Time and time again, we are approached by disgruntled business owners and dissatisfied customers to help resolve disputes arising from deals made on the basis of informal arrangements. The law certainly assists in defining and clarifying certain aspects of the contractual relationship between parties. The starting point is usually a consideration of what the parties intended and agreed on at the time the goods and/or services were purchased. The intention of the parties is undoubtedly easier to determine with clear written evidence.
In our experience, one of the most useful tools for businesses is having effective processes and procedures for engaging a client or customer. This is achieved through Terms of Trade, which are sometimes known as conditions of sale or simply terms and conditions.
“Terms of Trade” in a nutshell are the terms of the contract between a seller of goods and/or services and the buyer of those goods and/or services. Entry into the Terms of Trade agreement creates a relationship that is legally binding.
Effective Terms of Trade
Effective Terms of Trade protect all parties’ interests by limiting any potential risks.
Terms of Trade outline key rights, duties, obligations and available remedies if the Terms of Trade are breached. This information must be simply reflected in the Terms of Trade in a way that both parties understand.
Businesses should find a balance between protection from risk and being user-friendly in order for third parties to understand and feel confident about engaging in a business relationship with them.
A dispute resolution clause is an important part of Terms of Trade that should not be excluded. This acts as a safeguard when the Terms of Trade have been breached. Having specified avenues or methods that determine how disputes will be dealt with may avoid costly and time-consuming resolutions such as litigation.
The standard Terms of Trade can include (but are not limited to):
- Who the parties to the contract are;
- Expectations regarding the nature of the goods or service;
- The cost of the goods or service, including relevant factors such as fixed or varied payments, quotes or estimates and the inclusion of taxes or GST;
- The payment method, whether guarantors are required, and whether interest rates will be imposed;
- The recovery process when payments have not been made and debt has accumulated;
- The procedure that will be followed if goods or services have not been adequately provided;
- Limited liability; and
- Dispute Resolutions clauses.
Terms of Trade can also include terms relating to termination of the agreement, delivery, installation, transfer of ownership, requirements for insurance, copyright, intellectual property, returns and warranties.
One size does not fit all
As not all businesses are the same, it is essential that Terms of Trade are individually customised to fit a business’s needs. When Terms of Trade are incomplete or do not have sufficient information, a business risks being unprotected in an unfavourable situation.
Terms of Trade should regularly be updated and given ‘health checks’: firstly, to ensure your Terms of Trade are up to date with the law; and secondly, to ensure consistent assessments of risks are being maintained.
Good Terms of Trade
It is ideal for any business to have Terms of Trade that are simple, informative and complete. They will help to maximise cash flow by reducing risks, limiting liability and offering avenues for resolution if a dispute occurs.
If your business does not currently have Terms of Trade, or if it has been some time since they were reviewed, we recommend a review be undertaken. The preparation of Terms of Trade requires a significant degree of legal expertise. Where this expertise is not used, there are real risks that the business may fall into one of the many pitfalls in this area. As such, we recommend you seek advice from a lawyer when drafting and/or reviewing this document.
Terms of Trade are, in the long run, cost-effective and simple risk management tools, which promote effective interactions and positive experiences between a business and its customers.
L A W Y E R S
Units 1-3 Fencible Chambers
Corner Fencible Drive & Moore Street, Howick
P O Box 38 345, Howick, Auckland 2145
DX EP82513 Howick
Direct Dial: 535 2734 • Phone: 535 4190 • Fax: 535 4191
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