Terms of Trade Clauses You Need

Why the clause structure matters

Terms of trade are only as useful as the language they contain. A document labelled "Terms and Conditions" but filled with vague or incomplete provisions is not meaningfully better than having no terms at all — it can actually be worse, because it creates an illusion of legal protection that does not exist.

Australian courts read commercial contracts strictly. Where a clause is ambiguous, courts typically apply the contra proferentem rule: ambiguity is construed against the party who drafted the terms. If you wrote a vague interest clause, and it is disputed, the interpretation that hurts you — not the other party — is the one a court is likely to adopt.

The solution is not to have a lawyer review every invoice. It is to have a lawyer review your standard terms once, properly, so that the terms you use in every transaction are sound. The cost of that review is trivially small compared to the cost of an unenforceable clause on a large debt.

Payment terms

Your payment terms clause must specify three things precisely: the number of days allowed for payment; the event that triggers the clock — invoice date, delivery date, or date of acceptance; and the acceptable methods of payment.

"Payment due within 30 days" is incomplete. 30 days from when? Invoice date is the most common trigger and the least ambiguous. "Payment is due within 14 days of the invoice date" leaves no room for interpretation. If your terms allow multiple payment methods, list them: bank transfer (with BSB and account number), credit card (note any surcharge), or cheque (include the payee name).

Avoid creative terms that sound professional but create confusion — "due by end of month following invoice" or "payable 30 days nett" are understood differently by different people. Plain, explicit language is better.

Interest on overdue amounts

An interest clause is one of the most practically important clauses in your terms because it gives you a commercial remedy for late payment without needing to go to court. But it only works if it is specific.

The clause must: name the rate (for example, "interest accrues at the rate of 12% per annum" or "2% per annum above the Reserve Bank of Australia cash rate, whichever is greater"); state when interest begins to accrue (typically "from the due date until the date of payment in full"); and confirm that the right to interest is in addition to any other remedy.

A clause that simply says "interest may apply to overdue amounts" is unenforceable — there is no agreed rate, so there is nothing a court can give effect to. Be specific. The ACCC/ASIC debt collection guideline also requires that any interest charged must have been agreed to in advance — which means it must be in your signed terms, not added later.

Recovery costs

A recovery costs clause entitles you to recover the reasonable costs of collection — including mercantile agent commission and legal costs — as a debt owing by the defaulting customer. This clause serves two purposes: it allows you to seek those costs if you need to, and it puts the customer on notice that the cost of making you chase is on them, not you.

The clause must say that collection costs are recoverable as a debt — not merely that you "may" seek them. A typical formulation: "The customer is liable for all reasonable costs of enforcement and recovery, including mercantile agency fees and legal costs on a solicitor-client basis, which become immediately due and owing upon demand." Note that even with this clause, recovery of costs is not guaranteed — courts have discretion — but the clause materially improves your position.

Retention of title

A retention-of-title clause (also called a Romalpa clause after the case that established the principle) provides that goods you supply remain your property until they are fully paid for. Without this clause, once you deliver goods to a customer, title typically passes and those goods become the customer's asset — available to their creditors in an insolvency, not yours.

A retention-of-title clause must be clearly expressed: "Title to and ownership of the goods passes to the customer only upon receipt in full of all amounts owing to the supplier." It should also address what happens if the customer sells the goods before paying — a "proceeds" clause allows you to claim the sale proceeds as trust money owing to you.

Critical limitation: a retention-of-title clause in your terms of trade, without a corresponding registration on the Personal Property Securities Register (PPSR), offers very limited protection in a customer's insolvency. A liquidator can treat unregistered goods as an asset of the estate. Lesson 13 covers PPSR registration in detail. If you supply goods on credit and your exposure is significant, register.

Jurisdiction and governing law

Without a jurisdiction clause, a dispute about your contract can theoretically be litigated in the debtor's state rather than yours — which may be expensive and inconvenient, particularly for smaller debts. A jurisdiction clause prevents this.

A simple clause: "This agreement is governed by the laws of [your state] and the parties submit to the non-exclusive jurisdiction of the courts of [your state]." "Non-exclusive" allows you to sue in another state if that is more practical, while still giving you home ground as the primary option.

Dispute resolution

A dispute resolution clause establishes a process for resolving disagreements before either party rushes to court. A typical commercial clause requires an internal escalation step first: the parties must attempt to resolve the dispute through direct negotiation for a specified period (commonly 10–20 business days) before proceeding to any external process. This clause is useful because it prevents frivolous litigation and encourages resolution, but it should not be written in a way that prevents you from seeking urgent injunctive relief if needed.

Personal guarantees

For significant credit exposures — particularly where the customer is a company — a personal guarantee from the company's directors provides a meaningful additional layer of protection. A guarantee makes the director personally liable for the company's debt if the company fails to pay.

To be enforceable, a guarantee must: be in writing; be signed by the guarantor in their personal capacity (not as a director); ideally be witnessed by a third party; survive the company's insolvency; and be drafted with sufficient clarity about what is guaranteed and for how much. For large exposures, have a commercial solicitor draft the guarantee separately — it is not something to be included in a standard credit application template without proper legal review.

Common omissions

The most frequent weaknesses in small business terms of trade are: no clearly defined payment trigger event, so the clock never clearly starts; an interest clause with no specified rate; no mechanism for updating the terms over time; and terms that were first presented on an invoice rather than at the credit application stage. If your customer did not have the opportunity to review and agree to your terms before the relationship began, enforcing them becomes significantly more difficult. The time to present terms is at credit application, before the first order, not after the first invoice.

Getting your terms reviewed

A commercial solicitor can review a standard credit application and terms of trade package for a modest fixed fee. This is not a large outlay relative to the risk it addresses. Update your terms when your business model changes, when you enter a new type of customer relationship, or when the law changes in a way that affects your industry. Do not treat terms as a one-time document.