Commercial Agreements > Contracts / Terms of Business

Whether you are a company, a sole trader or partnership, consideration should be given to adopting some form of written standard Terms of Business when dealing with customers or suppliers. Terms of Business regulate the contractual relationship between you and the parties that you deal with.

In the absence of these standard Terms of Business, you may find yourself subject to your customer's own Terms of Business or trading, some of which may prove costly to you.

Written Terms of Business:

Create certainty for all parties; avoid potential disputes arising from any alleged verbal agreement, as it is quite possible to be bound by what you say to a customer

Can help the parties understand what is being supplied and the terms of the purchase or supply.

They will inevitably include terms for payment of the goods supplied and terms of delivery. Furthermore, if you are a supplier of specialist goods or services, you may wish to add particular provisions governing those products or services.

Basic Provisions

There are some basic provisions which ought to be addressed in a set of standard Terms of Business. These include:

• Warranties - Any warranties that you provide in connection with the goods or services supplied. If you do not supply warranties, the law may imply warranties that may be more generous to your customer. By setting out your warranties in writing, you can help reduce the risk of claims if things go wrong.

• Retention of Title - This means exactly what it says. If you supply goods to your customer, who is unable to pay, you may claim back the goods provided certain conditions are fulfilled and legal title in the goods have been retained under your Terms of Business. Such a clause will also help if your customer becomes insolvent.

• Liability - Certain types of liability can be excluded provided they are reasonable. However, the law does not allow you to exclude liability for death or personal injury caused by your negligence. Any exclusion of liability clause needs to be thought about very carefully to comply with legislation.

• Delivery - Delivery is an essential part of the supply of goods and services. A customer will be keen to know when the goods or services can be delivered and may want a specific delivery date. However, you will want to guard against this, for example if you cannot supply because one of your own suppliers let you down. More often than not, any delivery dates are deemed to be estimates and time being the essence of the contract will be excluded.

• Payments - For any business cash flow is critical to its success. Payment terms are therefore of great importance and bringing these to your customers' attention is essential.

• Commercial - If your customer fails to pay on time you will want the right to refuse to deliver any further goods and you may also want the right to claim interest on any outstanding payments. Of course, much depends on the relationship between you and your customer. However, if matters did get to a point where you could no longer afford to provide your customer with free credit, recourse to the Court may be necessary and your payment terms will be an important element in the rights of recovery. For more information about our debt recovery service, please go to the debt recovery section.

• Individuals - When dealing with individual consumers rather than businesses, further care and attention is required as the law gives additional protection to them. For example, your Terms of Business must be fair and reasonable and you cannot exclude certain statutory consumer rights.

• General information - There are certain do's and don'ts when applying your Terms of Business. As a basic rule:

• Awareness - EVERY customer should be made aware of your Terms of Business.

  This could take the form of:

  - a pre-printed form on quotations or brochures

  - pre-printed information on order forms

  - a formal document setting out the details of the particular goods to be supplied and the terms surrounding the supply, which are signed off by you and your customer.

Customers' own conditions of business

Consider these carefully. For example, a supplier may have conditions of supply, which may seek to override your Conditions of Purchase. It is important that you consider any supply conditions and ensure that your conditions of Purchase will apply. This is referred to as 'the battle of the forms' and the Courts will normally deem the last Terms of Business to be delivered to be the one to prevail. However, it is best not to rely upon this and negotiate with your customer or supplier in such circumstance with the help of your solicitors.

Other Vital Contracts

The standard Terms of Business form part of the contract or the bargain between you and your customer. Other contracts are equally important and often critical to a business:

There may be occasions where you wish to distribute products on behalf of domestic or foreign manufacturers. The terms of that distribution would normally be contained within a Distribution Agreement.

Similarly, where you wish to appoint agents to sell your product, you may enter an Agency Agreement. Regulations surrounding agents and agreements are governed by European Law. At Burn & Company we can assist to guide you through legislation and draw up the necessary agreements.

If you require further information on any of the above or on any commercial agreement, please contact Stephen Knowles.