Managing Commercial Risk

//Managing Commercial Risk

Managing Commercial Risk

playing cards and a penImagine: You have ordered ten PCs from a supplier in Edinburgh. The order is despatched, but you receive a call telling you that the delivery vehicle has been in an accident on the M6 and the PCs are written off. The supplier reminds you that their Order Acceptance states that ‘goods are at the customer’s risk once they leave the warehouse’ and you owe them £5,000 for PCs that you will never receive.

The “Invisible Contract”

Like it or not, we enter into a contract every time we agree to buy or sell goods or services. Put simply, one party must make an offer to the other (to sell for a given price, for example) which the other must accept (by placing an order, or handing over the cash). There must be a ‘consideration’ which is usually the price, but could be other services or a promise to do something for the other party. If all of these exist, we have made a contract which can be enforced in court.

Of course it is easier to enforce a contract if it is written down. If I make an offer to sell you services “subject to my standard terms and conditions” then if you accept the offer as made, my terms and conditions will apply. If your acceptance comes in the form of a purchase order “made on your standard terms and conditions of purchase overleaf” then your terms will have superseded mine. By going ahead and delivering the goods I am deemed to have accepted your terms, even if I have different terms on the back of my delivery note.

This convoluted state of affairs is sometimes referred to as ‘The Battle of the Forms’. In essence, the last set of terms submitted before the contract is agreed will apply. This may mean that you are governed by terms you have never read – and you are subjecting your business to commercial risk without even being aware of it.

How to Use Terms and Conditions

Terms and conditions, contracts, agreements for sale – all are used to describe the rules that govern our business transactions. Their purpose is to help us to manage commercial risk by defining how the transaction will take place, and what happens if things do not go as planned. In setting these things down in writing a number of benefits are realised:

  • Each party is forced to consider exactly who should do what and when.
  • Risks can be identified (such as software not working) and mitigated (for example, by setting out an acceptance process).
  • Both parties have the opportunity to scrutinise the terms and ensure they reflect expectations.

In standard terms, any exclusions or limitations on your liability or the customer’s rights must be reasonable or a court may not enforce them. Always make sure the other party has read and understood them and bring key terms to their attention before the deal is done. This is particularly important if you sell to consumers, or sell at a distance or over the internet, when additional regulations relating to ‘Distance Selling’ and ‘Unfair Terms in Consumer Contracts’ come into effect. Otherwise you may find that your carefully drafted terms and conditions are unenforceable and cannot be relied upon.

In Conclusion…

  • Read the small print
  • Be up-front about your standard terms
  • Be reasonable
  • Think about worst case scenarios – and mitigate them!

If your terms and conditions need updating or perhaps you need help in reviewing terms of a business deal or supplier, contact us for an initial no obligation chat to see how we can help you.

tiffany kemp devant

 

 

 

 

 

Tiffany Kemp
Founder and Managing Director, Devant

2017-02-19T13:49:46+00:00

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