One of the best ways to protect your business and ensure you get paid is to have well prepared, clear and concise ‘Terms of Trade’ between your business and those with whom your business transacts.
Many businesses supply goods and services on the basis of informal arrangements, and often disputes arise that could have been avoided if there had been clear, written terms of trade from the start.
In particular, having clear terms of trade is an excellent way of minimising and preventing bad debt.
What should be included in the terms of trade?
The terms of trade should include the following matters:
The other party
The legal entity you are contracting with should be clearly identified (for example, is it a company or an individual person?)
The goods or services
What is the exact nature of the goods and/or services to be provided?
Is the price you state fixed or can it be varied (for instance, because of changes in the cost of inputs to the goods or services supplied)? Does the price include or exclude GST and any other taxes or duties? Is the price a firm quote or only an estimate?
Acceptance of quote
If a quote is given, how long is the quote open for acceptance?
Is the price payable “cash on delivery”, or will you give credit? What is the interest rate and other terms on which you are giving any credit?
Is a guarantee required if you are giving credit? This may be necessary when you are dealing with a company rather than an individual.
Where and when will the goods be delivered? How will delivery be made? Who pays for delivery costs? Risk and insurance At what time does risk in the goods pass to the buyer? Is insurance required, and who will pay for it?
Reservation of title
Does ownership of the goods pass to the buyer when the goods are delivered, or do you, the seller, retain ownership until you’ve received full payment (called a “reservation of title” clause, or a “Romalpa” clause)?
If you are to install the goods, what are the obligations on the buyer to provide suitable premises, necessary services and amenities, and so on?
Delay by the seller
Are you liable for any delay in delivering or installing goods, or in supplying services?
Are you warranting to repair any defects in materials or quality of work? If so, for what period are you giving the warranty and what are the legal limitations on the obligations under the warranty?
Make sure the other party signs the terms of trade
If you have written terms of trade, it is important that the other party be made aware of them and agree to them. The best way to do this is by getting the other party to sign the terms of trade before the goods or services are provided.
When standard terms of trade are not suitable
Standard terms of trade won’t be suitable in all cases. For example, if you have a complex arrangement that will include matters not covered by your terms of trade, you will need to draw up a specific contract for that arrangement.
If your terms of trade are inadequate it can be very difficult to successfully pursue or prevent bad debt, and therefore you should obtain advice from us in drafting them. We will also be able to advise you about the exact procedure you should follow in entering into contracts.
This will ensure that you are in the best legal position to prevent and minimise bad debt. Call us now on 8276 7955 if you have any issues.