It’s a Question of Trust
I’ve had a very busy first month learning how to run a business and networking with some great people. It’s been lovely to meet lots of new people and hear about their businesses, and the stories behind them.
One thing that has become very clear, from talking about what I do and why I do it, is quite how many small businesses don’t have any standard terms and conditions.
When you first start up a new business your focus is on getting your product or service market ready, working out how best to market it and finding those essential first customers. There are loads of other things to consider too. Such things as insurance and banking, engaging an accountant and more. Sorting out your terms and conditions of trade rarely finds its way to the top of the list.
How necessary is it to have standard terms and conditions?
The short answer? Very.
No matter how much you think you can trust someone things can, and will, go wrong. If that happens it’s possible to ruin the relationship forever.
Have you ever lent money to a family member, someone from your most trusted circle, and never got it back? You might not have minded that too much. But it’s a very different thing to put the future of your business in the trust of people you hardly know at all. Yet, if you trade without terms and conditions that is what you’re doing. You’re trusting that people will do what they said they would do, and do it when they said they would.
Your terms and conditions are a credit management tool. Dull and intimidating they may be but they’re critical nevertheless. Not having T&Cs in place can have severe consequences on your cash flow and, by extension, your business. And, if you’re having to pay for materials before you take any payment from you’re client you could have a bigger problem.
You could also end up spending your hard-earned money and your valuable time on debt collection rather than growing your business.
Should standard terms and conditions be in writing?
There’s no legal need for terms and conditions to be in writing or on a stand-alone document.
People make oral agreements all the time. Ditto agreements using an email exchange. Such things are fine in principle. But in the event of a dispute arising how do you prove the existence of a particular agreement? In the case of an oral agreement in particular.
Having terms and conditions in writing, in a stand-alone document, gives you evidence that you can produce before a court should you need to.
Having written standard terms and conditions in place ensures that you cover the more obvious matters such as price, payment terms and delivery. They also prevent you from overlooking some of the less obvious terms that protect you. For instance, It may not occur to you to consider limiting your liability, disclaiming your liability for failure or delay caused by a force majeure, protection of your intellectual property rights and the passing of title and risk. A well written set of terms and conditions gives full protection to your position.
What should be in your standard terms and conditions?
Your terms and conditions are the rules by which you are willing to do business with your customers. They should set out the obligations of each party and what happens if things go wrong, or one party wants to exit or is unable to carry on with the contract.
What sections you include depends on your specific business needs and your customer type but you should consider including:
• A clear definition of what products or services you will be providing.
• What your payment terms are, what methods of payment you accept and what the consequences of late or non-payment are.
• Any guarantees or warranties offered.
• Timelines for delivery and the raising and dealing with any queries.
• What happens if either party can’t or doesn’t deliver or wants to end the relationship
• How long the agreement lasts for and what notice either party has to give to get out of it.
• The extent of your liability should things go wrong.
• Which law shall govern the contract
What are the benefits to having written standard terms and conditions?
Terms and conditions have a number of benefits and functions. They:
• Help to create certainty about what each party has agreed to. It’s clear from the outset what each party expects and when they expect it by.
• Make it simple to identify when someone has breached the terms of the contract. This makes it easy to enforce should you need to take a customer to court for non-payment for example.
• Help you to provide good customer service by making sure you are consistent in your dealings with your customers.
So long as you are transparent with them from the outset, about what will happen if they breach the agreement they have no reason for a negative reaction or to cause bad PR for you.
Your terms and conditions provide protection for you and your customers. As such they offer reassurance that you will behave in a professional manner should any issues arise.
• Help to set realistic expectations and align your customers’ expectations with your ability to deliver. With no terms and conditions your customers can’t know what you can commit to. As a result, they may feel let down when you can’t meet their expectations.
• Help you comply with the law. There are many regulations that businesses must adhere to and your terms and conditions help you to comply. How? By making reference to specific industry regulations and by the inclusion of specific terms, particularly if you are trading on ecommerce.
• Terms and conditions help restrict or exclude your liability in the event of a breach. This is quite a complex area. The law is unable to limit some liabilities, for example death or personal injury resulting from your business’ negligence. That said it’s important that you try reduce the financial risk to your business by making sure you’re clear about what types of losses you would be liable for and to what value.
• Terms and conditions set which country’s law will enforce your contract. This is particularly important if you have a customer based outside of your home country. If you haven’t specified the governing law of the contract then the assumption will be that the law of the country of seller’s place of business will govern it.
Pursuing a breach of contract through a foreign legal system can be very costly and time consuming.
• Using your terms and conditions means that you won’t be subject to those of your customer – if they have any. If they do then they’re likely to be heavily biased in their favour, particularly around payment terms, remedies for breach of the contract and governing law.
Is it good enough to put your standard terms and conditions on the back of your invoice?
In short: no.
Once you have your terms and conditions you need to make sure that they legally bind your customer. You have to bring them to the attention of your customer BEFORE they accept your offer or quote. It is important that they understand that your terms and conditions form part of the contract. The act of printing them on the back of your invoice or publishing them on your website does not create a legal contract. This is largely because your customer won’t always see them until after you’ve made the contract.
Remember, you must make it clear that the terms of the contract include your standard terms and conditions.
They should form the core of all your contracts. This may be enough for most. Yet you’ll find that for some customers you’ll need to add in bespoke terms and conditions to facilitate the sale.
Why not copy someone else’s terms?
Your terms and conditions must meet the specific needs of your business. Copying another business’s terms, even one in the same industry as yours, could mean missing some crucial protection your business needs. Also, you could end up being legally bound by terms you don’t in fact understand, and are not appropriate for your business model.
Also, terms and conditions have protection under copyright law. So wholesale copying of another business’s terms and conditions is copyright infringement.
Do both parties need to sign written Terms and Conditions?
There’s no legal need for both you and your customer to sign your terms and conditions. Yet, it is best practice to get agreement in writing to evidence your customer saw them.
A signature, e-signature or simple email exchange will suffice.
This action helps to avoid something known as the ‘battle of the forms’. In such a scenario, it’s argued that the last undisputed document containing terms, exchanged between parties, is the defining document for the contract.
For protection from the outset, always send your terms and conditions as early as possible in your communication with new customers.
Late payment is an inevitable consequence of doing business. Having clear terms and conditions, agreed by both parties before any goods or services change hands, is essential to limiting and controlling late payments. As is having the tools to deal with them as and when they arise.
Curious how credit management could help your business improve its cash flow and reduce late payments?
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