Terms of trade are the terms and conditions that you and your clients agree on before you start any work. Typically used in the trades industry, your terms of trade are very important for ensuring that you and your clients are clear on details such as: 

  • the scope of the work; and 
  • what rights you both have. 

Keeping everyone on the same page can reduce the risk of any disputes arising later down the track. In this article, we outline the key clauses to include in your terms of trade.

How Do I Use a Terms of Trade?

Whether you have been running your plumbing or electrical business for years or are just starting out, you are likely familiar with the process of providing clients with a proposal or quote before you begin any work. This first step ensures that the client is happy with the price and understands what work you will complete for them. Your terms of trade do not need to vary this process significantly. The terms of trade can be attached to your proposal or quote to set out the rights and obligations of both parties in more detail. The key terms you should include are set out below.

What Are the Key Terms in My Terms of Trade?

Price

Your price is one of the first things you will need to agree on. You should clearly outline your price in the contract.

Invoicing and Payment

Once the client knows what the price will be, it is important to set out when the:

  • client will receive an invoice; and
  • the invoice will be due. 

For example, payment may be due 14 days after you issue the invoice. If the client does not make their payment on time, you will likely want to stop performing any of your services until they pay. Therefore, you should also outline what you will do if the client does not pay.

It is common to agree that you:

  • will stop performing the services;
  • may charge interest on unpaid invoices; and 
  • can engage debt collectors or take legal action to recover the unpaid invoices. 

Scope of Work

Whether you describe your services in the terms of trade or include them in your quote or proposal, it is crucial that you clearly agree on what work you will carry out. This is where many disputes can start with clients. 

Make sure any part of the scope of work that you discuss and agree upon is set out in writing. It is very difficult to prove that you agreed to something in a casual conversation. 

Warranties 

A warranty is an assurance from one party to another. You have probably heard of a warranty being provided by a business for a period of time after installing a good, such as a washing machine, but it is also possible to ask your client to make certain warranties.

For example, if you are installing solar panels on a property, you can ask your client to warrant that they are:

  • the lawful owner of the property; and 
  • responsible for obtaining any consents or licenses for you to supply and install the solar panels. 

You will also want your client to warrant that the property that you will be working on is a safe working environment for you and your employees.

Defects

Your clients may be legally entitled to certain consumer guarantees. Under the law, the services you provide to a consumer must be:

    1. performed with due care and skill;
    2. fit for any specified purpose; and
    3. performed within a reasonable time (if time is specified). 

For example, if you are a plumber and a homeowner engages you to install a washing machine, you may be in breach of the law if you do not install it properly and a leak ruins the paintwork in the room below. 

If you wish to provide your clients with warranties against defects beyond those set out under the law, you will need to include mandatory wording in your documents. A lawyer can help you ensure that your warranty documentation complies with the law.

Liabilities

If something goes wrong during the course of the terms of trade, you will want to limit your liability. Limited liability means that you set the maximum amount that you are responsible for.

For example, imagine that you are installing outdoor lighting for a business and you are unable to finish the work because of bad weather. Without the lights, the business may be unable to open and could lose money. Of course, you will not want to be responsible for this loss. You can use your terms of trade to exclude or limit your liability for the loss. 

Termination

Your terms of trade should clearly state what the term of the contract is. Typically, the contract will:

  • start when the terms of trade are agreed to; and 
  • continue either for a set period of time or until you have completed the scope of work. 

Sometimes, an issue that arises is one party wishing to terminate the terms of trade before the term is over. 

For example, you may wish to terminate because your client is not paying you. On the other hand, your client may wish to terminate the terms of trade because you have failed to show up to the site on time. Either way, you should clearly set out how and on what grounds a party can terminate the terms of trade. 

Key Takeaways

Terms of trade are important when you provide a service to clients. Your terms of trade will:

  • ensure everyone is on the same page; and 
  • help to minimise the chance of any disputes occurring. 

The terms of trade can be attached to any proposal or quote form you already use. Together, the two documents can form a strong set of terms and conditions. If you need assistance drafting your business’ terma of trade, contact LegalVision’s commercial contracts lawyers on 1300 544 755 or fill out the form on this page.

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Lauren McKee
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