Are your Terms & Conditions fit for purpose? Stephanie Creasey explains why it's just good business sense to regularly review and update them
STEPHANIE CREASEY >
PartnerTue 6 March 2018
Keeping on good terms
When was the last time you looked at your terms and conditions? More importantly, do you have a set of terms and conditions which you issue to your customers/suppliers and if so, do you know if they are fit for purpose and will protect you should the situation arise and you need to enforce them?
Would you rather spend a few £’00s on getting suitable documents in place to protect your interests at the outset or risk losing potentially £’000s or more in unpaid invoices, recovering goods in insolvency situations or having to pay out additional legal fees which are likely to be incurred when things turn sour and you are involved in a dispute?
The preparation or revision of a business’ standard terms requires significant input from the business itself to ensure that the terms correctly reflect its commercial dealings and the business’s sales process such as payment terms or how delivery is to be effected, or even to properly set out the technical specifications of goods or services to be provided for the avoidance of doubt.
Many businesses do not have suitable terms and conditions to protect their interests against suppliers and customers, and more shockingly some businesses do not have any terms and conditions at all. Here’s why you should carry out a review of your terms and conditions now and, if you don’t have any, you may want to reconsider this position.
You have worked hard to set up your business, develop a product or service that people want to buy, and have built up a decent customer base. Then you find that your customer has got into difficulties or won’t pay and you need to enforce the terms agreed between you, but you have nothing to rely on and it becomes a dispute.
Put simply, if you don’t have a set of suitable terms and conditions, your business is at risk of uncertainty and potential disputes where there is a misunderstanding as to what has been agreed between the parties. Although contracts can be written or oral, it is much more difficult to prove what has been agreed if there is nothing written down and should a business find itself in court trying to recover a debt, the fact that you can provide a copy of your terms is a good evidential starting point.
As recent news stories have shown, even high street names can fail and you could find yourself in a position where you need to protect your business against losses where goods or services have been supplied but not paid for. The latest figures report that around 30,000 businesses in the UK are at risk of failing, not all of them small, and in this situation it is crucial for all businesses to ensure that their terms and conditions are going to give the appropriate protection from financial loss and to recover their goods where sold but unpaid for.
Enhanced customer relationships
Terms and conditions, when drafted properly, will give clarity to the parties and will set out exactly what will happens in certain situations e.g. if things go wrong, if one party wants to end the relations for any reason, there is a lack of payment or things just don’t work out, and can help reduce tensions and disagreements in what is likely to be a stressful situation for one or both parties, possibly even maintaining relationships which would otherwise turn sour. This could be your biggest customer or a key supplier.
Many clients and customers like to know upfront how much you are going to charge them for the service you provide or how much goods are going to cost to buy, when payment is needed and how any concerns might be addressed. A clear set of terms will help to alleviate these concerns by reducing uncertainty and any reluctance to discuss issues such as what happens if payment is not made on time.
If you have a set of terms and conditions which you use already, well done. But do you know if they are being properly incorporated into your contractual arrangements? Simply printing them on the back of an invoice will not suffice and you need to draw the customer’s attention to your terms in order that they will apply, including highlighting any unusual or onerous terms. The simplest way of achieving this is to state, at the earliest possible opportunity, in all documentation and correspondence so far as possible that your business’s standard terms will apply. If your terms change during the contractual relationship, you will need to ensure that you provide an updated copy to all those you contract with, even long-standing customers, to ensure that those terms will apply going forwards.
Interest on late payment of invoices
A good set of terms will assist with cashflow by ensuring all parties are clear as to their payment obligations and the consequences of not paying on time. Quite simply, if you do not specify in your terms that interest will accrue on any late payments, you will have no rights to charge interest and will be out of pocket when the customer eventually pays (if they pay). If your terms don’t include a provision for interest to accrue on late paid debts, there is no incentive for payments to be made on time as there is in reality no penalty for doing so.
One size doesn’t fit all
Every business is unique and so the terms on which it does business will also be unique. As lawyers, we understand that setting up a business can be costly and that terms and conditions are often the last thing on the to-do list, but that doesn’t mean that you should just take a set of terms from someone else or pick a template from a website.
Your terms need to be specific to your business, and to be reviewed as the business grows and evolves to ensure they are still current. For example, a business set up in the early 1990s may have adopted terms of business which were fit for purpose at that time, but they now trade online and conclude contracts via their website and haven’t updated their terms so will not be contracting on the correct terms applicable to e-commerce transactions.
What is more, while the common terms considered by most businesses will cover price, delivery and payment terms, a robust set of terms will also cover less obvious matters such as limitation of liability for defective products/service not provided at a required level, quality of goods/services and in particular the position where third parties provide parts or goods for onward sale, protection of intellectual property rights, passing of title and risk to goods, insolvency provisions or force majeure affecting performance of the contracted obligations.
The implications of Brexit on contracts for the supply of goods and services is not yet clear. Although the current framework will not change until the negotiations are finalised, there may be an impact on existing laws which affect the supply of goods, particularly relating to product liability, labelling and VAT, together with an impact on a business’ ability to perform its obligations under a contract.
By incorporating a “Brexit clause” now, any adverse effects of Brexit can be reduced or planned for by allowing the parties to change their rights and obligations to adapt to a changing business environment, rather than having to deal with the adverse effect at a time of uncertainty. Examples of this might permit a price review on Brexit to take into account new tarifs applied to goods being supplied, a change in the pricing index applicable or the ability for the parties to terminate their contractual relationship if it is no long economically viable or performance cannot be maintained.
For more information please contact our Corporate and Commercial team on 01733 333333.
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