Most businesses have terms and conditions. Far fewer have terms that would actually hold up when they needed them to. The gap between the two is where money gets lost.
Having terms is not the same as being bound by them
Your standard terms only bind the other party if they were properly incorporated into the contract before it was made. This is the single most common failing. Terms printed on the back of an invoice — which arrives after the order was placed — are frequently worthless, because by then the contract already exists on different terms.
Incorporation done right
To bind your customer, your terms need to be brought to their attention before the deal is struck: referenced clearly on the order form or quotation, provided with it, or agreed in a signed contract. Getting this right is as important as the wording itself, and it is the part businesses most often skip.
The battle of the forms
Where both parties have their own terms — you send yours, the customer responds with theirs — the general rule is that the last set sent before performance wins. Businesses that always respond to a customer’s order with their own acknowledgement tend to come out on top. Those that don’t, tend to be bound by terms they never read.
The clauses that earn their place
- Payment terms and interest — when payment is due and what happens when it isn’t.
- Retention of title — keeping ownership of goods until you’re paid, so you can recover them if the customer becomes insolvent.
- Limitation of liability — capping your exposure, within what the law permits.
- Termination — how the relationship ends, which is what everyone forgets until they need it.
Reasonableness tests
Even a well-drafted exclusion clause is subject to statutory reasonableness tests, and some liabilities can’t be excluded at all. A clause that fails the test gives you nothing at the moment you rely on it — so it is worth having your terms reviewed before that moment arrives, not after.