Do’s And Don’ts Of Effective Terms And Conditions
What You Should Include And What You Should Avoid
Businesses in the UK should review their Trading Terms and Conditions on a regular basis as business legislation changes from time to time and the trading environment is continually evolving. Terms and Conditions can quickly become out of date. Reviewing the content of your Terms can not only help protect the business from bad debt but could significantly reduce the cost of extending credit.
The Benefits Of Late Payment Interest And Compensation
An effective and strong statement by businesses chasing debts, is to use the Late Payment Interest and Compensation legislation introduced in 1998.
Few enough businesses are taking advantage of this legislation, despite being well within their rights to do just that. By including interest and compensation in your claim, you can offset your internal costs in recovering debts. Why not use this option to claim back such extra costs incurred? Utilising this legislation is a positive decision that will act as a deterrent to late payment as well as providing a new revenue stream.
Businesses should also state in their Terms of Business that they will add to their invoices the full cost of legal fees for any debt recovery activity necessary to secure overdue payments. Do not sit back and incur irrecoverable costs. You can stipulate in your terms a provision to claim realistic costs to offset your expenditure.
Lovetts’ Key Points On Effective Terms And Conditions:
- Make sure your terms apply to the contract, preferably by getting your customer to sign up to them. At the very least, send them, or refer to them, just before the contract is made.
- Check the other party’s terms in case they are found to apply. Be aware of what you may be letting yourself in for: for instance, will they allow the other party to offset sums they claim are due to them against money due to you, even if their claim relates to a totally separate contract? Make sure you don’t agree to that!
- Print your terms on the back of all quotations with a clear message on the front that they will apply to any order resulting. Alternatively put a clear statement in all quotations, order acknowledgements, invoices and delivery notes that all your supplies are subject to your Terms of Business which are available on request.
- Keep a copy on file of the letter or email sending the terms. We often find that clients cannot locate evidence that terms have been sent to a customer, simply because no one thought to keep details.
- Have a term that allows you to stop work/supplying if any invoice is not paid on time and allows any work in progress to be invoiced for immediate payment. This enables you to claim for everything in one go.
- If you do business internationally, consider if you need a clause making English Law apply to the contract and giving English courts jurisdiction.
- Ensure you have a clause allowing full recovery of legal costs – have this drafted by your lawyers – in addition to any Late Payment Act clauses which will include fixed compensation for your own time. The benefits of being able to recover costs and compensation go well beyond offsetting your costs of recovery; by making any debts owed to your business an expensive luxury, you push home the message that you expect to be paid on time, and that you are serious about recovering due debts and discourage serial late payers.
- Forget that you must be able to prove by telephone notes, emails or letters that your terms, rather than the other party’s terms, were incorporated in the contract.
- Think that sending the terms with your invoice will do – it’s post-contract and that’s too late to incorporate them.
- Neglect to have the terms checked regularly by competent solicitors: the law changes constantly and your terms will need to keep pace!
Looking to learn more about effective Terms and Conditions? Download our free guide on Terms and Conditions