In the first article in this series I looked at establishing an effective credit control and debt recovery process. In this second of this series of articles I would like to look at some general effective terms and conditions you should consider and how to ensure they are incorporated into contracts with your customers.

  1. Incorporation

Many businesses have standard written terms and conditions ("T&Cs") which seem to appear on every document from the initial order enquiry to the invoice: how do you ensure that your business' T&Cs apply to the contract with each individual customer and how do you avoid what is called the "Battle of the Forms".

  1. Ensure your T&Cs are brought to your customer's attention before the contract is concluded. You may wish to:
  1. have them on a proforma to be signed before the order is place if at all possible;
  2. have them signed as part of any credit application form, should you have one, with your customer.
  1. Ensure you have a clause in your T&Cs saying that your business' T&Cs will prevail over your customers.
  2. Reject any of your customers' documents which say its T&Cs will apply.
  3. Include, attach or append your T&Cs to all contractual documentation and communication with your customers.
  4. Beware of customers stamping your delivery notes or documentation, "subject to the buyer's conditions".
  5. Fire the last shot, with your T&Cs being on the last contractual document concluding the contract. Not the invoice as this is a post contractual document. However this may help if you have a consistent course of dealings over a considerable period with a customer.
  1. Examples of Terms and Conditions to be considered
  1. Terms of Payment
  1. Payment on account.
  2. Timescales for payment may vary from customer to customer ensure yours are tailored to the cash flow requirements of your business.
  3. Pricing discounts for payments on or before the due dates.
  4. If allowing instalment payments ensure the whole balance becomes due if one instalment is not paid on time.
  5. A provision that payment be in full without any deduction etc and confirmation that the customer has no right of set off.
  1. Terms dealing with late payment
  1. Set out the consequences of late payment.
  2. Encourage customers to pay promptly and assist you in pursuing overdue accounts and recovering losses.
  3. Retention of title clauses i.e. retaining title to the goods supplied until payment is made in full. (I will touch upon these in the concluding article). You may need to seek legal advice.
  4. Right to charge interest on overdue accounts at a specific rate. You may however rely on the Late Payment of Commercial Debts (Interest) Act 1998.
  5. Set out consequences of non-payment, e.g.
  • Suspension of work or services until overdue accounts are paid, without such a provision you may have to carry on working/supplying goods or run the risk of being in breach of contract.
  • Suspension of any licences and a lien over work, papers or goods until all overdue accounts have been paid.
  • Include a statement that customers will pay all expenses, costs (whether legal or otherwise) incurred in seeking overdue invoices.
  • Where appropriate the right for you to terminate the contract for non-payment of earlier invoices.

Commenting upon this latter point often the threat to cease to trade with a customer maybe the most potent strategy available to you but you must consider the following questions:-

  1. Can the customer's business survive without your continued trade?

This may be a double edged sword as the threat may also push directors into appointing a liquidator or administrator to avoid the wrongful trading provisions in the Insolvency Act 1986. Conversely, the strength of your position in the relationship may cause the customer to be direct and open with you and by assisting with the restructure of a customer you may build a very loyal customer relationship.

  1. Would such a term put you at risk of a claim for damages?

If you purport to terminate a contract where the termination provisions have not been satisfied, you run the risk of being in breach of contract by not performing your side of the bargain. Also be aware if a contact allows for notice of termination, you should always be very careful in threatening termination where you do not intend to follow the consequence through and continue to perform your obligations pursuant to the contract, as you may have waived your right to terminate.