How the right Standard Terms and Conditions can be the insurance policy you can’t buy!

There are typically 7 risks your company routinely takes by not incorporating properly drafted standard terms and conditions.   Patrick Tedstone, Managing Partner at ORJ, explains just how important it is to review your T&C’s.

We all know that running a business involves risk but we may not know just how important it is to review our standard terms and conditions of sale and how this can reduce the element of risk profoundly.

Standard terms of sale are a critical tool for every trading company.  They can protect you when everything else goes wrong. They are the insurance your company just can’t buy.

One properly drafted legal document can cover millions of pounds of trade over several years and it won’t deter your customers from buying from you.

So, if you haven’t renewed or updated your standard terms and conditions of sale, or trained your staff about how important they are, here’s where you could be at risk:

1. You provide an unlimited financial warranty for the goods and services you sell. Your financial warranty should be limited and risk shared sensibly.

Even the most generous warranties have limits! You should take care to make sure it is not your company’s responsibility to pay out unlimited amounts for loss damage especially if you were let down by your supplier or if you only made a small percentage on the trade?

2. You agree to be responsible for any and every foreseeable financial loss. The range should be narrowed.

Is your product destined for your customer’s number 1 client? Do you feel comfortable compensating your customer if he loses that client? Is that your responsibility?

3. You provide onerous contractual promises about your company’s goods and services which are implied into a contract of sale by statute. These should be excluded.

Under English law a product will be deemed fit for the purpose for which it is supplied even if that purpose is novel. Why is your business taking that risk?

Your Company should be more than happy to confirm that its products comply with their specifications and/or match any sample. Isn’t it for your customers to check that the product they chose is what they needed?

4.You accept any additional adverse terms applied by your customer in his standard terms and conditions. These should be ousted.

Take a look at your customer’s terms. See the one that says time is of the essence for delivery. If you are a day late your customer can cancel the order and sue you! What if he has a change of heart, and didn’t want the product, he may be looking for a way out.

5. You accept that your customer can delay payment of a bill by raising virtually any complaint no matter how spurious. The right of set off should be denied.

One thing that influences greatly the outcome of any commercial disagreement is who holds the money. Are you happy to agree that it’s your customer? Make sure if a dispute arises that you do.

6. You accept your customer owns your goods on delivery even if he hasn’t paid for them.  Include a proper retention of title clause

It is a fact of life that many companies in financial distress use a supplier’s cash and goods as working capital while they plan to reorganise their own business, often using what is known as a pre pack.

7. You happily pass on the intellectual property in any design work you have undertaken for a customer no matter how valuable.

Absence of terms to the contrary, any development work undertaken for a customer on a project could well end up belonging to your customer, even though it may be work that is the very essence of your business and valuable to you.

The team at ORJ is highly skilled in guiding your business to develop the right terms and conditions for your business. A relatively modest investment in this could save your business literally millions of pounds if things go wrong.

For an initial discussion, please contact Patrick Tedstone. 01785 223440.

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