Many businesses have a standard set of terms and conditions that they have gone to the trouble of preparing (or having their lawyers prepare) to protect their interests.
But what happens when two businesses are doing a deal, and each has their own terms?
Often this results in a state of confusion.
So let’s sort it out.
The Problem
Many business owners believe that because their terms say “our terms apply no matter what” then that is enough.
It’s not.
It’s especially not enough when two businesses are doing a deal, and both have sets of terms which say “our terms apply” – after all, which one should be given priority?
The answer lies in managing the way you do the deal, and understanding how your terms might be accidentally ousted along the way, even if you don’t expressly agree to do that.
Essentials of Contracting
I offer to do something for you (build a fence) in exchange for you doing something for me (pay me money).
You say, “yep sounds good let’s do it”.
We now have a contract.
What if instead of saying “let’s do it” I said, “that sounds OK, but how about I pay you half what you’re asking?”.
Then – we don’t have a contract. I’ve made a counteroffer. For a deal to be done you still need to accept my counteroffer.
So we see here the relevant points:
- There must be an offer;
- Someone must accept the offer;
- The “acceptance” can’t try to change the deal, or it’s not really an acceptance at all.
Apply it to your Business
A common B2B deal looks like this:
- You send me a quote with your terms;
- I send you a purchase order with my terms, although “accepting” your quote when it comes to the numbers;
- You start work.
In that case, you might think that your terms would apply because they formed part of your quote, and those terms probably said “these terms apply to our deal no matter what”. However, what I’ve really done isn’t accept your quote (or your terms), but made a counteroffer – that is, I’ll pay you the money you want but on my terms as set out in the purchase order.
By starting work without saying anything else, you are “accepting” my counteroffer.
So we have a deal – on my terms, not yours.
What if you Don’t Like My Terms?
So how can we get around this problem?
After all, there’s a good chance that:
- Your terms are more favourable to you; and
- My terms are more favourable to me.
The first step is to be aware of this happening – let your employees, sales people, commercial teams know that they need to be live to this issue before just arranging for the work to start.
Next, you need to decide how much you care on a case by case basis. It might be that in all crucial areas the terms are fundamentally similar – in which case you might just go ahead anyway.
Last, if you can’t live with my terms then we’ll need to negotiate something.
Negotiating Terms
In the real world, most businesses don’t want to get into a big argument every day about which terms should apply to a deal.
Of course, in significant construction contracts or major commercial deals then there is going to be a lot of negotiation along the way.
But day to day business generally shouldn’t get bogged down by extended negotiations, otherwise you’re spending precious time and resources, often for little gain.
So, in practical terms, you want to pick your battles. That means from a business perspective you should be aware:
- What of your standard terms are “mission critical” to your business? There are usually a few key points that you must have in every contract;
- Which of their terms are particularly objectionable? This will mean ensuring you read their terms carefully, or getting a lawyer to do that for you.
With that information, most of the time a short conversation can land on a deal that everyone is content with. If not – then you’ll need to weigh up the risks and benefits of proceeding.
Clarity is the key – there should be no confusion or misunderstanding about what the terms are that you’re going ahead with.
Once you’ve got that – you’re good to go.
Knowledge is Power
Having systems in place to watch out for these situations, deal with them, and continue the job commercially and sensibly is going to help you avoid a lot of potential issues down the track.