For any business, supplying goods or services before payment is received carries a financial risk. Late or missed payments can quickly affect cash flow, and one of the simplest ways to manage that risk is to make sure your terms and conditions are working properly for you.
Terms and conditions are sometimes treated as an afterthought, but they set the rules for the relationship between your business and its customers. Clear, carefully drafted terms can help prevent misunderstandings, establish when payment is due and give your business useful contractual remedies when things go wrong.
How your terms and conditions can protect you from late payment or non-payment
Here are six ways your terms and conditions can help protect your business when invoices go unpaid:
Defining payment terms
Your terms should make it clear when invoices are due for payment and how payment is to be made. Setting expectations from the outset makes it much harder for a customer to argue later that the payment date was unclear.
Late payment charges and interest
For business-to-business transactions, the law may give suppliers rights to claim statutory interest and certain recovery costs on qualifying late payments. Your contract can also deal expressly with interest and the consequences of late payment. The wording needs to be considered carefully so that it works alongside the statutory regime and is appropriate for your business.
Retention of title
If you supply goods on credit, a properly drafted retention of title clause may allow you to retain ownership of those goods until they have been paid for. Whether goods can in fact be recovered will depend on the wording of the clause and the circumstances, so this is an area where tailored drafting is particularly important.
Suspension or termination rights
Good terms can give your business clear rights to suspend further supplies or bring the contract to an end where invoices remain unpaid. This can help prevent the debt from continuing to increase while a payment problem is unresolved.
Limiting liability
Appropriate limitations and exclusions of liability can help manage your business’s wider contractual exposure. They do not remove a customer’s obligation to pay an invoice and they are subject to legal controls, so they need to be drafted for the particular contract and circumstances.
Dispute resolution mechanisms
Invoice disputes can delay recovery. Your terms can set out how disputes should be raised and dealt with, helping to prevent a genuine query becoming an open-ended reason not to pay.
Why you should have your terms and conditions professionally drafted
It can be tempting to rely on a generic template, terms copied from another business or AI-generated documents. The difficulty is that they may not reflect how your business actually operates, may omit protections that are important to you or may contain provisions which are inappropriate or ineffective in your circumstances.
The most useful terms and conditions are those which match your commercial processes. That includes when you quote, how orders are accepted, when you invoice, the credit you offer and what you want to be able to do when a customer does not pay.
At Scott Bailey, we can review and update your existing terms and conditions or prepare a new set tailored to your business. The aim is not to make them unnecessarily complicated. It is to give you clear, practical terms which support the way you trade and help protect your position if payment problems arise.
To discuss terms and conditions for your business, contact our corporate and commercial solicitors.
