Terms & conditions – are they really important?

Getting your terms and conditions drafted professionally is never a top priority when starting a new business. Many may steal from competitors, ex employers or use templated documents instead of getting their own documents drafted, which is dangerous and not effective.

Every business no matter the industry should have a standard set of terms that they use for each transaction. If they are written correctly they are written with your business in mind and the way your business operates from start to finish must be considered. No two businesses are the same, the sales process, the way you invoice, the term of the contract, what is expected from the other party can all be very different and it is important to mirror all these processes in your terms.

I often hear that businesses are concerned about ‘scaring customers off’ with terms and conditions. It is actually quite the opposite, having a clear, direct and understandable document attached with any proposal or quotation will show you off in a professional light not a daunting one. They should be clear and easy to understand and of course make sense. If you have copied them from another business and you don’t understand them, chances are your customers won’t either. You do not need to even attach the document if you don’t want to just make sure you make reference to them on your proposal.

By being transparent with how you work and your business processes, this will promote customer confidence. It reduces the likelihood of long-winded drawn out arguments about what was agreed during the negotiation of quotation process. You must also state what your customers obligations are, remember they can be in breach too. If you do not specify this in your terms and conditions you put yourself at risk of uncertainty, misunderstandings and the inability to be able to complete your obligations under the contract. 

When no terms have been applied to the contract, or ineffective terms have been used many problems can arise. Below I consider what is the absolute minimum terms that must be included.

Parties: Seems obvious but be 100% clear on who you are contracting with and whether that individual has the capacity to enter into contracts on behalf of the company. Always ensure you have full details of the company too, chasing payment without an address would be very difficult.

Term: How long is this contract for? Is it rolling? What happens at the end of the minimum term? It is in your best interests to make this very very clear so you can plan for business growth with client retention.

Payment:

  • Be clear on the price, be clear on what is included in that price.
  • Be clear on how payment is due, payable on invoice? Or by standing order?
  • Late payment is unfortunately a fact of life for small businesses, as there is often no urgency from your customers to pay you. With the right terms in place, you can ensure that you get paid first with no excuses for slow payment. Furthermore, there is no question over the work that has been completed and whether the money is due at all as the terms consolidate everything that has been agreed.

Limitation of liability – All contracts, in particular business to business contracts, carry a risk of liability. Legal liability can arise from breach of contract, negligence, misrepresentation and infringement of IP rights.  A limitation of liability clause is essential as it serves to limit the amount and types of compensation one party can recover from the other party should any of these things occur. If you do not cap the amount of your monetary liability you have to customers, you will be liable for an unlimited amount which could wipe out your whole business. You also want to think about what you are warranting when delivering your product or service.  If you are building a website, do you warrant that website will make that business money? Will those words you are writing as a copywriter win huge contracts? You’d be surprised at what the other party may try when disputing an invoice.

Amendments and variations –The amount of money that is lost in businesses because this is not considered or made clear is insane. Whether your business provides a service or a product it can often change as the relationship progresses and can be very different from what was originally quoted. It is down to you to put those boundaries in place, if you originally quoted 10 hours but then the job has become more like 12 hours, charge for that. Rely on your terms and ensure you are being paid for ALL the work you have done and not just what you have quoted for.

Alternative dispute resolution – Where disputes do arise, which inevitably they will it is important to be clear in your terms what the processes are. Disputes can be dealt with much quicker and cheaper than going through to court. Furthermore, many clients will come to us once something bad has happened. Anything from £100 – £1000s worth of revenue lost and with little or no backing in regard to terms and conditions, it makes it more difficult to recover those costs. A lawyer can present your case much simpler if the contract is clear which means less money spent on dispute resolution.

Know the law– This is obviously dependant on your industry. If you are selling to consumers you must be compliant with consumer law, there are different things to consider here. Cooling off periods for example and contract terms must be less harsh. Different industries also have different regulations you must adhere to, your terms must be clear on what these are and not be outdated.

This is, as I said earlier the minimum that should be considered when drafting your terms. Depending on your industry will affect what else needs to be considered.

For example, delivering goods? Risk and retention of title should be stipulated, potential storage costs and re-delivery fees.

Remember…

Just placing these terms and conditions on your website or even worse in your top drawer, they will not be effective as they have not been properly incorporated into the contract. Always expressly state in pre-contract communications that your business’s standard terms will apply.

Put some time and effort into understanding your own terms and conditions. Be sure they work for your business and should your business processes change then so should your terms.

Kerry Gibbs
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Kerry Gibbs

Kerry has a BA Hons (Criminology with Law) degree and also completed a Graduate Diploma in Law at Birmingham City University. She is currently studying for a Masters in Business Law at De Montfort and also CILEx Level 6 Diploma in Law and Practice. She particularly enjoys getting up to speed with new laws that affect businesses like GDPR and also supporting B2C businesses with her Consumer law knowledge.