What to Put in Your Terms of Trade

Who and what

Strong terms of trade start by pinning down the basics, because vague basics are one of the most common reasons terms fail at the very moment you need them. Set out the full legal entity names and ABNs of both parties, describe what is being supplied, and state clearly that these terms govern every transaction between you. If you cannot say precisely which legal entity owes the money, enforcing a debt becomes far harder, so getting the parties exactly right is foundational rather than a formality.

If the customer is a company with limited assets, this is also the natural place for a director's guarantee, so that a real person stands behind the debt rather than just a corporate shell. A credit application, completed before you extend any credit, is the ideal place to capture all of this information cleanly and have the customer commit to it from the outset.

Payment terms and due dates

Spell out the commercial terms clearly and in detail, because this is the part of your terms of trade you will rely on most often. State the credit period you offer — for example net 14 — explain how the due date is calculated from it, list the payment methods you accept, and set out any deposit requirement for larger or riskier jobs. Ambiguity in this section is what invites disputes about when and how much is due, so the more specific you are, the less room a customer has to argue.

You do not have to write this from a blank page. You can draft clean, consistent wording with our payment terms generator and then tailor it to how your business actually trades, which is far quicker than starting from scratch and helps you avoid leaving gaps.

Late payment and interest

Include a late-payment clause if you want the option of charging interest or an administration fee on overdue accounts, because without such a clause you generally cannot charge either. The clause should state the rate that applies, confirm that interest accrues daily from the due date, and make clear whether that interest is simple or compound. This is the section that turns a late fee from a hope into an enforceable right, so it is worth getting right. Remember that interest and late fees are only enforceable if they are set out in the terms of trade the customer agreed to. This is general information, not legal advice.

For practical guidance on how to size these charges sensibly and apply them without straying into penalty territory, see how much late fee you can charge.

Protecting supply and getting agreement

Add the clauses that protect you specifically when things go wrong, since that is when terms of trade earn their keep. A retention-of-title clause means ownership of goods passes to the customer only once they have paid in full, which can help you recover the goods if they do not. A clause confirming your right to suspend credit or place a customer on stop credit gives you a clear basis to act, and a clause setting out how disputes must be raised stops a customer using a vague complaint to delay payment. Together these turn your terms from a wish list into real, practical protection.

Most importantly of all, get the terms signed or accepted by the customer before you supply anything. Terms a customer never actually agreed to are weak and easily disputed, whereas a signed terms-of-trade document, captured cleanly at the credit-application stage, is precisely what makes everything above genuinely enforceable.