Terms of Trade
Areas to include
When drafting terms of trade for a standard seller of goods or services consider the following areas:
| Terms | Notes |
| The Parties | Clearly identify the legal entity you are contracting with |
| Goods and/or Services | An exact description of the nature of the goods and/or services is essential |
| Price | |
| Payment | Including whether the customer is liable for late payment or debt collection costs in the event of unpaid invoices |
| Delivery | |
| Risk and Insurance | |
| Reservation of Title | The Consumer Guarantees Act 1993 requires that for a reservation of title clause to be enforceable, it must be fully explained to the buyer and it is preferable for the buyer to acknowledge this in writing and to be given a copy |
| Installation | Specify the obligations on the buyer to provide suitable premises, accessibility, services and amenities |
| Limits on Liabilities | Give careful consideration to liabilities for defective products and a policy on refunds. Supplying goods and services to consumers prevents contracting out of the guarantees and remedies implied by the Consumer Guarantees Act. |
| However, supply of goods or services to businesses is open to parties agreeing in writing that the Act does not apply, allowing the parties to agree on liability | |
| Warranty | |
| Miscellaneous | For example, indemnity, credit checks, and so on |
Terms of trade differ from business to business and from industry to industry. Small businesses providing goods and services often want, and can fit terms of trade on an A4 sheet of paper. On the other hand, the terms of trade for more complex businesses can run to several pages in length.
Terms of trade are often printed on the reverse of invoices.
It is best that the customer signs acceptance of these terms before the goods or services are provided. If they do not sign acceptance of your terms, then they could later claim they did not know about them or agree to them. There are three areas in particular that you can only effectively enforce if the customer has agreed to them:
- Interest on overdue accounts: if you intend to charge interest on overdue accounts, then customers must be aware in advance of these possible penalties
- If unpaid invoices progress to debt collection and the debt collection agency charges collection costs which you would pass on to the debtor, customers must know about this when they buy (or order) the goods or services. You have the option to include this in your terms of trade or to clearly display notices about collection costs, print notices on credit application forms, or ask the customer to endorse their cheque so they agree to be liable for collection costs if it bounces. A suitable notice might say something like: ‘Unpaid accounts will incur late payment fees and collection costs’
Ownership of goods: the same applies to any clauses retaining ownership of the goods until they are paid for.
Our advice
Nowadays it is not sufficient for a company to simply post out terms of trade to its customers and expect them to be bound by them. The proper method of ensuring that customers are bound by terms of trade is to have them sign their acceptance. This is particularly important where directors or shareholders personally guarantee the performance of their company and where the provider of goods or services wants to be able to charge interest on unpaid monies.
Terms of trade are not generic documents and they are the subject of considerable litigation.
Give careful thought as to what terms of trade best suit your business. We’ve included some sample templates for various Terms of Trade Agreements just to get you started. An internet search will reveal companies that can provide readymade terms of trade documents.
However, you must understand that every business has different areas of exposure to risk, and very different needs as regards such an agreement. Your solicitor is the best person to draft a Terms of Trade Agreement suitable for your business, especially if there is any possibility of exposure to litigation through issues such as liability or warranty.
We are happy to go through the checklist and sample templates with you to identify the issues most relevant to you so that you can best instruct your legal advisor on your needs.