Lucy Doherty

Terms of Trade set out the essential terms and conditions on which parties do business. When businesses supply goods and services on the basis of informal arrangements, this leaves the door open for disputes to arise that could have been avoided if there had been clear, written Terms of Trade in place.

Terms of Trade are primarily designed to protect the rights of the business selling goods or providing services. Importantly, Terms of Trade can be used to limit potential liabilities of the business and provide a degree of security for the recovery of debt following the supply of goods or services.

The more tailored the Terms of Trade are to your business, the more effective they will be at providing protection from risks specific to your business. However, there are certain fundamental matters that should be covered in any Terms of Trade, regardless of the size of your business or the nature of the goods and/or services being provided. These matters include:

• The Goods and/or Services: A precise description of the goods and/or services to be provided.
• Estimates, Quotes, Orders and Acceptance: Clauses that prescribe the treatment of estimates and quotes (if applicable), and how orders are placed. There should also be a clear statement confirming that placement of an order amounts to acceptance of the Terms of Trade and creates a binding contract. This is important because, in order to be effective, the customer must be made aware of your Terms of Trade and agree to them before the goods and/or services are provided.
• Delivery: Clauses confirming where and when the goods will be delivered and/or the services will be performed.
• Price and Payment: Clear statements about the price of the goods and/or services, when and how payments are to be made, and whether the business has the right to charge interest on late payments. The Terms of Trade should also allow you to recover your costs of pursuing any unpaid debt from a customer. It is important to note that the rights to charge default interest and pass on debt recovery costs will not be enforceable if not stated in the Terms of Trade or at the time of the contract being signed.
• Ownership/Reservation of Title: Clauses that specify the point at which ownership passes from your business to the customer. It is in your interest to ensure that ownership in the goods is retained until payment in full is made for the goods (particularly where the cost of the goods is significant).  If the customer takes possession of the goods before paying for them in full, businesses will often go a step further and take a registered charge over the goods until payment is made. The Personal Property Securities Act 1999 (PPSA) applies to the creation of these charges and the Terms of Trade will need to be drafted with the requirements of the PPSA in mind. The Terms of Trade should also state whether you have rights to enter the customer’s premises to recover goods (and where applicable, the proceeds of the goods) if the customer doesn’t pay.
• Risk and Insurance: Clauses setting out when risk in the goods passes to the customer (usually when the customer takes possession), whether insurance is required (for example, to cover goods while in transit or installation of goods) and, if so, who is responsible for taking out such insurance.
• Guarantees: If the customer is a company, it is worth considering whether to obtain guarantees from the directors and/or shareholders. Often small or newly formed companies don’t hold significant assets, meaning the risk of non-payment is increased. Under a guarantee, the directors/shareholders will be personally liable for the debts incurred by the company, and you will be able to pursue them directly for payment.
• Liability: Clauses setting out the extent of your liability if there is a problem, and whether liability for defective goods is excluded or limited? If you are supplying goods or services to consumers, you cannot contract out of the guarantees and remedies implied by the Consumer Guarantees Act 1993 (CGA). However, if the goods or services are acquired for a business the parties may agree in writing that the CGA does not apply and that liability is limited to, say, the price of the goods and/or services being supplied.
• Delay: Clauses confirming whether your business will be liable for any delay in delivering goods or supplying services.
• Warranty: Clear statements confirming whether any warranties are being provided (for example to repair or replace defective goods or services). If warranties are being given, the Terms of Trade should clarify the scope of the warranty, the warranty period and any limitations on the customer’s ability to obtain the benefit of the warranty (for example using goods other than in accordance with manufacturer’s instructions).
• Applicable Law: A clause which confirms the law that will apply to the supply of goods and/or services can be important, given the increasing use of the internet by customers to obtain goods and services.

These are just some of the key features likely to be required in effective Terms of Trade. Once clear Terms of Trade are established, they should be incorporated into all of your business transactions for the supply of goods and/or services.

Please contact us if you would like advice about Terms of Trade for your business.

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