Most debt recovery problems are, at their core, documentation problems. When an account goes bad and the creditor has no signed terms of trade, the options narrow sharply — and the prospect of claiming interest, recovery costs or retained goods becomes remote. Terms of trade transform a commercial assumption into an enforceable obligation. Here is everything you need in one place.
What are terms of trade?
Terms of trade are the written contractual terms that govern the supply of goods or services on credit. They sit alongside (or form part of) your credit application and specify what you are supplying, when payment is due, what happens if it is not, and the remedies available to you if it is not paid. They are not the same as a quote or an invoice — they are the background legal framework that the commercial relationship operates within.
Unlike a quote that addresses one transaction, terms of trade apply to the ongoing account. Once accepted by the customer, they govern every order, every invoice and every dispute until the relationship ends or the terms are updated.
What to include
Commercially effective terms of trade should cover:
- Parties and scope — full legal entity names and a clear statement of what goods or services the terms cover.
- Payment terms — explicit due dates ("14 days from invoice date"), accepted payment methods and what constitutes cleared payment.
- Interest on late payment — the rate and the basis on which it accrues from the due date. Without this clause, interest is much harder to claim.
- Recovery costs — a clause entitling you to recover the costs of collection (including an external recovery agent) from the debtor. Without it, those costs sit with you.
- Retention of title (ROT) — for goods suppliers: ownership does not pass until payment is received, giving you the right to recover goods in a default or insolvency.
- Dispute resolution — requiring disputes to be notified in writing within a defined period, so late-raised objections don't derail a legitimate recovery.
- Governing law and jurisdiction — the state whose law governs and where any dispute is resolved. Nominate your own state.
- Personal guarantee provision — for company accounts: a cross-reference to any guarantee and confirmation that the guarantee is part of the credit arrangement.
Getting them signed
Terms of trade that are not accepted by the customer are, at best, a persuasive document and, at worst, unenforceable. The gold standard is a signed credit application that explicitly acknowledges the terms. At minimum, the customer must have had a genuine opportunity to read and accept the terms before the supply relationship begins.
Common approaches include:
- Attaching the terms to the credit application and requiring a signature that confirms acceptance.
- Including a tick-box or electronic acceptance field in an online credit application.
- Sending terms with a covering email and requiring a signed return — or a clear written acknowledgement.
Do not rely on terms printed only on the back of your invoices. By the time the invoice is issued, the supply relationship has already started. Courts have routinely found that terms introduced after the contract was formed are not incorporated.
Electronic acceptance
Electronic signatures and electronic acceptance of terms are generally enforceable in Australia under the Electronic Transactions Act 1999 (Cth) and its state equivalents. A customer who checks a box confirming acceptance, or who returns a digitally signed document, has accepted the terms in the same way as a wet signature on paper — provided the process makes it sufficiently clear what they are agreeing to.
For personal guarantees, extra care is needed. Some guarantee forms are deeds, which have particular execution requirements. Check with a solicitor before relying on electronic execution of a guarantee.
The retention of title clause
A retention of title (ROT) clause — sometimes called a Romalpa clause — provides that ownership of goods supplied does not pass to the buyer until they are paid for in full. In practical terms, this means that if a customer defaults before paying, you can, in principle, recover the goods.
Since the introduction of the Personal Property Securities Act 2009 (Cth), a ROT clause must also be registered on the PPSR as a Purchase Money Security Interest (PMSI) to be effective against a liquidator or third parties. An ROT clause in your terms without a corresponding PPSR registration is, in most insolvency situations, ineffective. If you are a goods supplier, the two — ROT clause plus PPSR registration — must work together.
Recovery costs and interest
Two clauses that directly affect the economics of recovery are the interest clause and the recovery costs clause. The interest clause specifies the rate at which interest accrues on overdue amounts — typically a fixed rate (e.g. 2% per month) or a rate referenced to a benchmark. The recovery costs clause provides that the customer is liable for your reasonable costs of collection if the account goes to a recovery agent or legal proceedings.
Without these clauses, both interest and recovery costs are claimable only in limited circumstances. With them, they form part of the debt and can be added to a demand and — if necessary — to a judgment.
Using your terms as a recovery tool
When an account goes bad, your terms of trade become active. A signed set of terms that includes the clauses above allows you to:
- Send a demand that quantifies interest from the due date.
- Claim your recovery agent's costs as part of the debt.
- Assert an ROT claim over goods in a customer's insolvency (if also PPSR-registered).
- Point to a signed personal guarantee as a separate avenue of recovery against the director.
- Nominate your home jurisdiction for any legal proceedings.
In contrast, a creditor without signed terms often cannot claim interest, cannot recover their costs, has no claim over goods already delivered, and may have to litigate in the debtor's jurisdiction. The difference in recovery outcome between these two positions is substantial.
This guide is general information only. It does not constitute legal or financial advice. For advice specific to your situation, consult a qualified professional.