5 practical reasons you need ‘Terms & Conditions’ in place before you trade?

It’s heartening to see how many people are finding opportunities to do business during COVID-19.  Factories are being re-tooled and smaller (sometimes first-time) entrepreneurs have been able to source scarce goods and become new participants in supply chains.

However, in their enthusiasm, these new players mustn’t forget to ensure they have in place a written agreement or terms and conditions with their customers.  Failure to put in a place a standard form agreement is a missed opportunity to proactively choose the terms on which you do business – and most importantly, limit your liability if things go wrong.

There are five key things your terms and conditions must do:

1. Know who you are dealing with

Find out who the customer is.  It’s important that the correct person or legal entity is named as a party to the agreement or on your invoice.  It’s easy to make a mistake and errors can arise in a number of ways – you may refer to a non-existent or dormant company; misidentify the contracting individual or entity; or refer to a business name rather than the holder of that business name.

If you have incorrectly identified your customer, your ability to enforce the agreement, and most importantly get paid, may be compromised.

2. Be clear about what you will supply

Your terms and conditions must contain an accurate description of the goods and/or services being provided and whether goods can be substituted, and services varied.  Getting this clause right will ensure both parties are clear about the nature of the goods or scope of the services being provided, and when they will be delivered.

This will avoid disputes later on about failure to deliver what was expected.

3. Get paid

Cashflow is important to all businesses.  If you don’t have a written agreement, your ability to recover payment will be impacted.

Your terms and conditions must identify how and when you must be paid, whether GST or other taxes are included, in what situations a deposit will be refunded and whether there are any consequences for late payment that give you the ability to on-charge interest and recover the legal costs of collecting outstanding invoices.

Having formal terms and conditions in place will also allow you to register a security interest in the goods you supply on credit, or take a lien over the outcome from your efforts.

4. Limit your liability

Your terms and conditions must limit your liability for any damage or loss caused to your customer as a result of a breach by you.  This is important because not all types of damages can be covered by insurance.  You should exclude warranties that may be otherwise implied by law and limit your liability to an amount you can afford to pay, or to the amount of your insurance.  This avoids ‘betting the farm’ each time you sell goods or provide services.

Importantly, you must disclaim responsibility for things you cannot reasonably afford to control – pandemic, anyone?

5. Prepare for the end

You need to consider in what circumstances you would like to see the agreement terminated or ended.  What sort of notice is required and what are the consequences of the termination?  Which contract terms survive termination of the agreement (e.g. IP, confidentiality, etc)?  What, if any, are the dispute resolution procedures?

These clauses need to be drafted with an eye to the requirements of our Consumer Law that prohibits unfair or unreasonable termination clauses in contracts.

How we can help

Well drafted terms and conditions have an important role to play when it comes to everyone understanding their rights and responsibilities.  One size does not fit all.  Avoid the temptation to copy someone else’s terms as their business may not be the same as yours and they may not have consulted a lawyer when preparing their legal documents.

Get us involved to efficiently and cost-effectively prepare terms and conditions for your business that are comprehensive and defensive.  Call us on 1300 654 590.

The information contained in this post is current at the date of publishing – 20 April 2020

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