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Why you need well drafted terms of trade and how they can affect your business.

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Between a buyer and seller of goods or services, contractual obligations exist, called terms of trade.

By outlining clear expectations, written terms of trade are an effective method of avoiding disputes and hence minimising bad debt.

The following matters should be clearly outlined in your terms of trade:

  • The legal entity must be properly identified.
  • The exact nature of the goods or services must be described.
  • The price of the goods or services must be clearly expressed including if the price is fixed or varied, whether it includes or excludes GST and if the price is a firm quote or an estimate only. If a quote is given, the period for which the quote will be valid must be clearly expressed.
  • The method of payment should be stated, including whether credit will be granted, and if so on what terms.
  • Delivery of the goods should be agreed, including when and where the goods will be delivered, how the delivery will be made and which party is responsible for delivery costs.
  • If installation of the goods is necessary, the obligations of the buyer to provide suitable premises as well as necessary services and amenities should be clearly outlined.
  • The terms must also state at what time the risks associated with the goods pass to the buyer, including which party will bear the risk of damage whilst the goods are being installed and which party will pay for insurance if required.
  • At what point the title to the goods passes between the parties is another important term. A ‘reservation of title’ clause, to be enforceable, must be explained fully to the consumer and agreed upon in writing. The consumer must also be given a copy of the agreement.
  • It must be stated whether a right exists for the seller to enter the buyer’s premises and repossess the goods if full payment is not received. Again this must be agreed upon in writing, with the consumer possessing a copy of the agreement for the term to be enforceable.
  • If a warranty is to be included in the price of the goods it should be outlined precisely what the warranty is for and for how long it stands.

As a seller of goods, it is important to understand your obligations arising from both the Competition and Consumer Act 2010 (Cth), the Fair Trading Act 1987 (SA) and the Sale of Goods Act 1895 (SA).

These three Acts prescribe guarantees for individuals in regard to defective products, which cannot be contracted out of between the parties.

However, if the goods or services are acquired for a business it is open for both parties to agree in writing that the Acts do not apply and that liability be limited to some extent. It is important to keep this in mind when establishing terms of trade. If utilised correctly, terms of trade can facilitate a smoother running of a business.

DISCLAIMER: this newsletter is not intended as legal advice; no reliance is to be placed hereon.