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Business trading terms you might not know about



Featured | Small Business

By Roger Mendelson

Proper trading terms establish a concrete foundation for your business, clearly defining your legal rights and relationship with our customer from the beginning.

We’ve all signed onto an online platform by acknowledging terms and conditions, however once read carefully, you would be amazed at what you’ve actually agreed to.

Chances are that your own business has trading terms that are inadequate. Many small businesses don’t have any written trading terms. The good news is that this is something that can be easily fixed but you will need some help in doing it.

If you don’t specify terms and conditions, you bring the risk of uncertainty and misunderstanding. It’s important to establish a clear arrangement between the two parties involved. Most of all, you need to cover all bases.

Consumer warranty

If you provide products or services to consumers, you must provide standard warranty guarantee clauses. A warranty is a voluntary promise offered by business which is selling the product or service. Once the product or service is bought, the promise becomes a right that can be enforced under Australian Consumer Law. If you don’t provide a warranty as provided by Australian Consumer Law, you may face fines of up to $50,000.

Debt collection costs

Every businesses trading terms should incorporate a cost clause. This would provide that in the event of the debt being outsourced to a debt collection agency, all debt collection costs would be included in the debt. This means that if there is ultimately a one hundred per cent recovery, the debt collection costs would have been passed on to your defaulting customer.

Director’s guarantee 

To greatly increase your recovery chances ask for director guarantees for all company accounts opened. This should be your default position. Director guarantees are extremely useful when it comes to enforcing a debt owed to our businesses, as it allows you to pursue the director of the company for what’s owed and he is much more likely to pay than the company customer, because he has more to lose.

As an alternative, you can include a clause that provides if the credit application form is signed by a director of the customer, they will be personally liable in the event of a default.

Statement by an authorised officer

There could come a time where your customer disagrees with the amount they owe. In the event that you need to prove the amount outstanding from a customer, it’s important to include a clause that a statement by a director or authorised officer of the company will be proof of the amount owing. This way there’s no confusion come payment time and it will make ultimate legal action much easier.

Estates

Special provisions need to be made in the unfortunate event of your customer passing away. It’s hard to imagine this happening, however you need to make sure you cover your bases.

When someone dies owing a debt, it’s important to make sure their debt does not die with them. A clause is needed to clarify that you can make a claim against their estate. Incorporating the right clause in your terms will allow you successfully sue the estate.

Caveats

If your business involves doing work with property, whether commercial or residential, it’s easy but very important to include a clause which “charges the real estate of the customer” in your favour. 

If you have this clause in place, you will be able to lodge a caveat over title to the property.

In the event of a default, by doing this your chances of being paid out in the future are substantially increased.

Legal Action

The above clauses will put your business in a much stronger position to sue successfully for your debt.

But more often than not, implementing these trading terms will usually mean you’re in the stronger position, and suing may not be necessary.


Roger Mendelson has more than 43 years’ experience operating Australia’s largest (by client number) privately owned debt-collection company, Prushka, which collects debts for over 57,000 small-to medium-sized businesses as well as major Australian companies across Australia.

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