[EP 011] Understanding Commonly Used Contract Terms

I think it's really important for anyone who deals with contracts to understand everything that's in the contracts. Once you understand these areas it becomes easier for you to pick up any issues that might be relevant to your situation or how the contract applies to you or your business. So today what we're going to do is run through some common boilerplate terms and explain what they mean. And I'll give you a little tip in relation to when they may or may not be appropriate for you to consider including in your agreement.

 
 
 

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EPISODE HIGHLIGHTS

00:47 What is a boilerplate?

01:09 Importance of boilerplates terms

03:22 Entire Agreement Clause

03:46 Why use an entire agreement clause?

07:11 No Assignment Clause

10:34 No Waiver or Waiver Clause

13:43 Variation or Amendment Clause

16:58 Jurisdiction and Governing Law

18:22 Jurisdiction vs Governing Law

20:08 From an international perspective

21:54 Quick Recap

EPISODE TRANSCRIPT

What is a boilerplate?

Boilerplate terms are commonly used terms that often appear at the end of a contract and often under the heading General, but not always. Often they're considered to be clauses that don't usually change much from one contract to another.

Why is it important?

I think that it's really important for anyone who deals with contracts to understand everything that's in the contracts. Once you understand these areas it becomes easier for you to pick up any issues that might be relevant to your situation or how the contract applies to you or your business. With boilerplates, even though they can be quite standard from contract to contract, understanding what they mean is important because sometimes the way they are used is not appropriate for your situation or the situation of the contract that they're being related to. There can be traps held within these clauses that make it important for you to at least understand.

What often happens is that people, when they review your contract, will often review the deal terms. That's the initial terms of the contract that really get into the detail of who is doing what by when and the other obligations and rights that are created under the contract. But often when you get to the end of the boilerplate clauses, because they look so similar to contracts you may have seen in the past and because the headings look often quite similar to other contracts that you've seen, people stop reading in a detailed way. The problem with this is sometimes the things that are in those clauses are something that you really should be considering. Also, the mere fact that they're placed at the end of the contract also means that often people, particularly people who aren't used to reading contracts a lot, get a little bit over reading the contract by that point. They're happy to take an easy way out saying "Oh yeah, there's the usual entire agreement clause," or whatever the other boilerplate clauses are in their contract and not pay attention to them.

So today what we're going to do is run through some common boilerplate terms and explain what they mean. And I'll just give you a little tip in relation to when they may or may not be appropriate for you to consider including in your agreement. We'll run through just a few today so that we are not making this too boring. In a future podcast we'll keep running through some more.

Entire Agreement Clause

Usually, you'll see it sitting under the heading of something like Entire Agreement or it may not have a heading at all. But it's usually a clause that says something like this:

"This agreement contains all of the terms agreed between the parties and supersedes all prior agreements and representations between the parties."

Why use an entire agreement clause?

Essentially, it's used so that it's clear that all of the terms that are in this contract contain all of the agreement that you've come to in relation to the subject matter of the contract to try and rule out the possibility of one party later arguing that there were more things that had been discussed but hadn't been included in the contract.

This can be a double edged sword if you are, for example purchasing supplies or services from another organization and they have made another a number of representations that you've relied on. Say for example a hosting agreement for a website and you've negotiated the level of up time that you require, say you've negotiated a 99 percent level up time but that isn't recorded in the contract. This sort of entire agreement clause can be a little bit of a trap because essentially you may have difficulty proving later that the 99 percent up time was something that you relied on that should have been or was part of the agreement between both of the parties. Because of this little entire agreement clause that essentially says because that wasn't in the contract, you therefore can't rely on it in future as being something that's involved in the contract or related to the contract.

There might be arguments on both sides but obviously the action plan for you in relation to any contract is making sure that any of the key terms that you've negotiated are indeed in that contract and if you have an entire agreement clause it's even more important to ensure that everything that you had discussed or that you may require out of this contract that you're dealing with is included in an express form in the contract itself.

