Firm Foundation – Terms and Conditions of Trade

What are these?

Essentially, they are standard, “used all the time”, terms on which you supply your goods and services.

They reduce transaction costs (you don’t have to negotiate them each time).

Importantly, they require you to sit down and work out some essential elements of your business:

• In general, what are you supplying? Are you producing a product or reselling something supplied from another manufacturer? Are you providing a service?
• Specifically, what are you supplying? What is the product and what is the service in terms of your customer’s expectations?
• Are there any base terms for what you are supplying?
• For example, if it is a consumer product the Consumer Guarantees Act 1993 will apply and you can’t easily escape or limit responsibility for what you are selling. If it doesn’t apply, you have greater freedom to manage that risk.
• In that case, you might want to consider what you would do if the sale unravels.
• Can you resupply the product or service? Should you have the option of returning the price paid? Should you confine your customer to those remedies so that your downstream liability for business losses is excluded or limited?
• Can you insure against those and other business risks?
• When you have completed the sale, how do you get paid? Is there a deposit? What about invoices, due dates for payment and interest on unpaid money?
• In relation to price, you can register a charge over the goods that you have sold under the Personal Property Securities Act 1999. (This does not apply to services).
• To do this, your terms and conditions must be a security agreement with your customer. If you register a charge promptly you will have a super priority over the goods that you have sold, jumping ahead of all other charges, including any bank.
• You might also want to consider guarantees from the owners of your customer.

In addition to warranties and security for payment, other parts of your terms and conditions should deal with important operational elements of your business.

They include:

• The ordering process.
• The price, including changes and whether insurance and freight is included for goods.
• How the price is paid.
• How you deliver or supply the goods or services.
• Any associated allocation of risk and insurance.
• How you might deal with insurance and defects.
• What happens if your customer defaults.
• The impact of external events like pandemics or raw material or energy shortages.

The above is not of much help if your terms and conditions of trade are not part of your contract with your customer.

It is too late to attach them to an invoice for goods supplied or work done, especially when your customer may have their own terms of trade. Your terms of trade won’t be part of your contract. You may in fact be partially contracting on their terms of trade.

Ideally, there should be an express acceptance by an authorised representative of your customer they accept your terms and conditions in preference to their own.

These days with electronic communications, an express sign-off may not occur. In that event, as a fall-back position, you need to make all communications subject to your terms and conditions. They should be on or clearly referred to on quotations and websites.

Clear acceptance especially where a customer guarantee is involved is by far the preferable situation.