Sound, professionally prepared credit documents specifically designed for a company and its business are essential credit management tools, but many SMEs continue to operate with less than half of the credit documentation they really need.
It is certainly true that a good set of Terms & Conditions in particular can be relatively expensive in the short term, but doing business without them can be a great deal more expensive in the long term - particularly when the economic outlook is less than rosy and seems set to stay that way for the foreseeable future.
New account opening forms, Terms & Conditions, Guarantees and other contractual documents are important safeguards against your customers' potential failure - which makes them a good investment.
Using Credit Documentation Correctly
Using credit documentation correctly is just as important as making sure that you have the right documentation in the first place, because even the best documentation won't offer full protection unless it is used properly.
Failing to ensure that your documentation is easily legible, that it is used correctly, and that all of it reflects changing circumstances and current legislation can jeopardise your company's financial security.
Many companies now design their own documentation using the text supplied by a professional third party. The bundle of necessary documentation can run to many pages, and there is therefore a temptation to use a very small typeface so as to reduce its bulk and weight.
ALL Credit documentation MUST be easily legible (i.e. without the aid of a magnifying glass!) if it is to be accepted by a Court. An 8 point typeface is the minimum acceptable typeface. Using double columns is the easiest way to save space and retain acceptable levels of legibility.
You Must Make Your Customers Aware Of Your Terms
Insofar as using Terms & Conditions correctly is concerned, the fact that sale terms will be included in each contract and become effective only if they are 'included in the offer and accepted by the buyer' means that your company must be able to prove that a customer had notice of the terms prior to or at the time of making the contract - and, moreover, that both parties intended to include those terms in the contract (concensus ad idem).
As a result, not only should all new customers be made aware of your company's Terms before trading commences, but your company's entire customer base must be circularised with a fresh copy should its Terms & Conditions change for any reason.
You Must Be Able To Prove That Your Customers Were Made Aware Of Your Terms
Obviously, and to ensure that the intention to include those terms is the intention of both parties, amended Terms & Conditions need to go out under cover of a letter requesting that customers "signify acceptance by signing and returning the enclosed copy of this letter". Many customers inevitably fail to do this, and because it is difficult to prove that silence indicates consent, it is also advisable to add a sentence to the letter to circumvent that obstacle. "Should we not hear from you accordingly, your silence will be taken to indicate your consent to these new Terms", for example. All envelopes, of course, should bear a return address, so that any undelivered mail can be returned to you via the dead letter service.
Don't Cut Corners
Many companies try to circumvent the time and postal expenses involved in circularising customers by endorsing their Terms & Conditions on their invoices. The belief that this alone is sufficient to incorporate the conditions into the contract is as widespread as it is misguided.
Contracts are made long before invoices are rendered, and Contract law makes it quite clear that agreement to accept Terms must be made prior to, or at the time of, making the contract and accepted by both parties. Terms endorsed on the back of invoices are not enforceable, and cannot by any manner of means be made out to be so.
It is important to appeciate that a set of Terms & Conditions, however good, doesn't last forever. Terms have a 'shelf life' the length of which is determined by external factors. In the best regulated circles, Terms & Conditions are professionally audited annually to make sure that they comply with new legislation and ensure that the company may benefit from that legislation, try to circumvent it, or attempt to lessen its impact.
What We Can Do To Help
We can advise upon and prepare professional 'safeguard' documentation to afford you the best possible protection against loss or the insolvency of your customers - and we offer a free annual audit service to review your documentation and advise upon updating it appropriately.
Please contact us for an estimate of fees for the provision or updating of your company's basic credit and other documentation.