One other trip with an entire agreement clause is when you have executed contracts other than this contract that you might still want to rely on. Because this entire agreement clause says that this is the entire agreement of the parties and that this agreement supersedes all other agreements or representations between the parties that relate to the subject matter of the agreement – this means, for example, if you've signed a nondisclosure agreement or a confidentiality agreement before the execution of this current agreement, this agreement might indeed override the provisions of that previously signed confidentiality agreement.

If there is an entire agreement clause in an agreement you're signing you need to think about whether or not you have any other agreements on foot that you want to remain in place. And if you want them to remain in place, then the entire agreement clause needs to be amended so that you refer to those other agreements that you want to stay in place. Or alternatively you can just make sure you import the clauses of those other agreements into this agreement. In our example of a confidentiality agreement, you would then make sure that confidentiality terms that were sitting in the confidentiality agreement now sit in this agreement between the parties.

No Assignment Clause

This might be under a heading No Assignment or it might be under a heading Assignment or it might have no heading at all. But essentially what the clause will say is something like:

"Neither party may assign this agreement without the authority of the other party."

Why would you want this in the agreement?

The reason for this is that you may wish that the other party that you're dealing with can't be in that position of transferring the rights and obligations under this agreement to someone else without you getting a veto over that. You might say, once again if you're dealing with a particular supplier, I only want to deal with that supplier. I don't want to deal with anyone that they might assign this contract to so I don't want to deal with anyone else other than this supplier. And if they're trying to assign the contract to someone else, then I want them to come back to me and get permission. That's a reason why you might want a no assignment clause in the agreement.

Why would you NOT want this in the agreement?

A reason why you may not want the no assignment clause in the agreement is if you might be in the position where you might want to assign the agreement. Say for example, if you are in the situation where you might be likely to sell the business or contracts under the business in the future, you might say well I don't want to have to go back to this party and get their authority at that point or their authority for me to assign certain rights that I have under the agreement. In that case, you might find that a no assignment clause is not beneficial to you and you might want to get rid of that out of the agreement.

Sometimes these clauses are drafted in such a way that they might say that one party has the ability to assign but another party doesn't. That can work for you if you're the one who's being given the flexibility and it may not work for you if it's the other party that is giving themselves the flexibility in this agreement and you're not getting the flexibility.

Indeed, one thing to bear in mind if you were based in Australia and your contracts have a Jurisdiction and a Governing Law clause of Australia, which we'll talk about in just a minute about what that means because that's another commonly used boilerplate term, if you're in that situation where you're in Australia and your contract jurisdiction is Australia, then just be aware that the new unfair contracts legislation laws might apply in this area if one party has said that they have the right to assign without authority of the other party but the other party doesn't have the right to assign. This could, in some certain situations, be seen as an unfair contract term. If the organisations that deal with this contract is a small business, it complies with the requirements of that new legislation.

If you're interested to find out about that legislation and what the relevance is to this kind of clause in a contract then pop back and have a listen to our past episode on this matter (link to episode 3) so that you understand what the impact of the legislation is in relation to these sorts of clauses.

No Waiver or Waiver Clause

What this clause usually says, the words that are usually used, is that:

"Any failure by a party to remedy a breach or to notify breach under this agreement won't be considered a waiver of their rights."

What this means is that if you identify a situation where the other party has been in breach of the agreement and you don't pick them up on that breach immediately, that won't be seen to be a waiver of your rights to enforce that breach later on down the track.

This is a really important concept because I think it's extremely important for you, when you're dealing with your contracts, to be really proactive if you identify times when the other party is not complying with their obligations under the contract. This sort of no waiver clause is really helpful to make sure you have an argument as to why your failure to bring up the issue of their breach doesn't then absolve them of the right that you have into the future to go back and pick them up on that breach. But I think as a matter of practice it's super important that we're really on top of these contracts. From a practical sense, our being clear, when we identify a breach with the other party, that there is a breach, that we noticed the breached, that we haven't and we're not waiving our ongoing rights to pick them up on this breach or to have them remedy the breach.

