Posted by De Novo Legal - 4 October 2022
Playing a game without clear rules is a recipe for mayhem.
Good terms of business (otherwise known as terms of trade, or commercial terms and conditions) set the rules of the game - they clarify expectations and set the terms of engagement, allowing suppliers and customers to buy and sell confidently. This in turn means fewer disputes and less reliance on external arbiters and, as a result, less frustration, uncertainty and legal cost.
Taking the time to ensure your terms of business are relevant, understandable, compliant and clearly accepted is a key step to minimising future headaches for your business and protecting your hard-earned revenue.
Check your terms of business are working for you by asking the following four questions.
1. Are your terms of business protecting your unique business interests?
In writing your terms of business, it’s tempting to source standard boilerplate terms or take a defensive stance and simply list out the various ways your customers will accept any and all risk and responsibility. I mean, who’s going to read this stuff anyway?
However, taking such an approach will not only erode the customer experience, in some cases it may also be unlawful (more on that below).
Terms of business should protect your business’s unique and legitimate interests. Your company's unique and legitimate interests are the things it relies on most to generate and protect its revenue. Depending on the nature of the products and services your business provides, your business interests might include your company’s intellectual property, its employment relationships, its physical assets, brand and reputation, relationships with other customers, or relationships with suppliers and other third parties. Perhaps it’s all of the above, with one or two taking priority.
To ensure your terms are working as best they can to protect your business and its revenue, they should be tailored to your business, and written in a way that protects your company’s priority interests from loss or damage. Using terms that are overly broad, irrelevant or unsuitable for your business not only risks unnecessary disputes, but it exposes your assets and revenue to loss when things go wrong.
2. Are your terms of business supporting your brand?
Given terms of business are presented near the outset of the customer relationship, in many cases they may be one of the first written forms of communication your customers receive from your company. Terms of business therefore provide an opportunity to set the tone and basis for how you operate as a supplier, just as an employment contract is an opportunity to set expectations for new employees.
Many organisations spend significant time and energy perfecting their external branding and marketing collateral, forgetting to align their terms and conditions to the same tone and language. Winning a new prospect with a wonderfully perfected pitch, then tabling lengthy, complex or off-brand terms and conditions can compromise the newly formed customer relationship.
Terms of business don’t have to be an ugly or clunky add-on. To ensure they’re supporting your company’s brand and a positive customer experience, they can and should be aligned to the rest of your organisation’s language, branding and tone.
Don’t forget your terms of business when designing your customer onboarding experience. Consider whether your terms of business are sufficiently aligned to your company’s external tone and language to ensure they’re working to support, and not erode, your hard-earned brand.
3. Do your terms of business comply with the Unfair Contract Terms regime?
In reviewing your terms of business, it’s critical to check whether they’re legally compliant. In NZ, this includes ensuring they comply with the recently enacted laws prohibiting unfair contract terms, if applicable.
These new laws came into effect in August 2022 to prohibit the use of unfair terms in standard form small trade contracts. Along with a number of other types of contracts, the new rules cover many standard form NZ commercial agreements including standard form terms of business. Since March 2015, similar prohibitions have applied in NZ to standard form business to consumer terms of business. The new laws extend these prohibitions to cover standard form small trade contracts.
Importantly, “small trade” is a reference to the value of the trading relationship, not the size of the business. In very general terms, the new rules will apply to business-to-business suppliers regardless of their size, in any case where the annual value of the trading relationship is less than NZD250,000 (including GST) at the date the trading relationship arose.
If your terms of business are covered by the laws prohibiting unfair contract terms, now is the time to ensure they comply with the new requirements. Non-compliant terms risk exposure to customer complaints, adverse publicity and, in the case of an investigation or prosecution by the NZ Commerce Commission, significant penalties.
4. Can you prove your terms of business have been accepted?
In order to be able to rely on your terms of business, it’s critical to ensure they’re accepted by the customer before services are performed or products provided. Perhaps more importantly, it’s critical that you can actually demonstrate the customer’s acceptance of your terms, particularly in the face of a legal dispute.
How are your terms of business presented and accepted? Whether it’s by email, online check box, hard copy form or some other means, are you storing this evidence in a way that’s readily accessible? Could you demonstrate that a given customer has received and accepted your terms, and could you demonstrate that only today, but in one, two or five years’ time?
If not, it could be a costly mistake. Don’t find yourself in the position of a supplier who had no option but to spend tens of thousands on legal fees to recover unpaid amounts from a customer because there was no clear evidence that the customer had seen or accepted the supplier’s terms of business. While the supplier eventually recovered a small portion of the funds, it was only after an unnecessarily technical, uphill and expensive battle.
While it’s important that your terms are compliant, relevant and on-brand, in order to rely on them it’s critical that you can demonstrate your customers have actually received and accepted them. Protect your business from unnecessary cost and frustration by ensuring you store evidence of customer acceptance in a central, secure and accessible location.
Take the time to review your terms of trade against these four questions to reduce unnecessary future cost and pain, and help set your business up for long-term success.