Don’t underestimate the value of good terms of trade to your whānau business

If you supply goods or services without written terms, you might find yourself in disputes that could have been avoided if there had been clear, written, terms of trade from the start which detailed your rights and your customer’s rights and responsibilities.  Good written terms of trade can save businesses a lot of time and money. 

In a recent example, a whānau-owned online retail business did not have their terms of trade in order.  They had only a roughly drawn up terms of trade document uploaded onto their website, and no procedure for ensuring that customers accepted those terms before being supplied with goods.

When a customer failed to pay what they owed, the whānau-owned business tried to apply penalty interest on the amount owing and then sought to recover the debt using a debt collection agency.  The matter ended up in legal proceedings, where the Court held that the online retail business did not have the right to charge the customer penalty interest.  The business owner had not realised that their terms of trade needed to specify that interest would accrue on unpaid accounts in order for that be enforceable.  Because there was no term about penalty interest, the customer could not be charged for it. 

For businesses of all sizes, from a small whānau-owned online retailer to a large manufacturing factory, written terms of trade help define who does what and when.  There are a number of key things your terms of trade should set out, including:

• Parties: who are you contracting with?
• Price: what is the price, does it include GST, is it an estimate or a firm quote, can it be varied or added to?
• Acceptance of a quote: how is a quote accepted, and how long does a quote stay valid for?
• Payment: what are the payment terms?
• Risk, insurance, ownership: when does risk in goods pass to the buyer, is insurance required and if so who will pay for it, does ownership of the goods pass to the buyer when the goods are delivered, or do you, the seller, retain ownership until you have received full payment?

If you are in business, or a thinking of setting up a business, it is extremely worthwhile investing in robust terms of trade that suit your particular business.  You will protect your business from disputes caused by misunderstandings and will minimise the cost of any debt recovery action if your customers agree to and sign your terms of trade before you do business.