Maintaining a healthy cash flow and avoiding bad debts have always been two of the fundamentals for running a successful business. With the slow down in many markets and increasing fuel and other overhead costs, the need for businesses to have effective credit control systems in place is more important than ever.

A key component to this is having a reasonable and effective set of trading terms and conditions for the business to use with its customers and (where applicable) suppliers. Properly drafted trading terms and conditions will build in protection for the business, enabling disputes with customers or suppliers to be handled more effectively; helping to reduce the risk exposure where something has gone wrong; and providing the business with the ability to act swiftly and effectively either to recover outstanding invoices or at least limit the financial cost when a customer ‘goes bad’.

Trading terms and conditions should be ‘standard’ in the sense of providing protection for the business in key areas which need to be covered for every transaction. However, care should be taken to obtain professional advice when reviewing and preparing the terms and conditions. Every business is different. The temptation is often to take a common template and simply insert the business details. This can lead to a set of conditions filled with matters of little practical relevance, whilst more important protections are inadequately provided for or completely missed. Obtaining professional advice is also important to make sure that provisions or limitations will be legally enforceable. The law imposes far more constraints on the provisions which can be validly used where a business customer is involved, as opposed to a private consumer.

It is crucial that the order process used by the business is allowed for. The business will only be protected if the terms and conditions form part of the contract with the customer. A common mistake is simply to print them on the reverse of the invoice sent to the customer. In many cases this will be ineffective, as for legal purposes the contract will have arisen well before the issue of the invoice.

Trading terms and conditions are not a stand alone remedy. They need to be used in conjunction with other systems and procedures to be fully effective. Staff should be properly trained in the order process so that they understand the ‘paper trail’ which needs to be on file to show the terms and conditions apply. On the credit control side, the terms should be supplemented by best practice on checking the credit worthiness of customers (credit references or obtaining online credit ratings); agreeing tight credit terms for payment or (where relevant) up front payments; and regularly reviewing the credit terms offered to account customers against payment history. Prevention is better than cure, but if a problem does arise and formal action becomes necessary, having evidence of the terms and conditions which applied to the contract enables legal proceedings to be pursued far more efficiently and cost effectively.