Terms of Business: The things you can never learn from drafting your own terms of business

I recently helped out a contact who had drawn up their own terms of business based on an article they had read in a ‘small business supplement’ of one of the broadsheets. Whilst the intention of the article was well meaning in trying to highlight the main areas that a set of terms of business (or T&Cs) to cover, I could not help feeling that this is one of those areas where the contact would have benefited significantly from some professional advice.

Here at Gorvins we see a variety of T&Cs that clients are using. These range from one or two lines printed on the bottom of an invoice through to several pages of text, often ‘cribbed’ from a competitor’s website or cobbled together from a variety of different sources, usually found by the client on the internet. From experience the main concern of the client is usually payment terms stating when they can raise and invoice and when that invoice is payable (I can’t argue with that approach as ‘cash is king’). However, as lawyers we always look at other aspects, such as ways in which we can limit our client’s liability under their T&Cs if the ‘doomsday scenario’ occurs or to provide exit routes if a business is getting messed about by a customer who is not living up to its end of the deal. We also look if there is an unforeseen issue on the client side, which prevents them delivering on the contract.

For example, a company might be selling widgets at a few pounds each, which are fitted into a machine that forms an integral part of a production line for a multi-national company. If that widget fails I’m 100% certain the company would much prefer to be liable to re-pay the few pounds they received for the widget in question, than have to pay a sum equivalent to the loss of business/profit suffered by that multi-national company if its production line suffers a significant amount of downtime as a result of the widget’s failure. It is these types of clauses where a relatively small investment in getting some professional advice at the outset can result in a significant decrease in exposure and significant cost savings down the line.

Another area where there is a massive advantage to getting some professional advice is in relation to the actual procedure for issuing T&Cs to customers. This is the essential advice that no one ever gets from copying a competitor’s T&Cs from their website. The most common mistake is to see T&Cs written on the back of an invoice: the problem with this approach is that the invoice is ‘after the event’. From a contractual point of view, a contract is formed when one party makes an ‘offer’ and this ‘offer’ is ‘accepted’ by the other party. This usually occurs at the start of the dealings between the parties and certainly well before any invoices get issued. If the T&Cs are not incorporated into the contract by the ‘acceptance’ stage then they won’t form part of the contract and you may struggle to rely on your T&C’s if there is an issue further down the line.

Even when you have procedures in place to make sure your T&Cs are introduced into the negotiation prior to the ‘acceptance’ stage (for example by making sure they are attached to every quote or estimate, highlighting the fact all work undertaken/goods supplied are subject to the attached T&Cs), staff on the ground need to be mindful of what is known as ‘battle of the forms’. This is where a supplier will issue a quotation which is expressed as subject to the supplier’s T&Cs. The prospective customer then comes back with a purchase order (or some other correspondence), however, the purchase order is stated as subject to the customer’s terms of purchase. In essence, this is an attempt by the customer to ‘knock out’ the supplier’s T&Cs and introduce its own, no doubt substantially more favourable, T&Cs into the contract negotiations. If the supplier’s staff are not alert to this and accept the purchase order and supply the goods or services, it is more likely that the customer’s T&Cs will prevail on the basis they were the last ones in circulation prior to the contract being formed at the ‘acceptance’ stage.

Here at Gorvins we take time to sit down with our clients and understand the nature of their business so that we can produce a tailored set of T&Cs that are unique to their business and pick up any items which are slightly unusually or unique to the sector in question. From there we go on to explain to our clients the process around T&Cs to make sure they are properly incorporated into the contracts with end customers. This even goes so far as actually sitting down with the client’s in-house admin teams to talk them through the procedure, point out the pitfalls and train them to respond to the common issues as and when they arise. It is this added value and personal service we offer, which means a relatively small investment in some professional advice at the outset can reap massive dividends down the line.

If you are interested in reviewing your T&Cs and the internal procedures you have in place for introducing these into the contractual chain with your customers, then please do not hesitate to get in touch with me, Christian Mancier, via the main switchboard on 0161-930-5151 or via e-mail to christian.mancier@gorvins.com.