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Protecting your biggest asset

The second of FCNZ’s Business Staples webinars was hosted by Stephen Conti of New Zealand Business Tools (NZBT) , and focused on the importance of Terms and Conditions for protecting your business.

Terms and Conditions of Trade, Terms of Trade or just ‘Ts & Cs’ (‘Terms and Conditions’ for the purpose of this article) are a critical part of any business and they form the basis of a healthy relationship between you and your customers. Having robust Terms and Conditions can save you a lot of money by addressing any potential future issues with new clients, from the start of your relationship.

When written specifically for your business they can help mitigate any problems or contentious areas, and also give you an opportunity to set payment terms in your favour, along with providing a clear recourse action, should non-payment occur.

Your Terms and Conditions is the contract document that sets out the terms and conditions that apply to the sale or supply of your goods or services. It is recommended you do not copy Terms and Conditions from another business as no two businesses are exactly the same and there is no guarantee that the original Terms and Conditions you might copy are actually effective.

Terms and Conditions can be crucial to your business as they greatly affect your contractual obligations, payment terms, debt collection, liability exposure and other fundamental factors which can influence whether your business succeeds or fails. Terms and Conditions are vital to any well managed business and a business without them is vulnerable to a range of problems. Add to your business’s competitive advantage by ensuring you have the right Terms of Trade for your business. It’s always better to be ahead of the pack.

Many small businesses do not have written Terms and Conditions, often instead relying on a handshake or a basic written quote. And if they do have Terms and Conditions, they (unknowingly) are often not legally enforceable because they are not effectively included in contracts with customers and therefore do not bind the customer. This unenforceability may only come to light when the business owner seeks to recover an overdue debt from a customer, but by then it’s too late.

The importance of getting your Terms and Conditions accepted

Many businesses work on the assumption that it is enough to include their Terms and Conditions on the back of an invoice or even just on their website. This approach does not allow you to prove that your customer agreed to your terms, especially if your terms are on the back of an invoice. In fact, the contract with your customer is normally deemed to have been formed long prior to an invoice being issued. The best most robust ways to get your terms accepted are to get your customer to:

• Sign a copy of the terms
• Click a box on your website when they place an order

When drafted correctly, Terms and Conditions:

• are legally binding
• outline the rights and obligations
(for you and your customers), relating to the sale of products or provision
of services
• set out what customers can expect when dealing with your business and how disputes will be dealt with
• specify how and when goods and services should be paid for, and what the consequences are if payment is not made in line with the contract
• allow you to undertake credit checks and assess the Credit Risk before you start work or issue an invoice
• allow you to register a financing statement on the Personal Properties Security Register (PPSR) to become a secured creditor
• help protect your business and may limit your liability
• recover or pass on any collection costs in the event an invoice is not paid on time and is referred to a collection agency
• allow you to collect and use your customers Personal Information

One of the easiest ways to get your Terms and Conditions accepted is to include them on the back of a customer information form, which you would give to a customer when you first meet them. This allows you to record all the information for quoting and/or billing purposes and allows you to get your Terms and Conditions accepted at the same time before any discussion about the price is started. You will always need this information and it is good practice to form this habit. Good habits make successful businesses.

Overcoming objections

Terms and Conditions are intended to be fair and reasonable to both parties, and it is not normal for a customer to object to signing them. In effect if your customer refuses to sign your Terms and Conditions then we strongly suggest you do not continue to do business with them. Having your Terms and Conditions signed is one of the most effective ways of ensuring that you get paid and for a customer to refuse to sign them is a good indication of how they will treat your invoice when work is completed. If a customer is uncertain about what they are signing, then seek feedback about what they are not happy with.

Payment terms

Setting appropriate payment terms is an important part of ensuring your business has sufficient cashflow to meet your obligations to staff, suppliers, and yourself. Many businesses default expecting payment on the 20th of the month after the invoice is issued. This does not need to be a default position and just by changing payment terms to; on completion, 7 days, 20 days, significant improvements to your cashflow can be made. Having a clause within your Terms and Conditions to specifically address this allows you the flexibility to set the payment terms and take advantage of the improved cashflow.

What if I do not issue invoices

Even if your customers pay for everything in advance you should still get your Terms and Conditions signed as this helps to resolve and disputes that may arise during a project. For example, if you are working on a boundary fence and require access from a neighboring property but this is not granted then the project may be delayed or cost more because alternative access needs to be arranged. Similarly if you intend to use equipment onsite but access is restricted due to weather conditions or other unplanned events. The responsibility for who has to provide access or obtain permission to access a site is just one area that can be easily addressed in the Terms and Conditions and though it might seem trivial, it can easily solve arguments that are presented to you later by a client.

Know your customers

Covid has caused a multitude of disruptions to all of our businesses, had a large impact on the economic environment. It is now more important than ever to evaluate your customer’s ability to pay before you start work and also to take advantage of the added security that being a secured creditor brings. These are both important elements that are dependent on
what has been included in your Terms and Conditions.

Drafted correctly they should allow you to undertake a range of credit checks and also to register a security on the Personal Property Securities Register (PPSR). These steps allow you to make informed decisions about a potential customer’s ability to pay and also allow you to further protect yourself by becoming a secured creditor which becomes important if your customer becomes insolvent. Sadly this is becoming more common and this trend is expected to continue for the next 18-24 months.

Getting paid should not be an arm wrestle. Following some basic steps before starting any work and if any variations or changes occur along the way, goes a long way to eliminating any disputes at the end of a job.

There is always the chance that once you have finished the work your client might admit they have no money to pay. Again some simple steps taken before work commences can identify this issue and also highlight any previous history of non-payment etc.

Establishing a Terms and Conditions document specifically for your business is a worthy investment to increase the likelihood of payment, to minimise and prevent bad debt, and to mitigate risk. More often than not, people or businesses who supply goods or services without Terms and Conditions regret not drafting one once unfortunate circumstances arise that eventually lead to disputes.

The best time to start using Terms and Conditions was when you started your business. The second best time is now.

Please feel free to contact New Zealand Business Tools if you’d like to review your Terms and Conditions to ensure your business is protected.

 

Article provided by

Stephen Conti


New Zealand Business Tools
nzbt.co.nz