Your business’ terms of trade are the conditions on which your business sells goods and services to its customers.
Your terms of trade should:
- Be in writing;
- Be tailored to fit your business;
- Reflect how your business interacts with customers;
- Be readily available to your customer; and
- Be easily understood.
You should establish your terms of trade to ensure your business is protected from costly litigation in the event that your business has a disagreement with a customer.
Retention of title
If your business supplies goods, you may have an agreement with your customer that the title of the goods does not pass to the customer until full payment has been made. This arrangement is known as a retention of title (ROT) arrangement.
You should ensure the ROT clause allows you to register your interest on the Personal Property Security Register (PPSR). Failure to register your interest could be detrimental to your business in the following ways:
- The rights of your business to enforce its interest may be subordinate to a higher ranked security interest; and
- If the customer is wound up, your business will lose its security interest in the goods subject to the ROT. Your business will have the right to prove in the insolvent administration for the value of the goods.
What else should my business’ terms & conditions cover?
Goods/services: what is your business selling? Make sure your description is accurate to ensure customers understand what they are buying.
Price: Is GST included?
Payment terms: does the customer need to pay the full price up front or can it be paid by instalments? If you are extending credit to the customer, what interest rate is payable?
Risk: At what stage does the risk relating to the goods or service pass to the customer? Where possible, the terms should limit the liability of the business.
Warranty: To what extent will your business repair defects? You need to ensure your warranty terms are inline with the Australian Consumer Law.
Where should my terms be displayed?
It is best practice to have the terms on a quote, rather than an invoice, so the customer can read the terms and agree to the terms before they make payment and/or enter into an agreement with your business. Where possible, you should have your customer sign a copy of the quote to show that they have agreed to be bound by the terms.