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Recent reports in New Zealand and across the Tasman indicate that many businesses are still facing an uncertain future - and this means, if any of them are your clients, you could struggle to get paid.

When a firm gets into financial difficulty they look for loopholes and reasons to justify delaying payment, or not paying at all.

When a sale is made it's great to celebrate, but we all know things don't always turn out ‘rosy' down the track. One of the best ways to protect yourself and ensure you get paid is to have well prepared, clear and concise ‘Terms of Trade' between your business and those you transact with. Verbal and ‘hand-shake' agreements may be appropriate in some circumstances, but when things don't go to plan you want to have something solid in writing to back you up.

I spoke with RP Emery & Associates, who are providers of contract templates for business. They told me why smart businesses need good ‘Terms of Trade'.

An example:

A manufacturer and purchaser worked well together for a year, but then a dispute arose over an overdue account. The manufacturer claimed substantial interest and late payment fees. The case ended up in court, because it was unclear whose terms of trade applied, as there had been express agreement on who made and supplied the goods, but not as to the terms of payment. In this case the Court held that by going ahead and fulfilling the purchaser's orders, the manufacturer had effectively accepted the purchaser's terms.

The expense and aggravation of having such a dispute resolved by a court is always stressful (and a distraction), so when you enter into an agreement, just make sure that your terms of trade are also signed by the other party.

Similarly, when it comes to licensing and distribution agreements, it is important to make sure that there is a clear understanding between the parties, as to what the intellectual property component really means. It is commonly thought that one can get around design, copyright, or a patent merely by changing the product by x%, but that is folk-lore that is incorrect.

Just this year, Solitaire Homes won a landmark case in which an architect made what he thought were adequate changes to a Solitaire project home design. Once it was established that the architect had in fact based his drawings on the Solitaire design, he was guilty of copyright and trademark violation. So acknowledgment of your copyright and other IP in your terms of trade is critical.

Addressing matters such as these in your terms of trade will keep you out of court. Even the Judge commented in the Solitaire case that after 5 years, the legal costs exceeded the cost of construction of the house, let alone the damages awarded!

When thinking about terms of trade it is also wise to consider relevant legislation. For example, the recent Conrad Medical Systems case in Australia involved a dispute about the delivery of software, which the plaintiff claimed was not of merchantable quality, or not fit for the purpose. The provisions of the law did not apply to digital products, and as a result the plaintiff (Gammasonics) was required to pay $58,000 in damages. The Aussie government is apparently looking at amendments to the act to cover software.