Terms and conditions of trade

Incorporation: the step most businesses skip

Terms only bind a customer if they formed part of the contract. The most common failure we see is a business with excellent terms that were never incorporated, because they live on a website and the orders come by phone.

• Best. A signed credit application or account application that expressly incorporates the terms by reference, with the terms attached or clearly available, and a copy retained.
• Good. A signed quote or order acknowledgement that states the supply is subject to your terms, with the terms attached.
• Weak. A link in an email footer, or terms on a website the customer never visited.
• Usually too late. Terms printed on the back of the invoice. The contract was formed when the order was accepted, and an invoice comes afterwards.

Where the customer sends you their own purchase order with their terms attached, you have a battle of the forms. Whose terms govern depends on who fired last and whether the other party accepted by conduct. If you receive purchase orders regularly, that is a specific problem worth solving in your drafting rather than hoping.

Security: guarantees and retention of title

Most trade credit is extended to companies. If the company fails, an unsecured supplier ranks last. Two clauses change that.

A director's guarantee and indemnity. Signed by the individual, in their personal capacity, on the credit application. It should be a guarantee and an indemnity, so it survives a defect in the underlying contract, and it should be supported by a charging clause over the guarantor's interest in real property where appropriate. Guarantees must be in writing to be enforceable.

Retention of title. Title in goods does not pass until you have been paid in full, and until then the customer holds them as bailee. Under the Personal Property Securities Act, this creates a purchase money security interest, and it only gives you priority if it is registered on the PPSR correctly and within the statutory time limits. Registration against the wrong grantor identifier, for example an ABN instead of an ACN, can invalidate it entirely.

Add a right of entry to recover goods, a proceeds clause so you can trace into money received on resale, and record keeping obligations. And build PPSR registration into account opening rather than doing it in batches, because the time limits are short and unforgiving.

Payment, interest and recovery

1. Payment terms in days from invoice date, expressed unambiguously, with a stated consequence if they are missed.
2. Interest on overdue amounts, at a stated rate, calculated daily. Keep it proportionate; a punitive rate risks being unenforceable as a penalty and risks being an unfair term.
3. Recovery costs, including debt collection and legal costs on a full indemnity basis where the law allows it.
4. A right to suspend supply while an account is overdue, and to withdraw credit.
5. Set-off excluded. The customer must pay in full without deduction or set-off, with disputes dealt with separately.
6. A dispute window. Invoices must be disputed within a stated number of days, failing which they are taken to be accepted. This is very useful evidence later.
7. Change of control and notification. The customer must notify you of a change in ownership, directors or trading name.

Staying on the right side of the consumer law

Terms of trade are the classic standard form contract, which means the unfair contract terms regime applies whenever your customer is a consumer or a small business, and since 9 November 2023 a contravention carries civil penalties rather than merely voiding the clause. A small business contract is caught where a party has fewer than 100 employees or turnover under $10 million.

The clauses that attract attention are unilateral variation of price or terms, automatic renewal with a narrow cancellation window, one-sided termination, indemnities running only one way, clauses making the customer liable for events outside their control, and clauses that limit one party's right to sue but not the other's.

Separately, the consumer guarantees in the Australian Consumer Law cannot be excluded. A term that says "no refunds under any circumstances" is not merely ineffective; publishing it can itself be a misrepresentation about consumer rights. Where the goods or services are not of a kind ordinarily acquired for personal, domestic or household use, liability for a guarantee failure can be limited to replacement, repair or resupply, if it is fair and reasonable to rely on that limitation.

Review the document annually. See legal advice for an operating business for the wider checklist.