Creating your terms and conditions

Terms and conditions are essential for every business. Many businesses print their terms on the back of invoices and quotations or attach them to sales documents.

Creating effective terms and conditions for your business can be a balancing act. They need to be inclusive enough to protect your interests when you sell your goods or services, but not so densely packed with legal jargon to be off-putting to customers.

Your terms also need to be competitive. All things being equal, customers might otherwise be tempted to switch to suppliers with less restrictive terms.

Focus on being both clear and fair. Your aim should always be to build long-term relationships with customers.

A possible head start

Some industries have standard or very similar terms and conditions. This means you could approach your industry association or professional body for a sample of the standard terms widely used in the industry.

"Your aim should always be to build long-term relationships with customers."

Another tactic might be to contact similar businesses (perhaps in a different area if they are direct competitors) and ask permission to adapt their terms and conditions for your business.

If you can get hold of a typical set of terms and conditions, you can use it as a template or starting point for your own terms. However, don’t assume that the terms and conditions will automatically suit your business. You may need to add extra clauses to cover important gaps.

Terms and conditions checklist

Here are some of the issues that may need to be covered. Not all may be relevant to your business, but work through them and remember it’s important to get your terms vetted by a lawyer and an accountant, to ensure you have covered all the important bases.

Clarify terms
Define important terms used in your document clearly such as contract, buyer, seller, products and services.

Quotation
To avoid possible later disputes, explain exactly what you are supplying for the quoted price.

Outline any deadline for your quote. For example: ‘All prices are valid for 30 days from date of quotation’ or ‘valid until [date]’. Consider shorter time frames in volatile conditions.

Pricing issues
Contract price means the price of goods as agreed between the Buyer and the Company and as indicated on your invoice.

Customer acceptance
Clarify when you will regard the order as confirmed. This could be when the customer signs acceptance of you quotation or contract, but could also be when you start receiving instructions from the customer.

Make it clear that the buyer’s acceptance of your quotation or contract also makes your terms and conditions definitive and binding.

Order changes
Alterations to an order before it’s delivered can be very costly. Changes along the way are common in project work such as construction or software development and can add both delays and significant extra costs. Make it clear that customers will be responsible for any additional costs caused by their desired changes.

For example, a printer follows a standard practice of getting the customer to sign acceptance of final proofs of letterheads, business cards and other business stationery. Any later changes are billed to the customer.

Payment options and expectations
Clarify when payment is expected (such as within 7 days or 30 days of the invoice) and other payment terms. Consider giving customers a variety of ways to pay: check, cash, online direct credit or credit card. Specify any extra charges that might apply to any of these payment methods.

Delivery
The quote, order or tender should include a timeline for delivery. If no time is stated, then note that payment is due on delivery of the order, unless credit terms have been agreed.

Overdue penalties
If you intend to charge interest on later payments, make this clear in advance in your terms and conditions and get the customer’s signed acceptance beforehand.

Ownership
Speak to your lawyer about the terms you can use to identify ownership of the goods or services until final payment is made.

Dispute resolution
It can be important, especially for export orders, to specify an impartial arbitrator in case of disputes and clarify whose jurisdiction will apply.

Intellectual property ownership
If the goods or services you are supplying include an intellectual property (IP) component, define who will own the IP. For example, you may want to retain ownership of copyright texts or software coding. This can be an issue when you are licensing your goods or services rather than selling them outright.

Warranties
Explain what any warranties or guarantees will cover (such as defects or time limits) and what is excluded, such as misuse of the product or unauthorized repairs.

Make it clear if you will supply a complete new replacement or repair the product or service. If any shipping costs are involved (such as returning a product to your premises), specify who will bear the costs.

Note any policy you have on returning goods.

Shipping and insurance
Exports and long-distance deliveries in particular need clarity regarding who is responsible for shipping costs and insurance for goods in transit.

Liability
Consider a clause limiting your liability for any loss, damage or injury caused by your goods or services. Acceptance of your terms by the customer should mean your business is indemnified against claims or lawsuits.

Finally
Try not to go overboard on the ‘legalese’. Keep in mind that the purpose of terms and conditions for customers is to eliminate any misunderstanding about the relationship, thereby allowing both parties to make the right decisions.

Next steps

  • Work through the guide to list the important provisions you need to include in your terms and conditions.
  • Get a draft of your terms and conditions reviewed by a lawyer and an accountant. The terms need to be suitable both from a legal and business standpoint.
  • Focus on clear but fair terms and conditions. You want to keep customers, not repel them.
  • Keep your end of the bargain. Take responsibility for the quality and timely delivery of your goods and services and keep customers well informed of any delays or changes.

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