But if it's not a massive issue to you at this point, you could perhaps just nicely suggest a workaround for them that works for you as well. But I have seen organizations in the past just let breaches ride through because the relationship has been good and they've not wanted to disturb the relationship. The problem is once you allow things to occur once or twice it can be very easy for that to fall into a habit and it practically can be very hard to remedy and pull back later on after the event. So whilst I think this is an extremely important clause to having the agreement to say that the fact that you haven't enforced the terms at a particular point doesn't mean that you waive your right to enforce them, I think that it's important to include in your contract but it's even more important from a practical perspective that you are really on top of any of these areas where you identify breaches and make sure, nicely if you want, in a way that doesn't harm the relationship, but just make sure you're proactive about managing it.

Now the last two areas that I want to talk about today are variations and jurisdiction and governing law. And then in future episodes we'll talk about other boilerplates like subcontracting, severance, force majeure and conflict clauses within these boilerplates.

Variation or Amendment Clause

What this clause usually says is something along the lines of:

"This party can't be amended unless agreed by both parties in writing" or it might say, "This agreement can't be amended or varied unless agreed in writing by the authorized representatives of each party."

What this essentially means or the point of this clause is that if in an organisation certain people have certain authority levels have entered into an agreement, it's protecting against that situation where other people inadvertently might, within the organizations who are dealing with each other in relation to the contract, might inadvertently agree to something that is different to the terms of the contract and therefore inadvertently create a situation where their organisation is bound to some sort of varied terms that are varied from those written in terms of the contract. It introduces more of a formality in relation to how the parties can then vary or amend the terms of the agreement.

In the first example I posed, where the clause simply says neither party can amend the agreement or vary the agreement other than in writing, then essentially what it's saying is both parties have to write and sign a document that they exchanged with each other to confirm any amendment to the terms that are already set out in this agreement.

On the other hand, if you have a clause like the example that I gave as the second example where the clause says this agreement may only be varied in writing by that authorized representatives of each of the parties, then this means that what is trying to happen here is a locking down of who it is that can actually sign that document that authorizes a departure from the terms and conditions that are set out in the contract.

This is a good approach to use if, for example, you want to make sure that there is no one else in your organisation that can agree to an amendment of the terms. You might make sure that you make it clear that only the authorized representative, which you might then put details of in the schedule, so that might be a manager of a certain level, has the right to amend the document.

There's actually quite a lot that I could talk about in relation to that issue for contracts because amendments and variations, in some circumstances, can create a lot of problems for parties. There are ways that you can use the contract to lock down how variations will be calculated or how the parties would deal with the situation if there are variations in relation to the original goods or services that are being provided under the contract that were originally envisaged. But that, I think, is probably the topic for another podcast into the future some time.

Jurisdiction and Governing Law

This is a clause that is caught quite usually right at the end of the document. Quite often this will be the very last clause that you'll see in an agreement. The reason it is so important is because you're essentially setting out what the jurisdiction is and the governing law that relate to the agreement so that you know which courts have the right to hear any argument in relation to the contract and which laws will apply to the contract because the laws of different jurisdictions and different countries differ sometimes quite dramatically. What might be interpreted or how a contract might be viewed in one jurisdiction might be completely different to how it would be viewed or dealt with in another jurisdiction. This is relevant particularly if you were dealing with offshore suppliers or clients and can also be relevant from state to state within Australia.

The usual course of events is usually whoever drafts the contract or has the contract template and sends it out to the other side will usually start with a governing law and a jurisdiction that is their jurisdiction and their governing law.

Jurisdiction vs Governing Law

I guess it's relevant for me to talk about what the difference is between the words jurisdiction and governing law. Governing law is exactly as it sounds, the law that will govern the terms of the contract, the law that will be used to interpret the terms of the contract. Whereas jurisdiction means the jurisdiction under which the courts have the right to hear any argument.

