Cashflow and debtor management – formalise it

Posted by Luke Mitchell on 30 May 2018
Cashflow and debtor management – formalise it

Our previous blogs in this series focused on the practical things that a business can do in its relationship with its customers to help manage its cash flow. This blog will focus on a more “technical” element – tying it all together with a set of terms of trade.

An effective terms of trade document will need to address the following matters:


  1. the goods and/or services being provided;

  2. how the price for the goods and/or services will be set;

  3. whether a deposit is required and if so how much;

  4. payment terms;

  5. the consequences of a default in payment;

  6. the point at which delivery of the goods and/or services will be deemed to have occurred;

  7. the point at which title and risk in the goods and/or services will pass to your customer;

  8. if you intend to retain title for the goods until you have been paid in full, disclose your intention to register a security interest on the Personal Property Securities Register;

  9. whether orders can be cancelled, the manner in which they can be cancelled and the consequences of cancellation;

  10. matters relating to liability and warranty; and

  11. the manner in which the terms of trade can be accepted by your customer.

While putting together the content of the terms of trade will typically require outside help, once the terms of trade have been prepared there is no reason why communicating them to your customers needs to be difficult. For existing clients, send them out as a stand alone communication and with new customers get them to agree to the terms of trade as part of the initial details gathering process.

Putting formal terms of trade in place and communicating those terms to your customers  will reduce the risk of disputes and/or delays in payment, as  it immediately communicates to your customers the terms upon which goods and services are being supplied and the consequences of a breach of those terms.  

The other major benefit in putting formal terms of trade in place is that if all else fails and you are forced into debt recovery, a clear set of terms of trade will help make the recovery process quicker and cheaper than would otherwise be the case. It also maximises your chances of recovering the debt in full.

We specialise in providing clarity and confidence to business operators in their legal relationships – contact us today to discuss the legal needs of your business.