Experience tells us that well drafted terms and conditions are key to ensuring the timely payment of debts or the recovery of unpaid debts, and conversely that poorly drafted terms and conditions invariably make the recovery of debts more difficult and costly.
When trying to organise a better way to fight fires, Benjamin Franklin memorably told his fellow Philadelphians that “an ounce of prevention is worth a pound of cure”.
Franklin’s aphorism has a more everyday and practical application to your business: the payment of outstanding debts.
If you invest in updating your terms and conditions now, it will go a long way towards avoiding or saving the costs of future litigation.
A dispute over payment, which should be a simple debt recovery, can very quickly turn into full-blown litigation, which is both an expensive and time-consuming process, often taking focus away from a business.
Poorly drafted or ambiguous terms and conditions are a gift to lawyers, as it allows us to argue over matters that should have been well and truly been settled, such as:
- What is the agreement?
- Is it written? Is it oral? (If so, who said what to whom and when?)
- Is it partly written and partly oral?
- Which terms and conditions apply - yours or your customer’s?
- Do you have security for payment?
- Can you charge interest?
The cost of litigating can fast exceed the cost of your original debt, and even if you are successful, you may not be able to recover all of your legal costs.
Well drafted terms and conditions, alongside clear and consistent policies for dealing with customers in relation to those terms and conditions, will often avoid the need for you to have lawyers involved at all. If you remove the arguments surrounding the terms and conditions, you take away some of the best arguments available to your opponent. Then, if you do need to pass the matter on to your lawyers, having clear terms and conditions in place streamlines the litigation process, minimising costs.
Good terms and conditions, especially when used in conjunction with other tools such as debtor insurance, keep the vital flow of cash into your business.
If you have any questions about your terms and conditions, please contact Partner Tim Scanlan.