Whether you're selling goods or providing services, having a clear set of terms of business is critical for protecting your business, streamlining your contracting process and giving you a strong documented framework to help ensure your projects run well. These are critical legal terms which spell out the relationship between you and your customers – including what you’ll provide, how much they’ll pay you and what happens if things go wrong.
Your terms should be used as strategic tools, both when you start out and throughout your business lifecycle as you scale up, for risk prevention and growth.
Here we explore the importance of terms and business and why you need them. Our commercial solicitors can help you to tailor your terms of business to limit liability, reduce risk and create certainty for your business.
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Why do you need terms of business?
If you're running a business, terms of business are critical documents to help you maintain control and minimise risks. They should be a critical part of your business strategy that help you to manage risk and crucially, limit your liability, especially when you’re a busy supplier servicing many clients. Your terms may also need to cover mandatory compliance issues – particularly where you’re processing personal data as a processor or contracting with consumers, in which case mandatory rules kick in and these need to be reflected in your terms. One key role of your terms of business is that they may help you to prevent disputes – by laying out key obligations that show your customers what to expect from the outset to avoid misunderstandings.
What should your terms of business cover?
Terms of business will typically be a document with key legal terms – forming the key legal framework for your contractual relationships. Terms of business don’t follow a one-size-fits-all approach and need careful tailoring so they’re fit for purpose to protect your unique business.
Your terms of business should cover several important areas to avoid uncertainty, mitigate risks, and facilitate growth.
Some of the key terms will typically include:
- A clear description of the goods or services you’ll provide
- Pricing details, including whether you’ll charge expenses
- Payment terms, specifying how and when customers pay, and what happens in the event of late payment (these are critical to protect a supplier’s cash flow and enforcing payment rights)
- If you’re delivering goods, delivery terms, explaining your timeframes for delivery and when the customer becomes responsible for the goods
- Where you’re providing services, service performance details, including timelines, and any service levels
- Liability limitations including a cap on liability – which are critical for a supplier to control their potential liabilities
- Confidentiality and intellectual property (IP) protections, ensuring information is safeguarded and protecting the supplier’s IP rights
- Termination clauses, detailing when and how the contract can be ended, including required notice periods
- Data protection obligations (such as data processing terms) where necessary when the contract involves processing, for compliance with data protection law rules
- Dispute resolution procedures, setting out a process for speedy resolution
These are just a handful of important provisions. However, depending on how you operate, your terms may need several additional provisions to reflect your business offering, any specific rules which apply to your business or industry and to prevent risk.
Do you need to follow legal rules in contracts?
Yes, there are some legal rules which will apply to certain contracts, and in some cases, specific terms are required by law. For example, consumer protection laws require businesses to provide certain information in writing to customers before finalising a contract.
Additionally, if your business involves handling personal data as a data processor, contracts that include data processing must contain mandatory provisions to comply with UK GDPR.
There are also rules around limiting liability in contracts and if your liability limitation terms don’t comply with them, they could be unenforceable and leave your business exposed.
It’s sensible to seek legal advice before rolling out terms of business, to make sure they comply with any applicable legal rules your business needs to follow.
Should you work with a lawyer on your terms?
It’s highly recommended you work with a commercial lawyer when you don’t yet have terms of business in place or when you need to draft or update them.
As well as drafting robust terms of business, a lawyer will get to know your business and guide you on the best way to roll out the terms and implement your contracting process correctly depending on your business model. This includes making sure you have a straightforward process of incorporating your terms of business into your contracts so they’re legally binding and you can rely on them. For instance (depending on how you deal with customers) you may seek to append your terms of business to an Order Form or have them published on your website for customers to click to agree to - a lawyer will guide you on this and the correct approach, as correctly incorporating your terms into your contracts is critical.
Terms of business should be an integral part of your business setup from the start, not something you leave to the last minute. A commercial lawyer can help ensure the language you use in your legal documents is clear, compliant, and enforceable and that your terms of business protect you now and as far as possible in the future.
These documents and their drafting need a nuanced approach depending on the circumstances too – for example, whether you’re offering your services to consumers or B2B. It’s important to know consumer contracts are subject to stricter regulations, whereas B2B contracts generally allow for more flexibility, but must still comply with rules. That’s why your terms must be properly tailored to the type of customer you are dealing with and some of the terms explored above (e.g. around liability) may look different depending on who you’re contracting with.
It is also important to regularly update your commercial contracts to ensure they remain fit for purpose and protect your business over time.
If a customer requests changes to your terms or if you're asked to sign someone else’s terms, it’s also advisable to get legal guidance to make sure you’re not taking on big risks to get the deal over the line.
Overall, investing in legal advice can help give you strong contractual legal protection and peace of mind.
Conclusion
Having clear and accurate terms of business is essential to protect your company. Without them, you risk facing claims for unlimited liability, disputes over mismatched expectations, or customers failing to pay with limited remedies available.
A well-drafted terms of business agreement is a crucial contract for any supplier. Investing in it early can help limit liability, ensure clarity, and strengthen your business’s reputation – whereas vague or poorly written terms may raise concerns among discerning customers.
Our commercial law solicitors are here to help you get it right.
