4 tips to look out for when drafting your terms of business

At our specialist seminar aimed at those in the recruitment industry to be held later this month, I shall be discussing the key issues we see arising time and time again from an agency’s terms of business. However it strikes me that the majority of these issues apply to almost all terms of business, regardless of the particular sector and in today’s blog I recap what to watch out for.

Incorporation

Time and money spent drafting a beautiful set of terms and conditions will only be worthwhile if they actually apply to the contract in question. The key is to ensure your terms are brought to the attention of the other party before the contract is concluded – an obvious example is with your quotation and that they are not countered by the other party responding by simply sending their terms back to you. This back and forth is known as the battle of the forms and can have undesirable consequences. Just sending your terms out with invoices and delivery notes is often too late as the contract has already been made. Proper and consistent sales processes should go a long way to avoiding this problem.

Payment

Whilst it is important that all key matters are dealt with clearly as the courts won’t enforce contracts that are too uncertain or ‘agreements to agree’, this is particularly pertinent when it comes to a seller’s right to payment. Late payment is one of the biggest costs to businesses, particularly small businesses where cash flow is very often tight. Check:

• Are your payment terms clearly stated? e.g. 30 days from date of invoice
• Do you have a contractual right to claim interest?
• Do you wish to make time for payment ‘of the essence’ – meaning that in the event of late payment, the seller has the right to terminate the contract and claim damages
• Do you wish to have a contractual right to recover your costs in the event of late payment or to charge an administrative fee?
• Do you have the right to suspend the supply of goods and/or services in the event of late payment?
• Do you have a retention of title clause – meaning that ownership of any goods does not pass to the buyer until you have been paid in full?

Termination

It is important to check that you have a contractual right to exit the contract if needs be and bring your obligations and liabilities to an end. As a minimum, that you have the right to terminate in the event of the other party’s material breach of its obligations or insolvency but consider also, whether you need the right to terminate for convenience on a period of notice?

Limit your liability

Have you (particularly as a seller) limited your liability under the contract, so that the risk you face under it is proportionate to your financial gain. Check that:

• You have a cap on your overall liability to the other party under the contract – market practice is often to cap this at the level of the purchase price of the goods or services but check that this is reasonable under the circumstances; and
• You are not liable for indirect, consequential or special losses under the contract.

Terms of business are key to any business and should be reviewed on a regular basis to ensure they are up to date and reflect best practice. Whilst often overlooked, a robust set of terms will reduce the risk facing your business and protect your position when necessary. Decent terms plus efficient processes to ensure they are properly incorporated into your contracts should save you costly and timely disputes further down the line.

If you need any assistance with your terms of business or any other business contract, please contact Emily Sadler. We also offer bespoke contract law training for businesses.