Don’t let your clients take the biscuit
Christmas is coming and the goose is getting fat – isn’t it a shame that the same can’t be said for the economy. The escalation of the credit crunch into a full scale global financial crisis and recession has brought the basis upon which you contract with your customers and suppliers into sharp focus. In these times, cash is king – does your contract with your customers provide clear payment terms? More generally do you know what your contract actually says or, indeed, do you have a contract at all?
In the good times these types of questions were far from most people's minds – meeting demand rather than being paid was the main issue. In these difficult times customers are stretching payment terms as far as they can and disputes (however spurious) regarding delays in delivery, quality of goods, defects and a myriad of other issues are being raised as businesses, struggling with the economic conditions, seek ways to reduce payments or even to get out of contracts completely.
Standard terms and conditions of business are generally seen as the "small print" – something you should have but not really that important. The reality is very different; they provide the legal basis for your relationship with your customers and suppliers and are fundamental to your business. They only really come into play when something goes wrong and by that time it is too late to do anything about it if they are not fit for purpose.
Do you know if your T's & C's would be fit for purpose and effectively protect your rights and limit any potential liabilities you may face?
Unfortunately, it is often the case that either the T's & C's were originally copied from someone else's with minimal changes or are simply downloaded from the internet. Although these T’s & C’s are the basis upon which every daily transaction is contracted, they are not tailored to your business and are often found to wanting. A box was ticked saying you have T's & C's and then they were put into the biscuit tin, the lid shut on them and forgotten about…that is until things go wrong.
Like biscuits, T's & C's can go off or soft. The “biscuit tin life” of your T's & C's is not indefinite as any number of changes could have taken place in your business or in the market in which you operate. For example, since the T's & C's were drafted you may have started trading on the internet – do you comply with the Distance Selling Regulations; you may have started using a different corporate vehicle to contract with clients – is your contract with the correct entity? The law also evolves as new legislation is passed (if you sell electrical equipment are you WEEE compliant?) and new court cases decided.
Your T's & C's should be seen as an integral part of your business and your general sales/contracting process with relevance from customers supplies to credit control and quality assurance. Any review of your T's & C's should not be done in isolation but should ideally form part of a broader review of your contracting procedures.
Think of the 3 P’s – Policy, Payment, and Process:
Policy:
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Who is it in your business that has (or should have) authority to bind your business in contracts with customers and suppliers? Do you need different authorities for different values of contracts?
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Although you have your own T's & C's, it won’t always be possible to contract on these terms and sometimes you may have to contract on the other party’s T's & C's. Do you have a clear internal policy in place for approving the entering into such contracts – who reviews them to ensure you know what obligations and liabilities are being taken on? Does anyone read them at all or are they regarded as "small print" and unimportant?
Payment and performance:
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Do your T's & C's provide clarity to your customers regarding when and how they must pay you and, if payment is due in instalments, how is default on payment of one instalment treated?
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What happens when the customer doesn't pay? Have you retained title to your goods? Can you recover interest on late payment?
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If you have to sue, which courts have jurisdiction?
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What happens if there is a dispute regarding quality/damage to goods in transit? Whose obligation is it to insure goods in transit and when does risk pass?
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Is your exclusion of liability clause valid?
Process:
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Do you present your T’s & C’s to your customer at the correct time to ensure that they form part of the contract between you?
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If amendments are made to your T's & C's, who has authority to do that and how do you ensure that the amendment is valid?
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Do your credit control processes dove-tail with your contracting process?
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Do your customer records provide suitable evidence of the contract which can be enforced through the courts if need be?
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If you provide credit to your customers do you meet the requirements which require you to be licensed under the Consumer Credit Act?
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When times are tough you need to be able to rely on your T's & C's. T's & C's are a fundamental part of your contracting process – having well drafted T's & C's can help reduce your risk of exposure to customer default and should provide you with a contractual basis for enforcing your rights. While there are many risks in these uncertain times which you cannot control, having a robust contracting process and a well drafted and fit for purpose set of T's & C's is entirely within your control.
You should open your biscuit tin now and find out if your T's & C's are still fresh or if they have they gone soft. You are better to find out the answer now than when something has gone wrong, by which time it is too late. If it came to the (credit) crunch, how would your T's & C's stand up?
For further information please contact: Bill Fowler