Unless your business solely serves the consumer market, contracts are part and parcel of everyday financial management. Whether it is negotiating delivery terms with other business leaders or deciding on payment times, many owners have come unstuck with contracts over the years.
According to the Australian Securities & Investment Commission (ASIC), more than 3,500 of the corporate business insolvencies for the 2014-15 financial year were blamed on poor strategic management. This made up around 42 per cent of all reports.
Contracts come under the umbrella of strategy as they dictate your business direction for a set period of time. As such, small enterprise leaders need to be more careful when it comes to putting their signature on the dotted line.
Small business contract law
This was highlighted in a recent statement from the Australian Competition and Consumer Commission (ACCC) outlining a new law surrounding standard form contracts.
Taking effect on 12 November 2016, the law will help to protect small businesses which encounter unfair contract terms given to them by often larger firms.
ACCC Deputy Chair Dr Michael Schaper explained the merits of this move from the multiple agencies and state and territory fair trading offices.
"This new law is a positive step for small businesses that are presented with standard form contracts. For every business that deals with small businesses, now is the time to check that your contracts are compliant," he said.
"The new protections will help address significant imbalances or disadvantages to small businesses in their dealings with other businesses by allowing the courts to declare void unfair terms within standard form contracts."
What is a standard form contract?
Also referred to as a boilerplate contract, standard form agreements feature terms that are set by only one of the two parties involved. Small business leaders are forced to either take the contract or leave it, providing no room to negotiate more favourable terms for their enterprise.
The new law provides greater protection to small businesses that employ less than 20 people and have entered into a contract worth up to $300,000 over a 12 month period. Additionally, if the contract runs longer than a year and is worth in excess of $1 million.
What are the ramifications of these changes?
The ACCC explained that the issue is now two-fold. Firstly, larger businesses need to review their standard form contracts involving smaller enterprises to ensure they are compliant.
Secondly, business owners on the other side of the deal need to remember their rights and seek assistance if they believe the terms are unfair. Engaging in an unrealistic contract can cause money problems and further financial difficulties so a proactive stance is recommended.
For more information about insolvency and fair contracting, contact the team at Corporate Lifeline today.
