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14 May 2015

The Importance of Terms and Conditions of Sale

Posted By: AIB Business
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The task of drafting up a detailed set of terms and conditions of sale may not be a top priority when starting a new business. However, moving this task further up the list will save you time and money, writes Claire McDermott from Flynn O'Driscoll.

Preparation of standard terms is extremely important and cannot be carried out solely by your lawyers. It requires significant input from the business as important parts of standard terms are driven by the commercial realities of how the business operates, including the business's sales process, payment terms and how delivery of goods is to be affected.

We have dealt with some of the main considerations and standard terms below to steer SMEs away from some of the common potholes.

 

The Parties

This may seem basic but it is imperative that you know who you are contracting with. In the case of a company, ensure that you have the correct company name, address and registered number. A simple search on the Companies Registration Office website is free.

 

The Term

Know how long you are obliged to provide goods or services under the contract, and how and for how long the term will be renewed.

 

Getting Paid

Price: Clear provision should be made as to whether the following items are to be included in the price or are extra:

  • Packaging
  • Delivery and off-loading costs
  • Insurance.

A further consideration in relation to price and payment is VAT. It is common for prices to be quoted on an exclusive of VAT basis. However, if this is the case, this needs to be stated.

Time for payment: It is extremely important that it is explicitly clear in your terms and conditions when goods should be paid for e.g. at the time of order, at delivery or 30 days from receipt. It is crucial that there is no ambiguity here — once customers are fully aware of their payment obligations, there is little room for argument and the company’s cashflows should not suffer.

Reward early payment: Where credit lines are being offered to customers, i.e. where the customer is not under an obligation to pay for goods or services immediately, it may be in the company’s interest to offer an incentive to customers to pay earlier than required. For example, a 5% discount on payments made within 10 rather than 30 days will assist with the company’s cashflow. On the flipside, if you intend to charge interest on late payments this will also need to be clearly stated in your terms.

 

Liability

Make sure that your liability is limited or excluded to the fullest extent possible. Consideration needs to be given here to the Sale of Goods and Supply of Services Act 1980 and European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995.

 

Retention of Title

Make sure you have a clear clause on you retaining title in your goods until they are fully paid for all sums due. If a receiver or liquidator is appointed to your customer, you need a fully effective retention of title clause to get your goods back otherwise you may simply end up an unsecured creditor. Be careful in Main Contractor/Sub-Contractor situations as quite often these contracts provide for the elimination of retention of title and, if the main contractor becomes insolvent — even though the customer may be a government body — you may find you are solely an unsecured creditor.

 

Governing Law and Jurisdiction

Where you are contracting with an entity or individual who is not based in Ireland, they may seek to amend the governing law or the jurisdiction to which the contract is subject. It is in an Irish company’s interests to have their contacts governed by Irish law and subject to the jurisdiction of the Irish courts. To be forced into litigation outside the state may be very costly and time consuming. Court process in some European countries can extend for a few years.

 

Mediation v Arbitration

Where disputes do arise — and inevitably they will — it can be more expedient to refer such disputes to an alternative dispute resolution forum like mediation rather than going to the courts. In our experience, alternative dispute resolution can be faster and more cost effective than taking an action through the courts. Arbitration may be suitable for construction related contracts but is not appropriate for many other areas of business.

 

Make Sure Your Terms are Binding

Standard terms will only be effective if they have been properly incorporated into the contract. The simplest way of achieving this is to state expressly in pre-contract communications that your business’s standard terms will apply to any subsequent contract. This may provoke the other party to negotiate the standard terms, but this must be balanced against the risk that the terms negotiated will be binding and you are not unwittingly contracting under the other parties’ terms. We advise that standard terms should be contained on the company’s website, in quotes, purchase order forms, order confirmations, delivery dockets and invoices.

On a practical level, all sales or purchasing staff should be made fully aware of the importance of putting forward the business’s standard terms during any sales negotiations.

Where there is ambiguity as to which party’s standard terms govern a particular transaction, the courts will look at which party appears to have acquiesced to the other's terms. Usually, the last communication exchanged by the parties that was not explicitly rejected by the recipient will be held to constitute the offer, known as the "last shot" doctrine.

 

Conclusion

Put some time and effort into familiarising yourself with standard terms and conditions. Be sure that they work for your specific business and then get them checked by your solicitors. Make sure that your customers are well aware, or on notice, of their contents. Incompatible and/or confused expectations between parties are not good for your business, whereas clear written terms and conditions will help you to enforce your agreement.

 

Written by: Claire McDermott, Solicitor, Flynn O'Driscoll – Business Lawyers

 

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