Usually, jurisdiction and governing law are the same. In fact, almost always they're the same. This is pretty obvious because you don't want courts from one jurisdiction being forced to consider an action in relation to a contract that has a governing law from another jurisdiction so it makes sense that your governing law is the same as your jurisdiction. As I said, the game that's often played is whoever drafts the contract, whoever provides the contract will usually have the governing law and jurisdiction as their jurisdiction and governing law.

But it might well be that if you feel that if you're in a different jurisdiction to what that is and you feel that it is appropriate for you to get protection in your jurisdiction and you think the goods or services are being provided more predominantly in your jurisdiction, then you might try and get the jurisdiction clause changed. The benefits for you in having it changed are often that it's easier 1) for you to understand for your lawyers who operate in your own jurisdiction to understand what the laws are in that area and 2) it's easier and often more cost effective for you if you have to bring an action against the other party to bring that action in your own jurisdiction so you don't need to travel and you don't need to go and get lawyers that are based in a different jurisdiction.

From an International Perspective

On the flip side, some of the downsides of the approach, particularly from an international perspective, is if you have the jurisdiction as your own jurisdiction. So let's say you're an Australian company and you're contracting with an overseas based supplier. One of the issues with this jurisdiction concept is that if you make the jurisdiction Australia, it will probably be easier for you to bring an action to litigate. It will probably be cheaper for you and it will probably be more certain for you than if you're trying to litigate in another country. But the issue becomes if there is no representative or no assets of that other organisation here back in Australia then you might sue the other company but it might be very difficult for you to recover under any action that you've brought (i.e. to go and actually get money from them to recover under the action, the result that you've received.) So jurisdiction and governing law can be a little bit tricky. These are the sorts of areas that you know change depending on each of the situations, the level of risk involved, and what it is that you're doing under the contract. That's the sort of thing that you probably really need to go and speak to someone about on a contract by contract basis.

Today we covered quite a few boilerplates. Hopefully I helped in terms of giving you a bit of an idea of what to look out for in each of these clauses and hopefully the next time you get a contract on your desk and you need to look through it, each of these clauses will make a little bit more sense to you. So when you're reading them you're more readily able to identify why they're there and what the elements are that you potentially should be thinking of changing into the future.

Quick Recap

So once again just to recap these sorts of clauses we talked about are:

  • Entire Agreement clauses,
  • Assignment clauses,
  • No Waiver clauses,
  • Partnership or Agency clauses,
  • Variations and Amendments clause; and
  • Jurisdiction and Governing law.

Now if all of this has been a little overwhelming for you and you're in the position where you don't want to be thinking about any of these clauses yourself just jump on to our website at talkinglaw.com.au and there you can make contact with our lawyers who would be happy to have a chat with you in the first instance for free to talk about the types of contracts you deal with and the types of ways our lawyers over at Aspect Legal can help to assist.

All right. Well that's it for today. Thank you so much for tuning in. If you enjoyed what you heard today please pop over to tunes and leave us a review. We'd be really grateful. And if you're interested in hearing about a particular topic that you deal with in your business and you'd like some legal answers to just head over to our podcast website at talkinglaw.com.au and leave a message on one of our episode pages. You'll find a recorder there that you can leave your questions in. We'll be answering listener questions in future episodes. Thanks again for listening in and see you next time.

One common legal issue businesses face are problems that crop up from time to time with clients. This can lead to clients paying slowly, or not at all, costly and time consuming disputes, and brand damage. In this episode we discuss how having the right approach from the start can help you to avoid most of these problems.

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Episode Highlights

1:40 Five customer engagement issues you need to look into

5:11 Setting up the right terms and conditions

6:00 What should you include in your terms and conditions

6:38 Clarity on responsibility of both parties

7:49 Clarify who owns the intellectual property

9:06 Payment terms – incentives and penalties

9:57 Liability clauses you need to include

13:50 Writing your terms and conditions in plain English

14:55 Fulfill your own terms – and be proactive

16:24 Consider the cost of inaction

17:31 Four action steps you need to take

Full Transcript

Today we’re talking about the ways that you can set up your client relationships right from the start.

