Every business has trading terms to regulate the way they deal with customers, but too often their lack of any formality and legal strength comes back to cost businesses unnecessarily.
As Prushka CEO, I deal with an increasing number of businesses that are unable to successfully collect money owed or are unnecessarily liable due to less than comprehensive trading terms.
If they are not in writing, then they will be interpreted by examining the dealings between the parties, which can become an issue of heresy.
You may not intend to sue your customers, but you need to be in a strong position in case you have to. Or worse, if they sue you.
It’s not just about having terms to ensure that you can legally collect money owed to your business, it’s also about clarifying the relationship between the parties and reducing risk.
Trading terms should be prepared by a lawyer experienced in commercial law and not be left up to the ‘office dabbler’.
To be effective, the terms must form part of your contract with the customer. Terms can’t be imposed by you later.
Accordingly, the best way to do this is to incorporate them in your quotations and billing material.
A good policy is to include your comprehensive trading terms on your website and specify in bold print on all communications to the customer, such as: ‘Please refer to our trading terms which are located at’ (put direct link to the terms on the website).
Essential trading terms should include the following:
- Clarify who the parties are.
- Limit liability for claims made against the business. For example, you may be in a labour hire company. If the employee fails at his task, you want to limit the claim on you to the invoice value and not be liable for what could be large losses suffered by your customer arising from the actions of that employee.
- Add penalties to overdue payment of invoices.
- If the debt is referred to a collection agency, be able to add their commission to the claim.
- If there are two or more customers, you want to make each of them totally liable for the claim.
- If the customer dies, you need to ensure that your claim continues against the estate.
Don’t be concerned that your customer will walk away if you try to impose what may look to be onerous conditions. The opposite will invariably be the case. The customer will respect your business because it operates in a commercial manner.
The thinking will be that ‘if they do things properly when dealing with customers then they will also carry out the task commercially and properly as well’.
Roger Mendelson is a lawyer, author and owner of debt collection company, Prushka.