November 2017

Many of us that purchase products or services online simply tick a box agreeing to the supplier’s terms of trade without reading them or giving them a second thought. But those terms of trade can be very important, particularly when a deal goes wrong.

Your business should have written terms of trade so you have evidence of what has been agreed with your customer if there is a dispute. Another benefit is that you will both be clear about what your respective rights and obligations are – reducing the risk of misunderstandings.

Key terms to include

Terms of trade will differ depending on whether your business supplies products or services.

There are some keys terms that are relevant in both scenarios though:

• Price – how is the price for the products or services calculated? For example, quote, price list, or hourly rate.
• Payment – when is payment due? If you need to pursue a customer for failing to pay it is also important your terms include the right to charge default interest and require the customer to pay your debt recovery costs.
• Liability – your liability exposure will vary depending on whether your customers are consumers or businesses. If you sell products or services to consumers then you will need to comply with the Consumer Guarantees Act 1993. If you are selling to businesses instead, it is common to limit and exclude your liability as much as possible. For example, a business will often exclude their liability for losses suffered by a customer resulting from defective products or services that the business couldn’t reasonably foresee.
• Termination – if your terms of trade are to apply to multiple future transactions between you and the customer, you should include termination rights allowing you or the customer to end the relationship. You may wish to terminate on giving a period of notice, or where a party is not complying with their obligations.
• Guarantee – if you are supplying products or services to a company and you have concerns about payment, you could consider requiring the directors to guarantee the company’s obligations. To be enforceable though, the guarantee must be signed by the guarantors.

If you are supplying products or services to consumers you must now ensure that they do not contain any unfair contract terms. You can find out more information about this change to the law by clicking here. Your terms of trade with consumers also need to be in plain language, legible and presented clearly.

How do customers agree to my terms?

There is a common misconception that it is sufficient to have your terms of trade on your website or print them on the back of your quote or invoice.

The difficulty with this approach is that you have no way of showing that the customer has actually agreed to your terms before they place an order with you. This is particularly the case if your terms are printed on the back of an invoice because the transaction has already been completed by the time the customer receives your invoice.

There are various ways customers can agree to your terms of trade:

• Signature – customers can sign a physical document containing your terms of trade.
• Clickwrap agreement – if customers purchase products or services from your website they can tick a box indicating their acceptance of your terms of trade when they place an order.
• Email exchange – you can send your terms of trade to the customer by email and require them to respond expressly accepting those terms.

What should I do?

We recommend you check that your terms of trade are up-to-date and include all the important provisions so that you are well protected.

If you do not have written terms of trade, it is a good idea to prepare them as soon as possible. It is better to have written terms of trade in place even if you have not had problems in the past because it can be an unpleasant lesson to learn when a significant dispute occurs.

You should also check your processes to ensure your customers are actually accepting your terms of trade.

If you would like us to prepare new terms of trade for you, review your existing terms, or advise you on your processes for getting customers to agree to your terms, please contact us.