Trading terms in Australia, what to include and why

Picture the moment you first meet trading terms as a business owner. A customer asks to see your terms before they sign the quote. Or a supplier sends you theirs and asks you to sign. Or you are staring at a template you downloaded, wondering whether any of it would survive a dispute over late payment, defective work, or a customer who goes broke owing you money.

Trading terms, sometimes called terms of trade, are the standard rules you apply to every sale or engagement: what you supply, what it costs, when you get paid, when risk and ownership pass, and what happens when something goes wrong. They do not replace the individual quote or invoice. They sit underneath it, supplying the default settings that each job slots into. A set of trading terms binds the customer once they accept them, whether by signing, ticking a box, or placing an order on terms you have made available. That is the whole point: one consistent set of rules agreed up front, instead of renegotiating the basics on every job.

The clauses that do the work

The value of trading terms sits in a handful of clauses. Here is what each one does, the drafting choice that matters most, and the trap that causes downstream problems.

How payment works

The payment clause is where trading terms earn their keep. It sets the due date, commonly 7, 14 or 30 days from invoice, whether you take deposits or milestone payments, the methods you accept, and any surcharges for card payments. It should also say how a customer disputes an invoice and what happens then, so a disagreement over one line item does not stall payment for the rest of the job:

• What it does: fixes the customer's obligation to pay on time, which is the backbone of your cashflow.
• The variant to watch: customers push for longer payment windows or payment "on receipt of your statement". If you concede, make the concession explicit rather than leaving it to goodwill.
• The trap: a due date that exists nowhere except the invoice. If your terms say 14 days and the invoice says 30, the ambiguity is yours to absorb.

What happens when payment is late

You can charge interest or a late fee on overdue invoices, provided the amount is reasonable and clearly disclosed. Australian courts enforce late payment fees when they protect a legitimate interest, such as covering your cost of carrying the debt. In Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, the Full Federal Court upheld the bank's late payment fees on exactly that basis. The line is crossed when the charge is extravagant and unconscionable compared with the interest being protected; a fee of that kind is a penalty and unenforceable:

• What it does: gives the customer a reason to pay on time and compensates you when they do not.
• The variant to watch: a flat "administration fee" applied to every late payment whatever the amount outstanding, which drifts toward penalty territory.
• The trap: a fee that operates as a penalty. Disclose the rate in your terms and on the invoice, keep it consistent across documents, and check it against what late payment actually costs you.

Pricing, quotes and variations

This clause governs how a price is formed and changed. It covers how long a quote stays open, what is included and excluded, how variations are priced, and whether cost increases such as materials price rises can be passed on. If you trade across borders it should fix the currency, usually AUD, and confirm GST treatment at the standard rate of 10%:

• What it does: turns "we agreed a price" into "we agreed a price for a defined scope".
• The variant to watch: the customer's purchase order that says your quote is "subject to their standard terms", which quietly swaps your rules for theirs.
• The trap: pricing statements are representations. Section 18 of the Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), prohibits misleading or deceptive conduct in trade or commerce, so a quote that promises a price you cannot honour is its own legal problem.

Delivery, risk and title

For goods, this clause allocates three things that can otherwise become a blame game: who arranges delivery, when risk passes, and when ownership transfers. Risk commonly passes on delivery or pickup; title commonly passes on full payment. If you supply on credit and want the goods back if the customer does not pay, a retention of title clause says ownership stays with you until payment in full. That arrangement can create a security interest under the Personal Property Securities Act 2009 (Cth), and the PPSR's guidance is that you generally need to register that interest on the register for it to hold up against other creditors if the customer becomes insolvent:

• What it does: allocates the loss if goods are damaged, lost or never paid for.
• The variant to watch: customers asking that risk pass on dispatch rather than delivery, so they wear transit damage.
• The trap: a retention of title clause that is never registered, which can leave you unsecured in an insolvency despite what the clause says.

What exactly you are supplying

This is the scope clause. For services it sets out the work, the timeframes, the customer's responsibilities such as site access and approvals, and how completed work is accepted. For products it describes what is included and what is not. It is the clause that decides whether an extra request is a variation you charge for or a gap you absorb:

• What it does: defines the boundary of the job.
• The variant to watch: "best endeavours" timeframes from the other side's drafting, which commit you to less than they appear to.
• The trap: scope described only in a one-line email, which the customer will read as covering everything.

Warranties, returns and consumer guarantees

This is where Australian consumer law does the most work. If you supply to consumers, the consumer guarantees in the ACL apply to your goods and services, and section 64 of the ACL makes any term that purports to exclude, restrict or modify them void. Your terms should acknowledge the guarantees and explain how you handle repairs, replacements and refunds, not pretend they do not exist.

If you offer a written warranty against defects, the regulations made under section 102 of the ACL prescribe what that document must contain, including a statement that the goods come with guarantees that cannot be excluded under the ACL. Giving a customer a non-compliant warranty document is itself a contravention, and the penalty table in section 224 of the ACL sets a maximum of $50,000 for a company for each contravention:

• What it does: sets your process for defects while keeping you on the right side of the ACL.
• The variant to watch: an "as is" clause in a consumer sale, which is void under section 64.
• The trap: promising an extra warranty without the prescribed wording, which turns a marketing gesture into a compliance breach.

