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What every business owner needs to know about Terms and Conditions

Your business is probably one of around 80% of UK’s enterprises whose customers expect goods or services to be offered on credit. By this I mean your customers are likely to pay for your products following delivery or, say, 30 days after your invoice date.

Unless you are in the retail sector, one of the risks you face is the possibility of late or non-payment by your clients. Our Late Payment Tracker shows that late payment continues to be a significant business problem even after some recent slight improvement:

We analyzed data from the UK Government’s Annual Small Business Surveys (ASBS) since and Small & Medium Enterprise (SME) Business Monitors from 2003 right up to September 2009. Some 26% of SME employers still regard late payment as a ‘Big Problem’. However, as the above graph shows, this is still more than double pre-recession figures.

There’s strong correlation between the ‘Big Problem’ movements in red in the above chart and the rapid rise in UK company liquidations seen in the chart below:


  

In fact, the link between late payment and business failure is directly confirmed by the EU Commission for Enterprise & Industry which states that one in four of all insolvencies is due to late or non payment.

Furthermore, 56% of all SME’s with employees regard late payment as one of the top two causes of cash flow difficulties (Sep 09 SME Business Monitor). Anecdotally, owners of several mature businesses tell me that the days of doing business on a handshake are fast disappearing.

It’s clear that late & non payment of your invoices by both commercial and individual debtors could have a major detrimental effect on the financial health and survivability of your business.

Thankfully an important business problem has an equally effective and relatively low-cost solution. It starts with creating terms and conditions for your business written from a credit management perspective. Properly drafted, your business terms and associated client documentation can help to ensure that your invoices get treated with priority by your customers.

Sound business terms and conditions can make a huge difference to your cash flow because:

- they help prevent late payment by your customers or debtors
- they can give you real options in case of non-payment by your customers

How can a great set of terms and conditions prevent late payment?

- We’ve seen debtors being favoured over the last decade by a succession of changes to the Sales of Goods Act, Supply of Goods & Services Act and the Data Protection Act. But it’s still possible under English Law to write your own contract with your customers. If carefully written, your terms can help to swing the pendulum back towards favoring you as a creditor.

- Your terms can help to better define the business relationship with your customer. This leaves fewer opportunities for ambiguities resulting in less wriggle-room for delinquent debtors.

- If used with the correct client documentation such as a Credit Account Application, your terms can tie your new clients to your business rules (i.e. your terms) and simultaneously identify your new customers more thoroughly. A client of ours lost more than £20k by simply not knowing who his client was. By the time we tried to recover the money owed, the debtor had gone into liquidation. Correct information is vital to perform a simple credit check on clients both new and old.

- Accurate credit information about your client then enables your business to adopt different payment and delivery terms for those clients who are not fortunate to have a positive credit history.

- Well-worded terms and conditions can reduce the incidence of misunderstandings with your clients. They can also place a time limit on defects thereby reducing spurious client disputes raised to avoid or delay payment.

- But better than this, if fully employed and leveraged in your business day-to-day credit management procedures, your terms will enable you to massively improve your business' cash flow. We can show you how.

How can terms and conditions reduce non-payment?

- Title and Retention of Title clauses, again if professionally worded, can help your business reclaim goods if your client goes into liquidation.

- If you have peppered your terms with appropriate Consequences of Default type clauses, then you or your collection agency can chase your delinquent debtors harder. Because what you can say to your clients when chasing them for payment is governed by what is written in your terms.

- If a debt does require attention by a professional collector, there's a greater chance of collecting that debt due to the strength and clarity of your legal position afforded by the strength of your terms and conditions.

So why not provide your business with a legally-enforceable shield that not only protects your cash flow but has the potential to boost it too; preferably a shield that works and one that is custom-made for your business.

About the Author

John Hackwood creates bespoke terms and conditions for business clients to help protect their cash flow from late payers and delinquent debtors. He has more than 30 years’ financial services experience including 17 years with NatWest in the UK and 10 years for international banks overseas. He is supported by qualified legal professionals.
Get a free quote for a great set of terms at => www.termsandconditions.co.uk

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Tags: business, contract, contracts, employment law terms and conditions, freelance, Legal

This entry was posted on Tuesday, November 4th, 2008 at 8:49 pm and is filed under Labor and Employment Lawyer. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.