Vital points in your terms of trade to ensure you can get paid for what you do

If you supply goods or services without written terms then you can often 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 the buyer’s responsibilities.

In particular, having clear terms of trade is an excellent way of minimising and preventing bad debt.  It is not always recognised that interest on unpaid accounts needs to be specified in advance to be enforceable.

15 questions you should consider for your terms of trade:

Exactly Who is the Other Party?

The legal entity you are contracting with should be clearly identified, is it a company, partnership or individual.

The Price

• What is the price?
• Does the price include or exclude GST?
• Is the price a firm quote or only an estimate?
• What happens if you discover new circumstances not covered in the price?

Acceptance of Quote

• If a quote is given, how long is the quote open for acceptance?

Payment

• Is the price payable in advance, “cash on delivery”, or on the 20th?
• Will interest accrue on the unpaid debt if payment is not made by the due date?
• What is the interest rate and other terms if payment is not made on time?
• Will the debtor be liable for your legal costs for pursuing the debt?
• Is a guarantee required if you are giving credit?  This may be necessary when you are dealing with a company rather than an individual.

Risk and Insurance

• At what time does risk in the goods pass to the buyer?
• If you, the seller, are to install the goods, who will bear the risk of damage while the goods are being installed?
• Is insurance required, and who will pay for it?

Reservation of Title

• 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?  (A clause stating that the seller retains ownership until full payment is called a “reservation of title” clause or a “Romalpa” clause.

Interest must be registered to ensure priority.  The Consumer Guarantees Act 1993 requires that for a “reservation of title” clause to be enforceable, it must be explained fully to the consumer.  The consumer must acknowledge this in writing and the consumer must be given a copy of the agreement.  You need to get them to sign the terms of trade to enforce this clause and it is a good idea to have them do this in all cases so you can prove they agreed to the terms).

We have developed Terms of Trade relevant to a wide range of businesses.  These are based on our experience over many years advising businesses just like yours and collecting debts for small and large organisations throughout New Zealand.

To have us compare your existing terms to those we believe are most likely to be appropriate for you please contact me on e-mail and phone.