Your terms and conditions might not apply. Here's a 60-second self-check.
Roughly 80% of our cash flow stability and control comes from 20% of our effort and discipline.
Making sure your terms and conditions actually apply is one of those small disciplines that pays off.
Many businesses feel confident they trade on their own terms and conditions. They paid a lawyer to draft them, and the terms sit on every quote, invoice and website page. Then a customer sends a purchase order, the business fills it, and waits for payment. What many business owners don't realise is that the purchase order may have quietly replaced their terms. Purchase orders often include fine print saying the supply is on the customer's terms. If the supplier says nothing and simply delivers, the customer's terms are likely to apply instead.
60-second self-check
Answer yes or no to each question:
Do your customers send purchase orders, or ask you to sign up to a supplier portal?
Do those documents refer to the customer's own terms and conditions?
Do you deliver or start work without replying in writing to confirm your terms apply?
Are you relying on terms printed on quotes or invoices, rather than terms the customer has signed?
Were your terms written more than a few years ago?
If you answered "yes" to any of these questions, there are likely to be gaps in your business processes that are worth closing. The good news is that every one of them has a simple fix, set out below.
Why your terms matters
When the customer's terms win, a business can lose the protection it was counting on and take on obligations it never agreed to. The most common risks are:
Payment terms. Your 14 day terms can become 45 or 60 days from end-of-month, with no interest on late payment.
Retention of title. You may lose the right to recover unpaid goods, and have nothing to register on the PPS Register if the customer becomes insolvent.
Liability caps. Limits on your liability, or exclusions of consequential loss, may disappear.
Warranties and indemnities. You may be giving promises you would never have signed up to.
These clauses usually don't matter while things are going well. They matter most when there is a defect claim, a late payment or an insolvency.
But our terms and conditions say they prevail. Why is there a problem?
A reply that changes the terms is not an acceptance. It is a counter-offer. When terms and conditions go back and forth, the terms usually belong to whoever sent the last document before the other side accepted, often simply by getting on with the job. Put simply, whoever fires the "last shot" usually wins. So if your quote is followed by a customer's purchase order and you deliver without replying, you have probably accepted their terms. Clicking "I agree" on a supplier portal can have the same effect.
Many standard terms include a clause saying "these terms prevail over any terms in the customer's purchase order". It is an essential clause to have, but it is not a silver bullet. It only helps if your terms became part of the contract in the first place. If the customer's purchase order was the last shot and you accepted it by delivering, your terms, including the "prevail" clause, may never have formed part of the deal. The customer's form will usually contain a mirror-image clause anyway.
If there is a dispute, the business relying on a term, such as a warranty, payment or variation term, will usually have to prove that its terms apply. The fine print does not win the battle on its own. What you do when the order arrives is what counts.
Five simple fixes*
You can win this battle with good habits.
Read every purchase order. Train the staff who process orders to flag any that mention the customer's terms.
Reply in writing before you deliver or start work. Confirm you acknowledge the order only on your terms, and attach them.
Get your terms signed up front. A signed credit application that adopts your terms for all future orders puts you in a much stronger position.
Use a supply agreement for key customers. It should say expressly that it overrides any purchase order terms.
Have your terms reviewed. Make sure they reflect the risk your business faces today, the unfair contract terms laws and the Personal Property Securities Act.
If a major customer insists on its own terms, accepting them may be a sound commercial decision, after you have had the opportunity to negotiate and reshape any clauses that are too risky.
Not sure how you scored? Let's check together
Send us your terms and conditions, your quote and a recent customer purchase order. We'll tell you whose terms you are likely trading on, and help you close any gaps. The commercial lawyers at M6:8 Legal work with businesses across Perth from our office in Myaree.
Call (08) 9316 8363 or email admin@m68legal.com.au.
*This article contains general information only and is not legal advice. You should obtain advice specific to your circumstances before acting.
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