Creating and Applying Watertight Terms
How often have you heard that people do business on a handshake? It’s not a noble gesture to do this. In the worst case scenario, it can be catastrophic.
Terms of Trade exist to help you in the event of a problem. It ensures that both parties know what is expected of them to avoid disputes and to provide remedies should something derail.
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Making sure that your terms are watertight is vital. Don’t hesitate to get your lawyer on the case to give them a thorough vetting. Here are some standard areas to consider incorporating into your terms:
- Definitions (e.g. “buyer”, “seller”)
- Quality
- Price
- Quotations
- Delivery/date/arrangements
- Risk and property/retention of title
- Terms of payment
- Time limit for raising disputes
- Right to interest and compensation for debt recovery costs
- Loss or damage in transit
- Acceptance of goods
- Variations to contract
- Patent rights/indemnity
- Force majeure
- Jurisdiction/applicable law
- Assignment and subletting of contract
- Right to progress and inspect goods
- Warranties and liability
- Severability
- Insolvency and bankruptcy
Keep Repeating Yourself
Agreeing your terms at the outset of a trading relationship is only the beginning. The next step is to consistently reference them in your dealings with customers. Incorporate them into your credit application form. Draw them to the customer’s attention on every quote and proposal.
‘Battle of Forms’
When a customer tries to impose their own terms on to you it can get very confusing. Which set of terms prevails? English contract law has a principle called the ‘Battle of Forms’. This basically states that the party that presents their terms last in the transactional process prevails. So even though your terms may have been presented at the quote stage, add them to the order acknowledgement after you have received the customer’s purchase order.
Communicate Change
If you need to make a change to your terms be similarly robust in communicating that change to your customers. Make sure they formally acknowledge the change and keep reinforcing it by sending your terms through the transactional process as you have done.
Don’t Be Shy
No one likes conflict in business and there are many times when we may like to avoid it, or not do something for an easier life. Making sure your terms are watertight and in place is vital in ensuring that every sale is paid for, on time. Be firm and polite. It’s not rude. It’s just good business practice.