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Why Do We Need Terms and Conditions of Trade?

by | Jun 28, 2017 | Corporate & Business

Many of our clients who are suppliers of goods and services operate under formal written terms and conditions of trade.

Prudent clients usually have their terms and conditions periodically reviewed to ensure they provide the best available protection.

For example, in recent years many suppliers of goods have amended their terms and conditions to include new provisions under which the customer grants a security interest over the goods supplied in favour of the supplier, to support the customer’s payment obligations. The grant of the security interest enables the supplier to register that security interest on the register created under the Personal Properties Security Act 2009 (Cth) (PPSR).  Without registration of a security interest, a supplier might not have the ability to recover the goods, or amounts owed with respect to the goods, if the customer goes into liquidation or declares bankruptcy.

However, it is evident to us that there are many suppliers who trade without proper terms and conditions or with outdated terms and conditions which do not entitle the supplier to register security interests on the PPSR.

The simple answer to the question as to why terms and conditions of trade are necessary is twofold:

  • to clearly set out the terms of the sale of goods and/or services arrangement (ie the contractual relationship) between the supplier and the customer; and
  • to provide the some protection a supplier of goods may need in the event of non-payment.

Typically, when a supplier is dealing with a new customer the supplier will provide the new customer a credit application, usually accompanied by a director’s guarantee.  At this point we recommend the supplier also provide its terms and conditions of trade to the new customer and arrange to have the credit application, the director’s guarantee  and the terms and conditions of trade signed by the new customer.

Apart from the usual mechanical provisions regarding ordering of goods and/or services, price, delivery, price variation and variation and cancellation of orders, terms and conditions should clearly set out:

  • the terms of payment;
  • an obligation on the customer to pay interest on outstanding amounts at a specified rate if payment is not received on the relevant due date;
  • a right in the supplier to charge the customer all costs (including legal costs) incurred by the supplier in pursuing and recovering unpaid amounts;
  • retention of title (whereby title to the goods is not provided to the customer until such time as payment for the goods delivered have been received by the supplier) and the right for the supplier  to access the customer’s premises to recover the goods; and
  • PPSR provisions enabling the supplier to register a security interest on the PPSR.

Of course, there may be other specific or unique provisions depending upon the nature of the goods and services to be provided.

We have experience in preparing and amending terms and conditions of trade for suppliers of goods and services of various types.

If you would like more information on terms and conditions of trade please contact Nevett Ford Melbourne.