Establishing your business’ terms and conditions may seem like an onerous task among the never-ending to-do lists, but getting it right is essential for healthy cash flow.
The terms and conditions form the basis for the trading relationship on which a business sells goods and services to customers and from which they buy goods and services from suppliers. Specific terms and conditions can be the difference between chasing up late payments, to ensuring that your business is paid first.
Well-drafted terms and conditions will protect a business and provide clarity as to what should happen in any given situation. Terms and conditions can also prevent disputes and save time and money on collecting debts.
While there is no legal requirement to include terms and conditions on invoices, it is highly recommended to establish written terms and conditions in case things go wrong with one party. The terms and conditions you decide to incorporate will vary depending on your business’ needs but generally should include the following:
Goods and services
A clear definition of the goods and/or services that will be provided. Including a section for definitions of the words used throughout your terms and conditions will prevent any misunderstandings or misinterpretation.
Price and Payment Terms
The price should be defined and must state whether GST (or other taxes) are included or not. The payment terms should outline when the payment is due and if the price is payable in cash on delivery or on pre-agreed terms.
Warranties Or Guarantees
Include any warranty that will be provided. The warranty period and limitations under the warranty need to be clearly explained. If you offer any guarantees, be sure to include them and remember guarantees should be provided before any goods and services are provided.
A timeline for the delivery of goods should be detailed. Ensure to include the method of delivery and any associated costs for delivery.
If credit is provided, make sure to include the credit terms, credit limit and any penalty or default terms. It is important to request permission to conduct a reference check to check the creditworthiness of the other party before providing credit. Remember offering credit increases your chances of receiving a late payment, or not being paid at all, so consider upfront payment or payment on delivery for customers with large payments.
Specify what will happen if either party does not deliver or pay on time. The terms should also state what notice is required to get out of an agreement or if one party wants to end the relationship.