So, why is this important? One common legal issue that businesses face, are problems that crop up from time to time with clients or customers, depending on which language you use.

That might reflect itself in:

  • Clients being slow payers;
  • Clients not paying at all;
  • Clients that raise issues with the goods or services you’ve provided;
  • Clients that try to terminate contracts with you before they’ve come to an end; or, at the worst,
  • Situations where clients try to make you liable for the loss they have suffered, that potentially could even be greater than the value of the goods or services that you’ve provided to them.

The most common of all of these that I see are payment related issues and disputes about the goods or services that have been provided. Although, I have to note that when disputes occur, they often directly link also to slow non-payment as well because when customers aren’t happy they generally stop paying, so all of these problems can be interlinked.

In most cases these sorts of issues essentially come down to a failure in the process of the original engagement with the customer and the systems you set up right from the start to support them and deal with any issues as they occur. For example, generally I see these issues arising from one of these particular situations:

  1. Terms and conditions or terms of sale that have been used in the beginning that haven’t had the right clauses included or, they’ve had the clauses but they’ve been set up in a way that means that they don’t have the effect that they were meant to have;
  2. There were no Terms and Conditions right from the beginning of the relationship with the client;
  3. The Terms and Conditions were not read and understood by the client;
  4. There was a lack of communication in any engagement process and throughout the relationship, which then allowed issues to bubble up to the surface; or, finally
  5. There was a lack of systems established to monitor the relationship and deal with any issues as they occurred.

Today we’re going to talk about each of these five areas. Essentially, having terms and conditions in place to begin with that include the right clauses, communicated in a way that your customers understand; ensuring that your communications throughout the process of delivering the goods and services are clear, and that your systems support the rights and obligations that arise through your terms and conditions document.

What does that mean? Essentially, that you have systems in place to make sure that you are providing what you have said to your client that you will provide.  Now, if all of these things are ticked off, I think you’re fine and that you’re in a situation where it is extremely unlikely that you will have customer issues going forward.

An example of this having been done really well is a recent case that I worked on where we were able to get a $250,000 win for one of our clients, on the basis of really tight wording that we used in their contract initially and a good negotiation strategy in dealing with the contractor’s view.

That’s an example of where terms and conditions have really correctly and helpfully given you a basis that you can launch from if a dispute does occur in the future even though, if done well, you’re also highly reducing the likelihood of dispute. But, on the flip side, we’ve had many instances where businesses have signed up clients for lots of projects who have then pulled out half way through and refused to pay for the work done, or clients who have come in to see us who have lost tens of thousands, sometimes hundreds of thousands of dollars when their clients refused to pay, because an argument erupted during the period of the provision of the goods or services. All of those usually link back to some issue in one of those five areas that I mentioned a few minutes ago.

What processes should you have in place?

Today, we’re going to start discussing what processes you need to have in place to ward off issues from the start. I’ve also created an action guide for you as a checklist that you can use to guide you through all of these areas because we’re going to be talking about a lot today, obviously too much for you to take note of while you’re listening to a podcast.

So, to make it really easy, I’ve made a checklist available for you related to this episode at talkinglaw.com.au or you can access it via the website of my commercial legal practice at aspectlegal.com.au

Okay, so let’s launch into what you need to do to have the right terms and conditions in place.

The concept of having the right terms and conditions in place comes from, in essence, the concept that a contract is imperative.

  • A contract sets the relationships between parties;
  • It sets the expectations between the parties; and
  • It’s not a document that describes simply what you will and won’t provide but also what you expect of your clients.

When done well, it helps to ward off arguments with clients because, essentially, arguments only occur when both parties think they’re right.

Thatmeans arguments can only occur when something hasn’t been clear, so our task is ensuring that we have documents that make all of these areas really clear that help to protect you from open liability and that helps you to set up the right expectations from the start.

Okay, so what should you be including in these documents? I’ll go through a bit of a checklist of the sorts of things that you should be considering including, but obviously I need to add a caveat that each business is different so you need to ensure that your terms and conditions are a reflection of your business not a reflection of someone else’s.

