Terms of trade are the contractual foundation of commercial credit relationships. When a debt goes bad, the quality of those terms determines what a creditor can claim, how they can claim it, and how defensible their position is. Seven drafting mistakes appear frequently in terms seen in Australian trade credit practice — and all of them are avoidable.
1. Vague payment terms
"Payment due within 30 days" sounds clear but leaves room for dispute about when the 30 days starts — from the invoice date, the date of delivery, the date of receipt? Terms should specify: payment is due 30 days from the date of the invoice. Each word matters in a limitation period calculation.
2. Interest that is not properly triggered
Many terms purport to charge interest on overdue amounts "at the rate of X% per month" but do not specify when the interest obligation commences, whether demand is required before it starts, or how it compounds. A court asked to award interest on a debt needs clear drafting — vague or contradictory interest provisions are regularly reduced or disallowed.
3. Recovery costs clauses that are unenforceable
A clause that says "the debtor shall pay all costs of recovery including legal fees and collection costs" is a contractual promise, but courts in Australia have generally been reluctant to enforce indemnity costs obligations in full against consumers, and the clause may also interact with the unfair contract term provisions of the Australian Consumer Law for small business counterparties. A properly drafted clause specifying reasonable recovery costs as an agreed pre-estimate of loss is more defensible.
4. Missing personal guarantee provisions
Terms that contemplate a personal guarantee but do not include the guarantee in the same document — or that refer to a guarantee to be signed separately but do not enforce the requirement at onboarding — leave the creditor without a signed guarantee when it is needed. The guarantee should be incorporated into the credit application and signed at the same time.
5. Retention of title not registered on the PPSR
A retention of title clause is a PPSA security interest and must be registered on the Personal Property Securities Register to be effective against a liquidator. A retention of title clause that is not registered is worthless in an insolvency. This is one of the most common and costly mistakes in trade credit practice.
6. No governing law clause
Without a governing law clause, the law applicable to the contract may be uncertain — particularly where the supplier and customer are in different states. Specify the governing law (usually the supplier's state) to avoid any ambiguity.
7. No dispute resolution clause specifying the process
Terms should specify what happens when a dispute arises — whether the parties attempt to resolve it by negotiation first, whether mediation is required before litigation, and which court has jurisdiction. Without this, a debtor who disputes an invoice can delay recovery by arguing about process.
If your terms of trade contain any of these gaps, address them before the next credit account is opened. Contact Merion if you want guidance on how your terms interact with recovery outcomes in practice.