Introduction It is rare to see a contract form any part of a sale within a small business. The reasons for this are varied: its not the done thing, it complicates matters, its too expensive to get a solicitor to make one, the service/product is not conventional, never needed one, already have a contract of sorts, too busy etc.
All of these are probably fair, given the individual and relevant reasons that your business has.
All of these are probably fair, given the individual and relevant reasons that your business has.
But, every time you raise an invoice, you ARE producing a contract. The invoice clearly lays out the product, how much the product costs and by what date the products need to be paid for.
The problem with the invoice being seen as a contract is that the format of an invoice is much the same the world over. There is little to draw the attention of a customer to any one of the key areas of the invoice: say, the date you want your money by (many suppliers will add a short line on the invoice reminding the customer to pay by a certain date): many have nothing!
Do you take advantage of the government legislation (the Late Payment Act 1998) that lets you charge your debtors a fixed interest penalty for not paying you when due. What happens if the cost to you for non-payment is in excess of the fixed amount?
Those of you that provide goods on credit have another dilemma: once you allow the goods out of your possession you enter a risk situation that can mean the loss of your goods even if your customer became insolvent the following day: your goods could be sold to reduce your customers debt to, say, the Inland Revenue!
If you give your customer a credit limit, what do you do to get them to understand and honour the arrangement?
Do your customers know what to do if they have damaged goods? Do they know the time limits that apply to returns, or who they must officially report any problems to?
You Don't Want to Lose Business!
It is not true that businesses with a policy of ensuring all their customers follow written terms and conditions suffer from a loss of business. It is the case that some potential customers do not take the option of credit in such circumstances: but this is not loosing business, its saving resources for customers that will adhere to the conditions you agree to trade by.
Terms & Conditions of Sale: What Do You Need
In addition to the normal contents of an invoice, you may want to cover some of these:
- A clause that covers your basic payment terms
- A clause for late payment
- A clause to protect your ownership of the goods until fully paid
- A clause that covers the reporting and exchange of faulty goods
Whether you use the front or back of your invoice (and/or monthly statement) or a separate document, the case for using some degree of terms and conditions far out weigh the reasons for not using them.
Don't forget, having your own contract is not about being officious, its about showing your customers you care about your business, and their relationship with you. After all, you cannot walk up to your bank and ask for £5,000 on the basis that you promise to repay it!
Guarantees
Every time you raise an invoice to a limited company, you could end up with an uncollectible bad debt. With the limited liability afforded to the most novice of company directors, it would be folly to allow unsecured credit.
It is a simple matter of asking one of the directors to sign a document that says - in the event of the company folding, the director will personally guarantee the outstanding balance. In larger companies (such as the recent case of ITV Digital and the Football League) a Company Guarantee can be sought from the parent company (of the company you are invoicing).
Free Contracts
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