This is why copying and pasting someone else’s terms and conditions doesn’t really work because they’re not your business they’re a different business. So if you have copied and pasted a set of terms and conditions it’s important that you go back and that you review them thoroughly in light of the things that I’m about to talk about now.

Alright, so what should you be including in these documents?

Clarity on What You’re Responsible for

Firstly, clarity about what you will do and what you’re responsible for. This is, essentially, the crux of the documents. This is something that you should sit down and think about and understand first before you even get started in working out whether or not your current terms are appropriate for you where you are now. Other areas that you need to think about clarity are on payment terms, which sounds obvious but it’s so often not dealt with clearly enough in the agreement and it’s super important. You need to be clear on what the client’s obligations are and what you need from – if you’re going to require anything from them – to be able to deliver your goods or services. These issues are really important and often forgotten. If you need something from them, you need to be clear about this in your terms.

If they’re providing things to you then you need to ensure that you get protection in relation to any information they give you.

For example, sometimes this might look like licenses in relation to your use of those things.  You need to be clear that intellectual property (I’m not going to go into this in too much detail, we’ll do it in some future episodes) but essentially intellectual property you need to think about a few different things.

Clarify who owns the intellectual property

Number one, if intellectual property ownership is important, you need to make it clear about who will own the intellectual property and, if intellectual property will pass over at some point, you need to be clear about when that will pass over.  For example, very simply, many documents just simply say intellectual property will pass to the client but that isn’t making clear that you won’t pass to the client until the client has actually made payment. So that’s an important thing to include.

Also, bear in mind that sometimes, intellectual property clauses need specific caveats. So, that means if you are providing services or goods to your client that are based on some things that you then use with other clients as well, you just need to make sure you’re clear about what you’re actually handing over in any intellectual property clauses.

You don’t want clauses that essentially say all intellectual property will pass to the client, because that’s not really reflective of what’s happening and it might restrain you from being able to use that base intellectual property with other clients moving on into the future. Or, maybe you don’t even own all of the intellectual property yourself, say for example, if you’re licensing images from someone else and you’re providing graphic design or web development services you need to make sure that you’re clear that that intellectual property is not something that you can ever pass over in intellectual property form.

The next area that you might want to consider building into terms and conditions documents are clauses that deal with slow payment.

You might, for example, want to include some sort of incentive for your clients not to want to be a late payer. For example, Interest. Even if you won’t be applying the interest, or administration fees, or whatever else you’re calling fees that you might threaten to apply to slow payers, at least if you have clauses that allow you to charge these figures, it gives you something that you can threaten to apply if you have slow payers. It gives you some carrot to encourage them to pay in a timely manner.

Slow payment is a whole different topic which I will deal with in another episode in the future, but for now it’s enough to say that it’s important that when you’re reviewing your terms and conditions, you have the appropriate clauses to deal with slow payment.

You also need to make sure you have the ability to on-charge your customers for any enforcement cost and you need to make sure you have the right protection against liability and that in this you don’t over shoot the mark. Quite often I see liability clauses that really aren’t appropriate for the situation that they’ve been used in and that really overshoot the mark. The problem with that is that there’s various legislation around that might create an issue or the situation in which that clause then becomes invalid and you, therefore, don’t have any protection from that liability clause at all.

So, it’s really important when you have liability clauses – and when I say liability, I mean clauses that might be under the heading of indemnities or waivers or release clauses or there might be exclusion of warranty or exclusion of liability clauses, anything with that sort of heading – you need to make sure you understand what those clauses actually mean and make sure that they are appropriate for the situation of your relationship with your client.

I often find that people look at these clauses and have no idea what they mean and then decide, therefore, just to ignore them. But, that’s completely the wrong approach because if you do that and the clauses are incorrect for your business, then you don’t want to be finding that out later when it’s too late.

So, it’s really important that you understand what each of these clauses mean in your business and that they are appropriate for your business.

