Do I really need T&Cs?

By On Your Terms co-founder Claire Bodle
Jan 2024

No payment, late payment, giving away IP rights to your work, non-compliance with NZ law (and associated fines) dissatisfied customers, unnecessary supplier costs…. the ‘worst’ that can happen is quite a long list! When you’re growing a business there’s so much cost and so many more exciting things to do than sort your T&Cs (we get it!). But investing in your T&Cs not only protects your business and gives you peace of mind, it’s also likely to save you money in the long run and help you build great business relationships.

This blog explores why it’s crucial not to overlook or underestimate the significance of the legal fine print. Legal documents serve as invaluable tools to protect your intellectual property, prevent disputes, build trusting relationships, demonstrate commitment to sustainable and ethical business practices… and much more!

But they’ve got to be done right. And they need to be tailored to your business.

Also check out our blogs The Essential Guide to Product Supply Agreements and Terms of Trade for NZ SMEs and What do I do if my client won't pay?

T&Cs are more than just legal protection

The benefits of having well-crafted T&Cs include:

• Protecting cash flow: For most SMEs, cash flow is critical. T&Cs with well-drafted payment terms, including due dates, deposits or milestone payments, and consequences for late payments, help the money flow in and prevent payment disputes. On-time payments will lead to smoother and less stressful operations, and mean you don’t spend your time chasing up late payers.  
• Clear communication: Misunderstandings can be very expensive. Good T&Cs set crystal clear expectations for both parties, from product or service scope to delivery schedules to IP ownership. Setting these terms out clearly at the start of the relationship reduces the chance of scope creep and the risk of disputes arising from misunderstandings.
• Intellectual Property protection: Whether it's a unique product design, content, proprietary software, or a great logo, your intellectual property is a valuable asset that sets you apart from competitors. By clearly outlining ownership rights and how your intellectual property can be used, T&Cs provide a powerful shield against unauthorised reproduction or infringement of your IP and bolster your brand identity 

• Foster transparent and trustworthy relationships: Clearly drafted terms and conditions create a sense of transparency, reliability, and professionalism. When customers trust that your business operates with integrity, they are more likely to return and recommend your products or services.
• Risk mitigation: Terms and conditions act as a first line of defence. By reducing exposure to risk and limiting your liability if something goes wrong, these documents provide protection against long and expensive legal disputes. 

• ESG compliance: By mandating compliance with ESG policies into your T&Cs, you signal to stakeholders, customers, suppliers, and investors that your business is committed to responsible and sustainable practices. This not only aligns your brand with positive values but can also open doors to partnerships and collaborations with like-minded entities that prioritise environmental and social responsibility.
• Investor attraction: Investors look for businesses that have their house in order, including a solid legal foundation. Clear and comprehensive T&Cs demonstrate a commitment to transparency, risk mitigation, and legal compliance. This not only gives potential investors confidence, but also streamlines the due diligence process, making your business an attractive prospect for those looking to inject capital.
• Legal compliance: T&Cs may be required to comply with certain legal obligations (for example, privacy laws).

Why tailoring terms and conditions to your business is critical

So why not just copy a friend’s T&Cs, use a free online template, or ask ChatGPT to draft them for you?  

Because unlike your favourite winter scarf, one size does not fit all when it comes to legal contracts. Generic templates may cover the basics, but they won’t address the important distinctions between different business models in different industries, with distinct customer bases, regulatory requirements and applicable jurisdictional laws.

For example, if you run an e-commerce store, you'll want to address shipping policies, returns, and warranties and these will look vastly different depending whether your products are fresh produce or machinery parts. If you provide services, your terms might focus on project timelines, deliverables, and intellectual property rights but if you’re a creative designer are likely to be quite different than if you’re a boat builder. With either products or services, you’ll also need your terms to address specific New Zealand consumer law requirements, such as the implied warranties under the Consumer Guarantees Act and Fair Trading Act.  

Legal templates also require you to choose relevant text, decipher drafting notes and potentially write sections yourself. Without legal training this can be a difficult, frustrating and stressful experience.

The pitfalls of using ChatGPT for legal documents

While ChatGPT makes many of your business tasks so much easier, here are some of the reasons it’s risky to rely on AI to draft your legal documents:

• AI relies on the information you input/questions you ask to produce the results you’re after. So, if you’re not sure what you need, or what the various options are for T&Cs relating to your industry and business model, it can’t produce the required results. Basically, AI can’t extract information from you that you don’t have.
• Legal documents require a deep understanding of the law in the applicable jurisdiction (ie, country or state), industry-specific regulations, and potential loopholes. ChatGPT, while proficient in language generation, can’t be relied on to accurately navigate all these complexities at the same time.
• Legal language can be intricate, using one word in the wrong place (or even a comma!) can unintentionally change the meaning of your document and have serious consequences. Using ChatGPT may result in ambiguous or unclear clauses that could be exploited or lead to misunderstandings in the future.

Key Points

The importance of terms and conditions cannot be overstated in the business world. For small to mid-sized businesses, they are not just legal documents; they are strategic assets for success. From fostering trust to mitigating risks and protecting intellectual property, T&Cs play a crucial role in the growth and sustainability of SMEs in a competitive business environment. 

While there’s no doubt AI is an amazing tool, it has limitations when it comes to drafting legal documents for your business. So how do you extract the benefits of technology but retain the reliability of legal professionals? Automated legal services, like those offered by On Your Terms, start with base legal documents drafted by qualified and experienced lawyers, which are automatically tailored depending on the answers you provide to carefully formulated questions. With legal automation, you really can have the best of both worlds.

On Your Terms makes business legals easy for Kiwi SMEs. Get peace of mind by letting us help sort your T&Cs. We combine top legal expertise with the speed and convenience of technology to provide simplified, fast and affordable legal documents, resources and information.