ADVOCATE COLUMN 4th WEEK FEBRUARY 2018
It still surprises me how often we are approached at the Chamber by business owners who are experiencing difficulties recovering payments and where they do not have any clear terms of trade outlining the contractual relationship between both parties. One of the most useful ‘front end’ tools for businesses is having effective processes and procedures for engaging the client or customer.
This is achieved through Terms of Trade, also known as Conditions of Sale. These set out the essential conditions under which the parties will do business a help protect the rights of the business selling goods or providing services. In other words what do the two parties intend and agree to at the time the goods or services are purchased.
They clarify the rights and obligations of the parties, and create certainty between the buyer and seller. Customers appreciate this clarity and certainty. This has a positive aspect in reducing the potential for misunderstandings and disputes to arise. A significant amount of time and money can be wasted in dealing with a dispute, not to mention the damage that can be done to the reputation of the business by a disgruntled customer. By adopting standard Terms, a business can create consistency of arrangements across its customer base. This will help improve the efficiency of the business administration and help with debtor control. Terms can also be used to limit potential liabilities and provide some degree of security for recovery of debt following the supply of goods or services.
Some businesses have regular customers to whom they supply goods and/or services on a regular and on-going basis. It is not necessary to have separate Terms signed off for every transaction with that customer. They can be modified to reflect that they apply to all transactions between the parties. There are certain essential matters that should be addressed, irrespective of the size or nature of the business. They should also contain clear and unambiguous statements about when and how payment is to be made, outline arrangements regarding prompt payment discounts and the charging of interest on late payments.
The preparation of Terms requires a significant degree of legal expertise. Where this expertise is not used there are real risks that the business may fall into one of the many pitfalls in this area. Terms of Trade are a vital risk management tool; they facilitate effective interactions and positive experiences between the business and its customers leading to growth of the business.