Terms of Trade

A Terms of Trade is a document that regulates the terms of an ongoing trade relationship between a supplier and customer. The circumstances surrounding trade transactions can be complex and there are several risks involved with the supply of goods. For this reason, it is common to set out the general terms by which business will be conducted before finalising particular transactions. This is particular important in a context where transactions, and their variations, may be agreed on verbally, or with little paperwork.

The terms in this document are designed to help protect your interests as a supplier or customer engaging in trade. When businesses enter into trade relationships without appropriate legal protection, they leave themselves open to liability down the track.

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.

The following kinds of agreements can be structured through terms of trade such as this one:

• Distribution agreements.
• Purchase agreements.
• Lastly, Supply agreements.

How do they work?

Terms of trade agreements are legally binding contracts that are stated to apply to all subsequent transactions between the parties. Therefore they 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 if conflict should arise.

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 in NSW. 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.