How far your liability goes

A liability clause caps what you can be liable for and excludes categories of loss. A common structure caps total liability at the fees paid under the contract and excludes indirect or consequential loss. The drafting choice that matters most is proportionality: a cap that is fair for a $5,000 job will look one-sided in a $500,000 engagement.

The trap is that, in a standard form contract with a consumer or small business, a clause like this must survive the unfair contract terms test in section 24 of the ACL. A term is unfair if it causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the legitimate interests of the party relying on it, and would cause detriment if applied. The section also presumes a term is not reasonably necessary unless the party relying on it proves otherwise. Since 9 November 2023, proposing or relying on an unfair term in a standard form consumer or small business contract is itself unlawful, and section 224 of the ACL allows penalties against a company of up to $100 million, or three times the benefit gained, or 30% of adjusted turnover. Liability caps are prime candidates for scrutiny, so they need to be transparent and defensible.

Who owns the intellectual property

For a services business, the IP clause decides who owns what when the work is done. The usual structure is: each party keeps its pre-existing IP, new IP created for the customer is owned by the customer or by you with a licence to the customer, and the customer gets a licence to use the deliverables for its own business. The drafting choice that matters most is the licence: non-exclusive and limited to the purpose of the engagement, so you can reuse your underlying methods and materials on other jobs:

• The variant to watch: the customer's clause that assigns "all IP" including your pre-existing tools and templates.
• The trap: silence. If the contract says nothing about IP, ownership is left to general law and both sides will be surprised.

What happens to personal information

If you collect names, email addresses, delivery details or payment information, your terms should say what you collect, why, and where customers can read your privacy policy. Many small businesses are exempt from the Privacy Act 1988 (Cth): under section 6D, a business with annual turnover of $3 million or less is generally a small business for the Act's purposes, although the exemption does not apply in every situation, such as where the business trades in personal information. The safest approach is to make your privacy commitments match what you actually do, and to have a policy that says so.

When the deal ends

Termination and dispute clauses decide how the relationship unwinds. They cover when either party can suspend or terminate, what happens to amounts owed on termination, and how disputes are escalated before litigation, such as discussion between senior representatives or mediation. For ongoing services they should also cover what happens to data and deliverables on exit, so the customer is not held hostage and you are not left exposed to claims after the work stops.

Clauses to add when the situation calls for it

Not every business needs every clause. These are the ones worth adding when a specific trigger appears:

• Retention of title and PPSR registration: add when you supply goods on credit and want to recover them, or claim priority over other creditors, if the customer becomes insolvent. Registration on the PPSR is generally required for the interest to be effective.
• Director or personal guarantees: add when you extend credit to a company with few assets of its own. A director's guarantee gives you a second debtor to pursue if the company cannot pay.
• Auto-renewal and subscription terms: add for recurring services. Spell out billing cycles, renewal mechanics and cancellation windows, and check the unfair contract terms test, because automatic renewal is an area regulators watch closely.
• Non-solicitation: add when your client-facing staff could be poached by the customer after the engagement ends.
• Force majeure: add when your supply depends on events outside your control, such as shipping or materials, and you want a defined path for delay or cancellation.

How an Artificer Legal lawyer would review your trading terms

A review of trading terms is usually quick, because the risk concentrates in a handful of clauses: exclusions of consumer guarantees, unilateral variation rights, one-sided termination, liability caps, auto-renewals, and the mechanism that makes the terms binding at all.

An Artificer Legal lawyer would start with the sales process, not the document. If the terms never reach the customer before the deal is done, redrafting them is wasted effort. From there we would check the ACL exposure: whether the business supplies consumers, whether its contracts are standard form, and whether it or its customers fall within the small business definition in section 23 of the ACL, which captures businesses with fewer than 100 employees or turnover under $10 million. Then we would review the penalty-prone clauses: late fees against the Paciocco principles, warranty documents against the prescribed requirements, and liability caps against the unfair contract terms test. For businesses that supply goods on credit we would check whether a retention of title clause needs PPSR support. The order matters: fix incorporation first, then ACL exposure, then the commercial clauses.

Whether the customer ever accepted your terms

Every clause in this article is wasted if the terms were never accepted. The drafting choice that decides most disputes about trading terms is not the wording of any single clause; it is whether the terms formed part of the contract at all. A customer who never saw your terms before they paid is not bound by them, however well drafted. The acceptance mechanism, a signature block, a tick box, a line on the quote saying the order is subject to your terms, is the most-skipped step and the one that decides who wins if the relationship sours.

The rest follows from there. Set payment expectations clearly, keep late fees defensible rather than punitive, allocate risk and title deliberately, respect the consumer guarantees you cannot contract out of, cap liability in proportion to the job, decide IP ownership before the work starts, and review the document when your business or the law changes. Trading terms are not a formality. They are the contract, and the contract is only as good as the moment the customer agreed to it.