Terms and conditions of trade credit
Why do I need terms and conditions when offering trade credit?
Whenever you offer credit arrangements for the payment for goods or services, you should make sure that you have a properly written set of terms and conditions. It’s vital that these Ts & Cs are clearly defined at the beginning of any agreement so that both parties are fully aware of their rights and obligations. Getting it right from the start can smooth the process, avoid disagreements from arising in the future and help to solve disputes. Identifying any potentially contentious issues early on - and forming an agreement as to how these should be dealt with if they arise - is much better than suddenly being faced with a difficult situation and having to decide how to solve it in the heat of the moment.
What kind of terms and conditions should I use when offering trade credit?
Terms and conditions should set out matters relating to the use of the credit facility by customers, governing issues such as invoicing and payment. They should also deal with the assessment of eligibility for a credit account, the specifics of setting credit limits, any reviews, and they should also cater for the suspension or cancellation of the credit facility if required. The more terms which can reasonably decided at the outset, the less chance of a misunderstanding arising during the course of the business relationship. A properly worded template document setting out credit account terms and conditions can be extremely helpful if you haven’t offered credit facilities in the past. These Ts & Cs can be used in conjunction with terms for the sale of goods and services to provide extra protection.
What happens if trade credit terms are breached?
If a client fails to pay on time or otherwise breaks the terms of any trade credit arrangement, before taking any formal legal action you may wish to first send them a letter which notifies them of the breach. This essentially acts as a soft reminder of the breaches to the credit terms and requests acknowledgement of the outstanding balance. Ensuring that channels of communication are always kept open and that any issues which could lead to disputes are established early can nip things in the bud and prevent a snowball effect and potential legal expenses. However, before taking any step seeking payment, you will need to check whether the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 apply to prohibit that or other steps.
A variety of documents which may help with terms and conditions of trade credit can be downloaded from our Business Documents Folder.