And then finally, you should also be thinking about how it is that you link this document – being your standard terms and conditions document – together with the documents where you provide the specifics of what you’re providing your customer.

Quite often businesses would use separate documents like, for example, proposals or estimates or schedules, or a statement of works where they set out the details of what it is that they‘re going to be providing to the customer, that isn’t something that’s included in the general terms and conditions.

It’s really important that each of these documents are referred to correctly in the terms and conditions and that you work out how they are going to interact together, and that you’ve also worked out a framework for what needs to be included in these documents that are your proposals or estimates, to make sure you’ve covered off the detail that you need to, to link it up correctly with your terms and conditions.

Alright, and the list goes on but these are the major issues that you should be considering.

But it’s not enough to just have your terms and conditions document in place, you also need to make sure they’re up to date with current legislation – and that current legislation, I must say, is changing all the time, so you really need to have your agreement updated at least once a year to ensure that you’re on top of that changing legislation and on top of your changing business phase. Quite often your business will be in a completely different stage now than it was one year before or one year in the future, and therefore, your terms and conditions need to accurately reflect where your business currently is now and the way you interact with your clients now; not how you did in the past or how you’re going to do it in the future.

There’s no point having terms if they aren’t understood by you and if they aren’t understood by your clients.  I’m often surprised by how often people in the business don’t know or don’t understand what’s in their terms. It’s not just the owners and managers that need to understand agreements that regulate your relationship with your clients, but anyone who is part of the initial sale or who is client facing throughout the relationship.

So how do we do this? How do we create the situation where we have documents that are understood by you and understood by your clients? Because, let’s face it, I think the reality is, that many of us click away terms and conditions without ever reading them and I think that’s the reality that many of us have businesses or work in businesses where we deal with terms and conditions that we don’t even understand ourselves.

So where do we start with all of this?

Writing your terms and conditions in plain English

The first thing is we need to have our own client agreements that are written in plain English and that are easy to understand and that aren’t overly long or overly complicated, because the longer they are the less likely that any of the terms are going to be read or considered carefully by the very people that you want to communicate these to.

So, if we think about our agreements, essentially it’s a checklist for us. It’s a way for us to think about the important elements of our relationship with our clients, and that essentially means that we need these documents to be something that we understand and that they understand.

Another important thing to do then is also to review your terms and conditions and to work out what are the really important clauses to you and restate this to your clients in a really clear and succinct way in a separate communication to your client.

A nice way to do that, for example, might be to send out a welcome pack, or onboarding documents, or whatever you call them.

Firstly, as I said you need to understand the documents and then you need to make sure that your clients understand them as well.

Then, the next element to consider is whether or not you’re actually complying with the terms yourself, so you need to put the systems in place to make sure you can deliver your services or goods the way you’ve promise them.

You need to be rigorous about the standard of products and services you provide and the way in which you provide them, and this is particularly important as you grow because sometimes businesses grow quicker than the systems that are supporting them and the reality is that poor customer service  will cost you dearly in the long run. So, if you’re making promises that you’re not going to back up, then you’re going to be creating a difficult contractual situation for yourself, but you’re also going to be creating bad blood with your customers.

So, you need to jump on issues quickly. You need to communicate early and this means that you need to have systems in place that can identify the issues before they escalate.

And fourthly, make sure your clients don’t slip too far away from the obligations that they have under the contract.

This can be a slippery slope. Sometimes, it feels really hard to pull up clients if they are not complying with their end of the bargain, but it’s really important that you reign them in gently at first, but quickly because these sorts of things, as I said, can end up being a slippery slope. So you need to have systems in place that can help you to identify if your client’s aren’t complying with their obligations and you need to ensure that you deal with it as soon as you’ve identified these as an issue.

The cost of inaction

What if you’re busy and you don’t have time for thinking about your terms of sale and you think people don’t even read them anyway? The thing that I would say to you in this situation, which I completely understand – we’re all busy and, as I said before, certainly there’s the belief that people often don’t read the terms and conditions that you send to them.

