Why Contractual Terms and Conditions are Critical in the Credit Process

In today’s competitive business landscape, safeguarding your company’s financial health is more crucial than ever. One often-overlooked tool in this pursuit? Clear, enforceable contractual terms and conditions. In this blog, we walk through key insights from our recent webinar focused on how strong contractual frameworks support better credit management, reduce disputes, and protect your bottom line.

Protecting payment and relationships

Whether you’re selling products and services or buying them, it’s essential to have robust contracts that clearly outline responsibilities and expectations. Without well-structured agreements, businesses risk non-payment, disputes, or supply chain vulnerabilities. Contracts should foster trust with suppliers and customers alike, ensuring prompt payments and fair dealings.

The core contractual elements to get right:

1. Payment terms
Clearly defined payment terms are essential for maintaining financial control. Specify when and how payments should be made and consider using automated reminders to support cash flow. To encourage timely settlement, include provisions for interest or penalties on late payments.

2. Default and dispute handling
Set out clear procedures for dealing with late payments and resolving disputes. This should include escalation pathways—such as involving senior personnel—and consider incorporating formal mechanisms like mediation to resolve issues efficiently and maintain commercial relationships.

3. Retention of title
Retention of title clauses allow sellers to retain legal ownership of goods until full payment has been received. These provisions are particularly valuable in insolvency situations, providing an added layer of protection for suppliers.

Business-to-business contracts vs. business-to-consumer

Understanding your customer, business or consumer, is fundamental. Consumer contracts are subject to tighter legislative requirements under the Consumer Credit Act 1974 and Consumer Rights Act 2015. Misclassification or non-compliance can have serious legal consequences.

Express and implied terms

Not all terms need to be spelled out to be enforceable, some are implied by law or custom. However, providing clarity reduces ambiguity, record all communications and negotiations and distinguish between legally binding terms and marketing-style “representations.” A poorly defined clause could be deemed unfair or even void in court.

Incorporation of terms

Your terms and conditions are only effective if they are properly incorporated. It’s important to make sure they are presented before the contract is formed (e.g., pre-sale, on sign-up screens), any unusual or onerous clauses are clearly highlighted (consider the “red hand” principle from case law) and users accept them via click-throughs or signatures where applicable.

Online contracts and website terms

In the age of e-commerce, your website’s T&Cs are your frontline legal defence. Lessons from cases like Betfred v Green highlight that:

• Simply linking to T&Cs is not enough.
• Users must be clearly shown key clauses.
• Terms must be fair and understandable—especially when dealing with consumers.
• Avoid the “battle of the forms”

Where both parties exchange contracts or purchase orders with their own terms, disputes arise over which terms govern the deal. To avoid this, state clearly that your terms apply exclusively and ensure all departments use the same version of your standard terms.

Periodic review: A contract is not “set and forget”

Regularly reviewing your contractual documents helps you to align with changing legislation and business practices, avoid reputational risks from outdated or unfair terms and satisfy insurers or regulators who may request your review history.

Key clauses that deserve attention

When drafting or reviewing contracts, pay special attention to:

• Interest rates and payment schedules (especially in long-term agreements where inflation may impact pricing).
• Termination rights: Define clear processes for ending agreements and the consequences.
• Dispute resolution mechanisms: Mediation vs. litigation, make the intention clear.
• Waivers: Don’t accidentally give up your rights by failing to act or by showing leniency without reservation.
• Jurisdiction clauses: Specify which country’s laws apply.

Retention of title (ROT)

ROT clauses can make the difference between recovering goods or losing them in insolvency. Properly drafted clauses can give you priority over other creditors, help reclaim goods still on a customer’s premises and cover not only specific goods but potentially proceeds from their resale.

Why payment terms are crucial to credit control

Payment terms are a crucial element of effective credit control, providing a structured framework that underpins financial stability and operational efficiency. Clearly defined payment clauses help manage cash flow by clarifying when funds are due, enabling better planning and budgeting. They also serve as a risk mitigation tool, reducing the likelihood of late or missed payments that can disrupt business operations.

Transparent payment expectations foster stronger customer relationships, building trust and accountability on both sides. Ultimately, well-crafted payment terms lay the foundation for sustainable growth by ensuring financial certainty and predictability.

Termination

It is essential to ensure that termination rights within a contract are clearly defined, legally compliant, and fairly balanced. Clearly stating when and how each party can exit the agreement provides certainty and reduces the risk of disputes. These provisions must also comply with relevant legal and statutory requirements to remain enforceable. Moreover, termination clauses should be balanced, avoiding overly one-sided terms that could be deemed unfair and ultimately unenforceable by a court.

Summary

Rushing a contract just to “get the deal done” often results in costly disputes later. Investing time at the outset to get your contracts right can save you serious time, money, and stress in the long run.

Need help reviewing or creating your terms and conditions? Get in touch with Edward Flanagan or Harpreet Sandhu today to support you further.