The Importance of Terms of Trade
The importance of terms of trade
If you are in business, you should have written terms of trade to govern all aspects of the business-client relationship. This insight provides a brief overview as to key provisions that should be included in your terms of trade.
What are terms of trade?
Your terms of trade are a written document that will cover the terms and conditions that apply to the supply of goods and/or services for your clients and customers. There is no one size fits all approach, and your terms of trade should be carefully drafted to suit your business.
Terms of trade are important as this document will provide clarity as to the expectations and responsibilities for both parties, together with payment terms, processes for debt collection, and dispute resolutions mechanisms should any issues arise.
Key inclusions
We will explore a handful of key inclusions that are important to include in your terms of trade, as follows;
Payment terms
Delivery/performance
Dispute resolution
Termination
Other clauses
Payment Terms
A crucial aspect of any terms of trade are the payment terms. It is important these are clearly defined, to reduce the risk of payment-related conflicts, ensure fair compensation for services are rendered and there are no hidden surprises for clients.
If your company first provides quotes, you should think about the following: -
Quotes and deposits
How long are the quotes valid for?
What if the client accepts the quote, then cancels (include costs for scoping, preparing any documentation/plants, third party-costs).
Will you be obtaining a non-refundable deposit?
Timing
Time for payment – when will the funds be due? Should they be paid before the goods or services are supplied? Are they to be billed on a regular weekly or monthly basis? Or Immediately upon completion? Or on the 20th of the month following from the issue of the invoice?
Variations
Include scope for variations for the terms, such as additional costs for time/labour. You should ensure that any variations are agreed between you and your client in writing.
Penalties
Highlight any penalties that may be payable for late payments, inclusive of penalty interest payable should default occur.
Record that the client will be liable for costs, such as debt collection agency fees and legal fees. It is important to be able to keep track of your creditors for maintaining cash flow for your business.
Will you take any security for missed payments such as registering a Financing Statement on the Personal Property Securities Register (recording a claim to the goods?) If so, appropriate wording will need to be included in your terms of trade permitting you to do so.
Delivery/Performance
Timeframes
How long are the quotes valid for?
When will the goods or services be supplied? What happens in the event that there is a delay?
Risk
Provision should be included for risk in goods passes on delivery and ownership passes once you have received full payment.
Dispute Resolution
Your terms of trade should set out what should happen in the event that there is a dispute regarding the goods or services, or if one party has breached the terms of trade. A process should be included setting out how you deal with conflicts between you and your client and the timeframes for working through these processes.
Termination
You should include a termination provision to outline how you, or your client can terminate the contract. Include specifics such as the notice period required, the method of cancellation and the consequences of cancellation, such as payment for work partially completed.
If you are wanting to discuss your terms of trade or are interested in drafting new terms of trade for your company, please contact us on 03 379 3880 to find out how our Commercial team can assist.
