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So many times, businesses sell their products or services with little or no written contract in place to protect the seller in the event of a default in payment or some other problem with the sale.

Often, thousands of dollars in products or services are delivered to the customer with only a purchase order or invoice serving as a written record of the transaction. It is amazing how often businesses overlook the opportunity to provide certain protections for themselves in these documents.

Reducing your business’ exposure to liability or loss doesn’t require an elaborate document. In most cases, the same terms can be included on all of your purchase orders, invoices, and credit applications in a form that is binding and enforceable but does not otherwise interfere with the manner in which you do business.

The following are some key terms to include:

  • Acceptance of standard terms and conditions.  Add an agreement by the customer to be bound by your standard terms and conditions upon acceptance or receipt of your products or services. If possible, you may wish to obtain a signature by the customer on each purchase order or invoice.
  • Payment terms.  Spell out the terms of payment, including when payment is due, when payment will be considered late, and any discounts you offer for prompt payment.
  • Taxes.  State who is responsible for payment of sales and use taxes, if applicable. In most cases, the purchaser is responsible for payment of sales tax, but the seller collects it at the time of sale.
  • Late fees and charges.  Include terms for any late fees or charges assessed for late payment.  While charges of 1.0 – 1.5% per month are relatively common, you should consult counsel about the legal amount of interest you may charge on      overdue accounts.
  • Warranties.  State clearly what your warranties are, what they cover, and when they expire. If you don’t offer any warranty other than an applicable manufacturer’s warranty, state this clearly.
  • Disclaimers.  You’ll also want to include a specific disclaimer of all other expressed or implied warranties and a statement that the seller will not be responsible for any other consequential damages related to defects in the product. This is important because if warranties aren’t specifically disclaimed, they generally apply, which can open you up to liability. Counsel can advise you on which warranties you may disclaim.
  • Refund and return policy.  Include your policy on refunds or the right to return goods. Include whether you charge a restocking fee for returned goods.
  • Legal fees.  This is one of the most important provisions, and it is often overlooked. Many times, whether you can afford to pursue collection of an account depends on whether you can also recover your legal expenses and attorney’s fees.      Generally, you will not have a claim for recovery of your legal expenses and fees unless the customer has agreed in writing to pay them. Include a provision that the customer has to reimburse or pay your legal fees if you have to engage counsel to collect an account in default.
  • Governing law and jurisdiction.  It’s a good idea to include terms that require the customer to consent to the jurisdiction and venue of the courts where your business is located and to require that the law of your state applies to the transaction. This is particularly important if you do a lot of business out of state. These terms combat the expense of handling out-of-state legal battles by allowing you to bring an action on your own turf.

Another great place to include your standard terms is in a credit application completed by the customer at the beginning of the business relationship. A statement that your terms apply to all future sales to the customer and that you are offering credit based upon the customer’s acceptance of those terms will help to protect all transactions with the customer.

The terms and provisions you should include on your purchase orders, invoices, and credit applications vary greatly depending on the types of products or services your business offers. A qualified lawyer can help you tailor terms specifically to your business.