A ‘terms of trade’ is a legal document setting out the terms on which the business will provide goods or services.  Having a well written terms of trade is one of the most important investments you will ever make in your business. It can benefit your business in many ways, including by helping your business: get paid more money; get paid on time; reduce the risk of getting sued; and develop stronger and better relationships with customers.

Read on to find out more about what terms of trade are and why your business needs one.

What are they?

Terms of trade sets out the terms on which your business will provide goods or services to a customer.  It is important to provide a copy of your business terms of trade to your customer before providing the goods and services.  It is best to provide the document as early in the relationship as possible – eg when providing an initial quote, or during an initial consultation. 

Do I need one?

You can sell products or services to a customer without a terms of trade.  But, doing so is very risky. 

Here are just a few ways in which a terms of trade agreement can benefit your business:

1.    Protect your business

Terms of trade help to prevent misunderstandings between your business and its customers, such as what they get in exchange for their payments and who bears the risk when something goes wrong.  If your business does not have a terms of trade misunderstandings are more likely to occur, and are also more likely to result in costly and time-consuming legal disputes.  If your business is sued or tries to sue a customer, your business will have more difficulty proving what the terms of your agreement with the customer was and winning the case.

Terms of trade also typically include several clauses that will protect your business if something does go wrong, and reduce the risk of your business being sued – eg indemnities, liability limitations and releases.

2.    Protect your customer relationships

Terms of trade ensure that both your business and its customers understand their respective rights and obligations from the very beginning.  This will help your business manage customer expectations, build stronger relationships, and avoid any unnecessary disagreements.

3.    Improve your cash flow

Including clear and specific payment conditions into a terms of trade is a great way to both improve and protect your business cash flow.  The payment terms should clearly specify the price of the products or services, how and when such payments need to be made, as well as any consequences of failing to pay on time.

By making sure the customer understands their payment obligations from the very beginning, your business has a better chance of being paid time and in full and is in a much stronger position to pursue late payments and manage unreliable customers.  

4.    Put the odds in your favour

As mentioned, terms of trade set out the terms on which products and services are provided.  If your business has a robust terms of trade to provide to its customers, your business can set the tone of the relationship and make sure that the terms on which it is doing business are as favourable as possible. 

As the owner of the business, you will have peace of mind knowing that you fully understand and agree with the conditions of your business’ arrangement with its customers and that those terms will work in favour of your business if something goes wrong.

What should terms of trade include?

Every business is unique.  The terms that should be in included in a terms of trade will depend on the unique situation of that business.  That said, a robust terms of trade document should include at least the following terms:

• A clear and detailed description of the goods and/or services, and how these are to be provided.

• Clear payment terms, such as the agreed fees as well both the method and timing of payments.

• Who owns any intellectual property used or created during the term.

• Refunds policy (and this must comply with the Australian Consumer Law).

• Protective clauses (eg indemnities and limitation of liability terms).  

• Processes for handling disputes.

• Methods of terminating the agreement.

A well-drafted terms of trade that is tailored to your business needs is one of the best investments you can make in your business.If you would like to find out more about how this legal document can benefit your business, call us on 02 9199 4563 or click here to book in a free consultation.

This blog post does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to you. Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.