I think it’s really important that you think about the cost of inaction. So think now about what it would cost you if even just a few clients decided that they didn’t pay. Obviously, this is far, far greater potential cost than the cost of actually sitting down and going through the process properly.

What if, on the other hand you get upfront payments or deposits to cover your initial costs so you figure slow payment isn’t relevant? Don’t think you’re immune in this situation. We see lots of instances of customers demanding money back which then puts a strain on the business. But, simple economics aside, remember that client’s that are unhappy can do a lot of harm to your brand, so the concept of proper client engagement is as much about building and protecting your brand it is about legal and financial protection.

Four Action Steps for You to Take

We’ve talked about what you can include in your terms and conditions, now let’s talk about the Action Steps that you should be following in relation to this whole process, once you’ve got your terms and conditions, to ensure that you’re implementing them in the correct way. And, remember, if you’d like a download of this guide that we’ve gone through today, head over to our show notes at talkinglaw.com.au and download the guide from there.

So, your action steps are four to keep it really simple:

  1. Firstly, as I said review your terms and conditions of sale.
    1. Do you have each of the elements that we’ve discussed above? That’s the first thing;
    2. Are they compliant with current legislation?
    3. Are they easy to read and understand?
    4. Do your customers actually sign them, or do they just a tick a box that you know they’ll never be able to read?
    5. Do you understand what’s in your terms and do your staff or to the other staff in your organization understand what’s in your terms?

So these are the first things to do in relation to your review of your terms and conditions of sale.

  1. Then the second action step, is to think about your process of on boarding. Once you’ve got your terms and conditions right – once you’re confident that they contain all of the right elements and once you’re confident that you have produced them in a way that your clients and your staff will understand them, then now think about on boarding of your clients.

If your clients receive your terms and conditions in a tick a box exercise, then I would suggest that you separately send your terms to your clients as part of the onboarding process to give them the opportunity to have a copy of the terms, so that they can have a read through them. Obviously, it won’t be so exciting for them to read through the terms and conditions if they’re long and boring, so this gets back to ensuring that your terms and conditions are easy to read in the first place. And then, in your process of on boarding, the other thing that I recommend is being clear about the items that are important. So, as I said before, restate them in a welcome pack. You can say things like this in a nice way but just make sure you’re communicating it clearly.

So we’ve talked about the action steps of reviewing your terms and conditions of sale and thinking about your process of on boarding. The third element in your action step here is to review your systems for complying with your terms.

System and compliance reviews

  • Do you measure how you are delivering your goods and services?
  • Do all of your client-facing staff understand the terms and conditions and your obligations and your client’s obligations?
  • Do you pick up your clients if they aren’t complying?
  • Are there review periods in these terms?

Think about all of these issues in relation to how you can build systems to ensure that you are complying with the terms.

And finally, and this is action step number four, have a process for ensuring that you jump on emerging problems quickly before they gather speed.

So that’s it. That’s all I have today to say about this episode so just a quick recap. In this episode we talked about:

  • Ways to set up your client relationships correctly right from the start. If you’d like more information about this topic, as I said, head over to our show notes at talkinglaw.com.au for your free download and through that website, you’ll also be able to get a transcript to this podcast episode if you’d like to hear or read each of these elements in more detail, and there you’ll also find details of how to contact our lawyers at Aspect Legal if you’d like help with any of the items we covered today.

We can certainly help guide you through what can be a bit of a complicated process if you’re trying to do it on your own.

And finally, if you enjoyed what you heard today, please head over to iTunes and leave us a review. We’d be very grateful and if you’d like us to talk about a particular topic, feel free to head over to our website and leave us a voice message with a particular question or issue that you would like covered.  We’d be more than happy to cover any of the questions that you have and certainly I’d really like this podcast episode to be all about what you want to hear about.

Ask me what you want to hear about commercial law and business law and I’ll try to cover it in the future.

Thanks for listening in to what can sometimes be a dry topic, but I really hope you’ve got some pointers to take away that will help you really super charge those client relationships and help you ward off problems before they occur.