally the contract with the customer has been formed well before the date of invoice, so the terms printed on the invoice are unenforceable and cannot be relied upon. This unenforceablity may only come to light when the business owner seeks to recover an overdue debt from a customer, but by then it’s too late.
Terms of trade can be crucial to your business as they greatly affect your contractual obligations, payment terms, debt collection, liability exposure and other fundamental factors which can influence whether your business succeeds or fails. They can greatly add to your business’s competitive advantage. And it’s always better to be ahead of the pack.
Get your terms of trade in top shape now
If you are concerned that your terms of trade may not be up to scratch, get in touch with Movest before things come unstuck.
- Review your existing terms of trade or procedures to ensure they provide you with the best possible protection and tell you how to make sure your terms of business are legally enforceable; or
- Advise you on what protections you need and create terms of trade appropriate to your business.
Basically, by being proactive with your terms of business you can save your business money, maximise debt collections and save yourself a lot of headaches.
WANT TO KNOW MORE?
Contact Movest for specialist professional advice from a quality lawyer.