Terms and conditions can make or break a New Zealand business. No matter what you call them - terms of trade, conditions of sale or even rules of engagement - having comprehensive written policies for how you do business is critical for long-term sustainability.
Take a 2017 Xero Australia study, for example, which found more than 62 per cent of businesses were waiting to be paid. On top of that, it found some 71 per cent were dealing with suppliers or big businesses that either had longer payment terms than their own, or did not adhere to those rules at all.
The impact of poor or ignored terms of trade can be massive. Cash flow suffers, staff can remain unpaid and New Zealand organisations run an ever-higher risk of becoming insolvent. While the McDonald Vague team has decades of expertise in managing such financial difficulties, prevention is always the best cure - and that begins with shoring up your payment terms.
How to strengthen your business' terms of trade
Terms of trade are the framework upon which all of your business' transactions will take place. However, they can be easy to gloss over or base on a simple template that doesn't provide enough protection specific to your business. Should financial issues arise or payments fall into dispute, terms of trade can outline exactly what your or your suppliers' obligations are.
Payment terms that don't cover enough potential risks can expose you to losses, but these strategies can help you to build better policy.
1) Clear definitions of parties and payment
One of the base elements of terms of trade, but critical to get right. Terms of trade should clearly outline who the buyer and/or vendor are in a contract, who has the right to set or negotiate prices, and whether any trade discounting applies.
If you are uncertain about how much detail to include in terms of trade (or would like to review existing terms), the McDonald Vague team is on hand to help.
2) Comprehensive payment details
Existing prompt payment discounts, potential penalties and any negotiable terms of the transaction: these are critical for ensuring minimal risk in any business operation.
For example - if a client repudiates a contract and the terms of trade do not outline when this is possible or whether penalties apply, you may find yourself entering a protracted and costly legal battle. By accounting for every variable in your payment terms, you establish some form of legal protection well in advance.
Make sure to include eligible methods of payment and, where feasible, due dates or payment times.
3) Relevant legislation
Most of the time, parties will have legal obligations to fulfil. These may be under legislation such as the Companies Act 1993 or under the Consumer Guarantees Act, so any relevant laws should be cited in your terms of trade. This can include any pertinent guarantees or warranties that apply to the goods or services.
4) Ownership and risk
Terms and conditions should be explicit about when parties assume ownership of a product or responsibility for its risk. This extends beyond the goods or service involved in the transaction, and can include the use of contractors, any liability associated with product delivery and any relevant registrations on the Personal Property Securities Register.
This can also extend to cover liability limitations and acknowledgment of IP copyrights or trademarks that apply.
5) Dispute resolution processes
As the documents that can protect your business in the event of trade dispute, terms of trade should outline exactly how those issues will be followed up or resolved.
This should go beyond measures you will take in the event of non-payment, and include how buyers should act if they feel goods are damaged or not what was promised. Cover off how refunds will be processed, if they apply at all, and what happens if someone defaults on payment.
Don't leave your business' terms of trade to chance
Paperwork is never the most appealing part of operating a New Zealand business - but it is the most important. At McDonald Vague, we provide comprehensive business recovery and turnaround services that include detailed reviews of your terms of trade.
If you have any concerns about your terms and conditions or want to pursue a potential dispute, contact our team for an initial consult.