Updated: Aug 2
Small businesses – understandably – want to keep paperwork, admin and legal fees to a minimum, but there are some things you really shouldn’t skimp on. A robust set of terms and conditions, applicable to your business, is one of those core essentials. Yet all too often, businesses don’t get this right. Here are the issues we come across most often.
You don’t have any terms and conditions of business
Maybe your business started recently, or grew quickly from a hobby or a side hustle. It’s possible to go into business full of optimism, or thinking that you’ll test an idea before you invest. But once you have a business with any significant income, it’s time to move beyond that and get the basics into place.
You copied someone else’s terms and conditions
Small business owners watch every penny. It’s tempting to take someone else’s terms and conditions, then simply substitute your business name for theirs. Unfortunately, that’s not a great idea. Your business and the other business are different.
We handled a case where an SEO company had done exactly this. They copied the terms and conditions of another business in the same field, assuming this would cover all scenarios. Unfortunately for our client, the original terms and conditions also outlined deliverables for every project undertaken – and some of those deliverables were not in their standard offer.
They ended up in a situation where certain commitments were not in the proposal, but were in the detailed terms and conditions. A client of theirs refused to pay, since the business had not delivered as per the terms and conditions. Even though they’d done everything in the proposal, legally, they had an issue.
While there’s nothing wrong with looking at how your competitors handle specific issues in their terms and conditions, borrowing those terms without review is dangerous. The terms need to be fine-tuned to align with your business. That’s especially true if you’re a start-up and you adopt the terms of an established competitor.
You have more than one version of your terms and conditions
This often occurs when your business grows to having a website. The terms and conditions on the site may not match what you were already using. You end up with contradictions.
The challenge arises when you go to court to recover monies. With multiple different terms, the court can’t determine which ones actually apply. This can affect the amount of money you recover for goods or services provided.
· Firstly, the value of the goods and services will probably be judged by ‘quantum merit’ or market value, rather than any price in the proposal or agreement.
· Secondly, your right to any interest charge or admin fee is likely to fall away. These are costs you wanted to claim and probably thought were in your terms, but if those terms are inconsistent, your right to claim falls away.
Your terms and conditions don’t match your business processes
Another case we handled was an equipment hire business.
Their policy and process worked on the principle of continuous hire – that is, you hire equipment and keep paying a time-based hire fee until you return it. A client kept the equipment and didn’t pay the excess fee, so the matter went to a court hearing. That was when they first identified that the terms and conditions did not match policy and processes. Instead, the terms specified that if the equipment was not returned at the end of the hire period, a set fee was payable. They settled for less than they had expected, but at least they revised their terms to match their actual process and policy for the future.
If you are providing good or services for a fixed time period, it’s important to consider what happens after that time. Obviously it’s great to keep the customer, but clarify the terms. A common option is to specify that without a formal renewal or new agreement, you continue on the same terms on a one month notice, or two week notice, until someone issues a termination notice.
You haven’t got confirmation of your terms from your clients
It’s always a good idea to get your clients to sign your terms and conditions. Send them out every time. Then follow up to make sure a signed copy comes back.
You haven’t checked for any client amendments
Just getting the signed document back isn’t enough. You also need to check for any variations the client may have made.
For example, we assisted a company which hired out skip-bins. They had a rollover provision – something which is now deemed unfair, but at the time was acceptable. One of their customers kept a skip beyond the original time agreed. As far as our client was concerned, the rollover provision applied, so they applied ongoing charges and so on. Unfortunately for them, their customer had crossed out the rollover clause, so it didn’t apply. They weren’t able to recoup any revenue for the time after the original period.
So, be sure you check for changes to your terms and conditions, then set up processes to avoid exposure.
You haven’t addressed terms for any variation in scope of work
This happens a lot with services. The scope may change. While everyone agrees that being paid more for doing extra work is reasonable, suppliers often shy away from the tough discussion of exactly how much more.
As a lawyer, I know lawyers often have an issue with this. A challenge for us is that the initial letter of engagement defines the scope, but it may be a year or two old by the time a matter concludes. Plus, things change. The other party may be difficult. It’s vital to keep lines of communication open – the last thing you want is to catch clients by surprise at the end of the day.
The construction industry handles variations very well. The variation is provided in writing, the client has an opportunity to consider it, there are processes to handle disputes. Other industries are not so well set up.
Your terms and conditions include clauses seen as unconscionable
Your terms are meant to protect you, but they have to be fair. If a clause is patently unfair, it will be thrown out in any dispute.
Your terms and conditions are not up to date
Sometimes this is related to the previous issue. Changes in the law around privacy, consumer protection and so on can mean that some of your terms and conditions are unenforceable. So for example, the law around rollover provisions has moved in favour of the customer and you can’t just automatically roll over fees for ever.
Your business may also change in such a way that your original terms and conditions don’t really fit it well. Consider a physical retail business moving to online selling. Originally, a customer would buy something they could see and take it away with them. But what happens if they order online and you are out of stock? Can you supply something similar, or do you refund? Suitable terms here depend to some extent on the goods supplied – they could be different for shoes or foodstuffs, for example.
You haven’t notified clients of changes to your terms and conditions
Current law does not allow you to vary or update your terms and conditions without notifying your customers. It falls into the ‘unconscionable’ category.
That means it’s important to notify your customers of changes to terms and conditions, and ensure you have a process for handling any objections.
It also means that if you don’t notify all your customers, you can end up with different clients on different terms. We had one case where the company had up to 12 different versions of its terms and conditions. It was a mess trying to work out which versions applied to which customers.
*** As you can see, there are plenty of ways incorrect, incomplete or outdated terms and conditions can trip you up. From our experience with commercial disputes, we recommend:
· Starting with your own terms and conditions, created in consultation with a trusted and quality lawyer
· Regular review sessions to identify anything which may have changed. Probably once a year is ideal.
Investing a small amount of money to get this right can save you thousands of dollars in disputes, to say nothing of the time and hassle you avoid.
Choosing a reputable lawyer to help you with your terms and conditions
One final word of caution – don’t assume that every lawyer will do a good job of your terms and conditions. Some will create an off-the-shelf document for you by cutting and pasting. You’ll get something which is legally accurate, but it may not suit your business. Instead, go for a lawyer who sits down with you to understand your business.
If your lawyer doesn’t ask any questions about how your business operates, they’re probably not writing T&Cs which will work for you. Look for one who does. It may not be the absolute cheapest, but it shouldn’t be expensive, and you need to get it right.
Luis Ormazabal is a Growth Gen Mentor and Principal Solicitor at Emberson Lewis
Phone: (02) 9300 9406
Address: Suite 102, Level 1, 10 Bridge Street, Sydney, NSW 2000