Review a client's terms of trade

When to run this

Terms of trade are the contract that sits underneath every sale, yet many clients are working from a document a previous bookkeeper found years ago, or none at all. Run this review when a client is tightening up credit, has just had a debt go bad, or cannot clearly answer the question “what did your customer actually agree to when they ordered?”

It is also worth a look whenever the business has changed how it sells — moved online, started offering accounts, or expanded into bigger contracts — because terms that suited cash-on-delivery rarely suit 30-day accounts.

The play (steps)

You are not drafting the terms — that is a lawyer's job — but you are well placed to pressure-test them against reality. Work through this checklist:

1. Payment terms. Are the due dates unambiguous, and do they match what the business tells customers and what its invoices say?
2. Consequences of late payment. Do the terms mention interest on overdue amounts and the recovery of collection costs, so there is a basis to claim them later?
3. Security. Do the terms include a retention-of-title clause and contemplate registration on the PPSR where goods are supplied on credit?
4. Personal guarantees. Where the customer is a company, do the terms allow for a director's guarantee to be taken?
5. Dispute and acceptance. Do the terms set out how disputes are raised and, importantly, how a customer agrees to the terms in the first place?
6. Currency. Do they reference current legislation and the business's actual entity name?

What good looks like

Strong terms of trade are clear about when money is due, what happens if it is not, and what the business can fall back on if it has to recover. They are written in language a customer can understand, they are demonstrably agreed before goods or services are supplied, and they line up with the invoices and reminders that follow. When a debt is referred, terms like this give a recovery team firm ground to stand on rather than a vague understanding to argue about.

What to say to the client

Make the stakes concrete: “Your terms of trade are the only thing standing between you and an argument if a customer decides not to pay. Right now they are silent on interest, on getting your goods back, and on whether the director is personally on the hook. Each of those is a lever you are choosing not to have.”

Recommend the client have a lawyer update the terms, and offer to brief that lawyer on the practical gaps you have found. Frame your role as the early-warning system, not the drafter.

Common mistakes

The biggest mistake is having good terms that customers never actually accept — sitting on a website or printed on the back of an invoice issued after the order. Terms only bind if they are agreed before the deal. The second mistake is copying terms from another business without checking they suit the entity, the industry, or the way goods change hands. The third is writing in retention of title or PPSR rights but never acting on them, which is covered in the dedicated plays on those topics.