Terms of Trade & Credit Application.

Personal guarantees from directors

The single biggest gap we find in existing terms of trade is the absence of a properly executed personal guarantee. Without one, if the customer trades through a company that later becomes insolvent, your only recourse is against a shell with no assets. A personal guarantee from the directors makes them personally liable for the company's debt to you, and needs to be drafted and witnessed correctly — including making clear the guarantor has had the opportunity to obtain independent legal advice — to reduce the risk of it being successfully challenged later.

Retention of title and PPSR registration

Terms of trade should include a retention of title clause stating that ownership of goods doesn't pass until payment is received in full. That clause needs to be matched by registering a security interest on the Personal Property Securities Register under the Personal Property Securities Act 2009 (Cth) against each customer, which gives you a real, enforceable priority position if the customer becomes insolvent — as opposed to standing as just another unsecured creditor in the queue.

Interest on overdue accounts and debt recovery mechanics

We include a clause fixing a specific interest rate on overdue invoices, calculated daily from the due date, along with a clause making the customer liable for reasonable debt recovery and legal costs incurred in pursuing unpaid amounts. Setting a defined, disclosed rate up front avoids arguments later that an interest charge was never agreed, and gives you a legitimate basis to charge for the cost of chasing non-payment.

Unfair contract terms risk in standard terms of trade

Because terms of trade are, by definition, standard form contracts offered on a take-it-or-leave-it basis, they fall squarely within the unfair contract terms regime under the Australian Consumer Law and, since November 2023, carry civil penalty exposure for including a term later found to be unfair where the counterparty is a small business meeting the turnover or employee thresholds. Common risk areas include unilateral variation clauses, one-sided termination rights, and clauses letting the supplier avoid its own obligations while binding the customer to theirs — we review each clause against this standard, not just against what protects you commercially.

Keeping terms of trade current

Terms of trade should be reviewed periodically, not set once and forgotten — particularly following legislative change, a shift in typical customer profile, or after a bad debt experience that reveals a gap in the existing drafting. We recommend a review at least every two years, or immediately after any material change to how credit is extended in the business.

What the fixed fee covers

• Terms of trade document and matching credit application form
• Personal guarantee clause for company directors
• Retention of title clause with PPSR registration for each customer
• Interest on overdue accounts and debt recovery cost clause
• Unfair contract terms compliance review
• Guidance on rollout and signature process for new and existing customers

Mistakes we see

• Printing terms on the back of an invoice after goods were already supplied on credit
• No personal guarantee, leaving recovery limited to an insolvent shell company
• Retention of title clause with no matching PPSR registration
• No defined interest rate on overdue accounts, weakening debt recovery claims
• Standard terms containing one-sided variation or termination clauses that breach the unfair contract terms regime

Who this is for

• Wholesalers and manufacturers extending credit accounts to trade customers
• Businesses supplying goods or services on 30/60/90-day payment terms
• Companies wanting to formalise credit approval and personal guarantees before onboarding new accounts
• Businesses reviewing terms of trade after a bad debt or failed recovery attempt

Frequently asked questions

Can I enforce a personal guarantee if I never had it separately signed by the director?

It's much harder. A guarantee embedded only in general terms of trade signed by a company representative, without a separate signature block identifying the individual as guarantor, is more vulnerable to challenge. We draft the guarantee as its own clearly signed section so there's no ambiguity that the director accepted personal liability.

Do I need to register a PPSR interest against every customer, even small ones?

For any customer trading on credit above a value that matters to your business, yes — registration is inexpensive relative to the protection it provides if that customer becomes insolvent. Without it, a retention of title clause offers little practical protection once goods are on-sold or the customer enters liquidation.

What interest rate can I legally charge on overdue accounts?

There's no fixed statutory cap for most commercial supply relationships, but the rate needs to be clearly disclosed in the terms of trade the customer agreed to, and set at a level that would be seen as commercially reasonable rather than punitive, to avoid it being challenged as an unenforceable penalty.

Will my existing terms of trade be affected by the unfair contract terms penalty regime?

If your terms are standard form and offered to small business customers without individual negotiation, yes — any unfair term is void and, since November 2023, can also expose the business to civil penalties. We recommend a review of any terms of trade drafted before that date, since the penalty regime materially raised the stakes.

Can I update terms of trade for existing customers, or only new ones?

You can update them for existing customers, but the new terms only bind that customer once they've clearly accepted them — reissuing a signed terms of trade document or credit application, rather than simply emailing a notice of change, is the more defensible way to do this.