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In previous columns I have alluded to the unfortunate tendency of
businesses in the MICE sector to avoid properly documenting
their transactions. This is perhaps most evident in the
widespread absence of trading terms.
In this column, we’ll
take a look at why it is important to properly document your
terms of trade and what kind of provisions they should contain.
First, a word on the meaning of the expression “trading terms”.
One common misconception is that this simply means “how long the
customer has to pay”; i.e. whether the customer has to pay in
seven, 14 or 30 days from invoice or statement. Payment date is
only one of many matters (which we’ll look at below) that go
into making a well-written set of trading terms. Your trading
terms are, in fact, the contract between your business and your
customer. As always, while there is no general rule that
contracts must be in writing (except certain special contracts
like agreements concerning land), it is better to have a written
agreement if you want to avoid disputes. Nevertheless many, many
businesses carry on their trade without trading terms of any
kind. In many cases the only “term” is a reference to the
payment date on the invoice itself. Businesses who take this
approach are inviting the application of implied terms when it
comes to any issues or disputes with the customer. It boils down
to this: do you want your contract with (and your liability to)
your clients to have relative certainty or to float in the
breeze and land where it may?
Trading terms do not have to be weighty, intimidating and
stuffy. You would probably agree that trading terms do not make
the most entertaining reading material in the scheme of things:
but they certainly need not be an impediment to business. Well
written, trading terms will make your business appear more
professional. They should provide both you and your customer
with comfort that there is certainty about the goods or services
that will be supplied and the basis on which that will happen.
Well written trading terms also deal with the more important
and more likely “what ifs”. This involves some
crystal-ball-gazing and some experience in your business. For
example, if your business involves the management of outdoor
events, the “what if” list that needs consideration would
include cancellation due to bad weather and additional risks if
the event proceeds during bad weather, such as the possibility
of slip and fall accidents, electrical dangers, and many others.
What your trading terms should say will depend enormously on
precisely what your business does, whether it supplies goods or
services and whether it is a principal or gets paid a commission
as an agent. |
In the next column we will explore in more detail some of the most
important contract clauses that should be considered. But
by-and-large, you need to consider the following broad sections
in your terms of trade:
1. Correctly identify your business,
and include your ABN;
2. Accurately describe the goods or services that you will be
supplying;
3. Prices must be clear and GST must be shown; Are there any
procedures for variation of price?
4. Payment – when is payment to be made and what is the
consequence of failure to pay on time?
5. Term – if the contract is for the provision of services (or
perhaps for the supply of goods over an extended period) what is
the term/period of the agreement?
6. Delivery and dates – who will deliver and are dates
guaranteed or just estimated in good faith?
7. Liability – who is liable and to what extent if things go
wrong. Are you to have the benefit of limitations and exclusions
of liability?
8. Insurance. Are you promising your customers that you are
insured?
9. Termination – in what circumstances can you or the customer
end the transaction? Is there a voluntary right to walk away, or
can a party only terminate for default by the other party.
10. Security for payment – do you insist on personal guarantees
from directors of your corporate customers or some other form of
security for payment?
The other major question that you’ll need to address is how
you want your trading terms to be brought to the attention of
the customer. Will you simply provide a pre printed version of
the contract prior to the bargain being struck – will this be
provided in person, by fax or even by snail-mail? Alternatively,
will you provide your terms electronically, such as by email or
attachment, such as a PDF file?
What acknowledgement, if any, will you require from the
customer? Will you require the customer to sign? It is one thing
to have a beautifully written set of contractual provisions – it
is quite another to make sure that they apply!
The foregoing is a broad-brush introduction to some of the
issues. In the next column or so, we’ll drill deeper.
Contact Matt Crouch on (02) 8281 7835 or email –
 mcrouch@bartier.com.au
for further details.
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