The importance of your Terms and Conditions
When taking steps to improve your internal credit control function, one of the key things to get right is your customer facing terms and conditions. A well drafted set of terms and conditions can make your internal credit control function far easier, thereby reducing the number of invoices that are to be written off and potentially, the average number of days for payment of your invoices!
Terms and Conditions can be likened to a personal Will. How? In the sense that a business knows that they should have updated terms and conditions but in reality, reviewing and updating the terms and conditions often gets pushed to the bottom of the priority list. This is until something prompts the business to address this issue. Unfortunately, it is often litigation or having to write off a business debt, which causes a business to realise the shortcomings in the terms and conditions. By that point of course, the business has suffered a financial loss.
Ensuring that your terms and conditions are regularly updated, is however only half the battle. There are other steps that you can take, to ensure that your life is made easier when you come to chase an unpaid invoice. These steps include;
Ask your client to sign and return your terms and conditions
- It goes without saying that if you have a signed copy of your terms and conditions on your file, it is far easier to evidence the payment terms that have been agreed with your client.
- It is sensible to diarise a chase of all customers who fail to return their signed terms and conditions, within 7 days.
- In an ideal world, you will have always have signed terms and conditions on your file before supplying any goods and services to your customers.
- In reality, this is not always possible. Where this is impracticable, it is sensible to ensure that your covering letter, which encloses your terms and conditions, states that where you receive subsequent instructions from the customers to supply goods or services, the customer will be deemed to have accepted the terms and conditions, even if they do not return them signed. A copy of this covering letter should be retained on the customers file. This again assists you should the debtor subsequently argue that they did not agree your terms and conditions.
- It is sensible for your invoices to state on them the last day for payment and / or the agreed payment terms.
- It is recommended that you diarise the expiry of the payment term, so your internal credit control function can commence chasing payment immediately, even if this is simply a polite call to the debtor.
- Ensure that your internal credit control function has a “letter cycle” which starts as soon as the payment terms have expired.
- Make sure that your credit controller is fully aware of the terms and conditions and that he / she makes reference to them where appropriate (e.g. where there is a retention of title clause in the terms and conditions, this is often a useful tool to encourage prompt payment).
Other Considerations for your Terms and Conditions
- Where you supply goods, do you retain title in those goods (under your terms and conditions) pending full payment of your invoice?
- Do your terms and conditions allow you to claim interest and compensation for late payment?
- Do you seek a personal guarantee from directors where you are trading with a new client, limited company or an unknown quantity? Is this appropriate in the circumstances? If it is, this can dramatically decrease your annual “write offs”.
- Have your terms and conditions been reviewed in the last 12 months? Or following the delivery of new goods or services? If not, we would recommend that these be reviewed and where necessary updated, in order to ensure that they are as watertight as possible thereby increasing your chances of recovery, should litigation prove necessary. If you would like Breeze and Wyles to review your terms and conditions, please contact our Brendan O’Brien on 01279 715322.
To receive further fact sheets or for further information about our commercial debt recovery service, please contact Rita Wright of Breeze and Wyles Solicitors on 01992 558411 or firstname.lastname@example.org