Christmas is just around the corner, and your customers are scavenging for the best gifts for their loved ones. Many shops offer customers an option to pay for goods in instalments, known as lay-by. It allows customers to purchase goods at a given price but make the payments over a period rather than upfront. If your business offers this arrangement, you need to ensure that you comply with the rules of lay-by terms.
When is it Considered a Lay-By Agreement?
A lay-by agreement exists where your business allows the customer to pay for an item in at least two installments, and the customer won’t receive the goods until they have paid the full price. Even if you do not call it a lay-by agreement, if the payment arrangement meets those two requirements, it is likely that you will have obligations to comply with the law surrounding lay-by agreements.
What are the Requirements?
You must provide your customer with a written copy of the lay-by agreement. This agreement must include all the terms and conditions under which the agreement is formed. Your agreement must also address the termination fee.
Make sure that the agreement is written in clear, plain language so that your customers understand what they agree to.
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What if the Customer Wants to Terminate the Lay-By Agreement?
Your customer can terminate the lay-by agreement at any point before they receive the goods. If the customer does decide to cancel the lay-by, then you must refund all the amounts that the customer paid, except for the termination fee. As long as the lay-by agreement clearly describes the termination fee, it can be taken out of the payments that the customer has already made.
You can charge a termination fee if the customer changes their mind about the goods. However, the termination fee cannot be an unreasonable amount and should not be more than the amount of your reasonable costs associated with the lay-by agreement. For example, what are the costs involved to provide the lay-by arrangement, such as storage and administration. The termination fee is all that you can recover from a cancellation of the lay-by agreement. You cannot recover damages or other remedies from terminating the agreement.
When Can You Terminate a Lay-By Agreement?
You can also terminate the lay-by agreement if the customer beaches the agreement’s terms. For example, if they fail to pay the instalments by the set date.
If your business is no longer trading, or the product is not available anymore for reasons beyond your control, you are also able to terminate the agreement.
Conclusion
Make sure that your lay-by agreements satisfy the legal requirements. If you are unsure about your current agreement, you should get a lawyer to have a look at it. If lay-by is something you are considering for this Christmas season, get in touch with a lawyer to have them draft a lay-by agreement. Offering your customers a payment plan is one way you can make those Christmas sales!
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