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Terms of trade: An Explainer

Terms of trade: An Explainer

It is important to understand your rights and obligations in a business relationship. Parties can set these out as terms of trade in an agreement. Read on to find out more.

14th September 2020
Reading Time: 2 minutes

Knowing what you are agreeing to and the obligations that arise from an ongoing relationship are critical to protecting your interests in a business agreement. For instance, whether the agreement you are reaching can be a strong reference in case of dispute. This article will explore how terms of trade impact your rights and their importance to understanding the nature and structure of your relationship with a supplier or client.

What are terms of trade?

To begin, terms of trade are the rights and obligations set out in a business agreement for an ongoing trade relationship. Consequently, they are legally binding and are usually recorded in writing, providing for an effective mechanism to guard against risks.

For example, some types of terms of trade agreements include:

How do they work?

Terms of trade agreements are contracts that help to provide transparency and minimise the chances of conflict. Moreover, they are the conditions that will govern the relationship and act as a reference point when conflict should arise.

They protect parties in a trade relationship by clearly defining the:

  • Duty owed to the other;
  • Duration of the relationship;
  • How much to pay in exchange for the supply of goods or services;
  • Method of payment (consideration);
  • Entitlements of either party where one cannot fulfill their obligations under the agreement;
  • Any liabilities arising from non-performance or unsatisfactory supply of goods or services; 
  • Assurances (warranties); 
  • Any limited liability conditions; and
  • Actions to carry out in unexpected circumstances.

You should your take time when reviewing terms of trade and ensure you understand what the other party expects of you. Additionally, It is important to be aware of the responsibilities of the offering party in carrying out the service. Unsure about the terms of your agreement? Check out our guide on ‘What Are Unfair Contract Terms In Consumer Contracts?’.

Who uses them?

Terms of trade agreements are usually made with businesses who categorise themselves as suppliers, suppliers of raw materials, finished goods or service providers. That is to say, they often initiate a relationship with a proposal or quote. This process usually involves the business explaining the work that they will complete and the associated costs.

Legislative context

Agreements that set out standard terms and conditions in a business relationship are regulated by statutes such as the Sales of Goods Act 1923. This Act ensures that terms of trade for the supply of goods or services (contracts of sale) are valid in accordance with the rules that dictate when goods pass between parties. Moreover, the Act provides rules for performance under these kinds of agreements.


  • Terms of trade are essential to agreements that deal with the supply of goods or services.
  • They protect the interests of both parties.
  • Terms of trade agreements are governed by the Sales of Goods Act 1923.
  • Lastly, are often appropriate for ongoing business relationships.

Want to know more?

  • Access our free terms of trade agreement templates here.
  • If you are struggling to understand the terms of your agreement, consider consulting one of our lawyers for a legal advice plan here.
  • Interested in pursuing a matter? Find the lawyer fit for you with a free quote here.

Don’t know where to start?
Contact a Lawpath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Zaki Zeini

Zaki is a Lawpath intern, working as part of the content team. He is currently in his third year of a combined Bachelor of Business and Laws degree at the University of Technology Sydney. His passions lie in intellectual property and the legal protections it offers for artists in the entertainment industry.