Terms of business are important so do your homework first

Posted 09 Jun 2010

Terms of business, terms of trade, or terms and conditions. However you refer to them, your terms of business are an agreement between you and your customer on how you will work together. Good terms of business can mean the difference between being paid on time, or not and avoiding liability if things go wrong, or not. Every small to medium business relies on healthy cash-flow and the surest way to undermine that is to have poor terms of business in place with your customers (or worse yet, none).

Too often your terms of business don't seem important until you are faced with a bad debt. By then it's too late to include new conditions in your relationship to collect or make up for the loss. Add to that the potential risk of litigation if you don't specifically exclude your liability for certain events and you can see the value of having a documented relationship up front.

While most invoices you see these days have terms of business or terms of trade in the fine print on the back, you shouldn't just copy one that looks good. Aside from the copyright issues, terms of business need to be specific to your business. You might even find some terms from a similar business to yours - like a competitor - that look fine. Without knowing if those terms work for them you might be inheriting a minefield of their problems.

Your business is unique (at least, it should be) so your terms of business need to reflect the things that are vital to your business. While collection of bad debts is an obvious feature, depending on your business there could be a raft of other conditions like ownership of goods, delivery and return policies and liability you need to include. You might want to perform a credit check on prospective customers or have the ability to make credit enquiries from time to time. Like any legal document that impacts your business, you should consider professional advice to ensure your terms are ideal for your business.

Good terms of business could save you headaches in the future and while there are a costs associated with debt collection, if you have taken this into account in your terms of business, you can pass those costs on.