Terms of business and commercial contracts: what to include

What written terms do for your business

Most business contracts in England and Wales are legally binding whether they are written down, agreed by email or made on the phone. The difficulty comes later, when the two sides remember the deal differently and one of them has to prove what was agreed. Written terms settle those questions in advance.

Where a contract is silent, the law fills the gaps. In a contract between businesses, a supplier of services must carry them out with reasonable care and skill and, where no time has been fixed, within a reasonable time (Supply of Goods and Services Act 1982, sections 13 and 14). Goods sold in the course of a business must match their description and be of satisfactory quality, and where the buyer has made a particular purpose known they must be reasonably fit for it (Sale of Goods Act 1979). Written terms let you adjust those default rules, within the legal limits described below, and decide how much risk you carry, when you are paid and how the relationship can end.

A few types of agreement have formal requirements. A guarantee of someone else's debt cannot be enforced unless it is in writing and signed by the guarantor, and a contract for the sale of an interest in land can only be made in a signed document containing all the agreed terms. For other commercial contracts, writing is a matter of evidence and control.

Making sure your terms apply

Standard terms only bind a customer or supplier if they form part of the contract, and that is decided at the moment the contract is made. The safest course is to have the other side sign or click to accept your terms before you start work or deliver. Otherwise, refer to the terms in your quotation or order acknowledgement and attach or link to them, so the customer has them before committing. Terms printed on the back of an invoice sent after the work is done usually arrive too late to count.

Problems arise when both businesses use their own paperwork: a buyer sends a purchase order on its terms, the supplier acknowledges it on different terms, and the goods are delivered without anyone resolving the difference. The courts will often treat the last set of terms put forward before the other side went ahead as the ones that apply. If you deal with customers who insist on their own purchasing terms, agree in writing which terms govern, or negotiate a framework agreement covering every order.

Many contracts say that any variation must be agreed in writing and signed by both parties. In Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, the Supreme Court held that such a clause is effective, so an oral agreement to reschedule payments failed because it had not been put in writing and signed. If you agree a change on a call, record it in the way the contract requires.

Contracts can be signed electronically. The Law Commission's 2019 report concluded that an electronic signature is capable in law of being used to execute a document, including a deed, if the person signing intends to authenticate it and any formalities are met, although a deed signed by an individual still has to be signed in the presence of a witness who attests the signature.

The clauses that matter most

The right contents depend on what you sell, but in most businesses the same handful of clauses decide what happens when something goes wrong.

What is being supplied

A precise description of the goods or services, with any specification, service levels, delivery dates and acceptance process, becomes the reference point for any later argument about whether the work was done properly. Descriptions such as ‘marketing support’ or ‘IT services’ invite disagreement. If the customer has to provide information, access or approvals before you can perform, say so, and say what happens to your deadlines and charges if they are late.

Intellectual property

Under the Copyright, Designs and Patents Act 1988, an employer owns copyright in work its employees create in the course of their employment, but a freelancer or contractor owns what they create unless the copyright is assigned in writing and signed by them (sections 11 and 90). If you produce designs, software, reports or content for clients, the contract should say who owns them and what the client may do with them. If you commission that kind of work, make sure the rights are assigned to you.

Confidentiality and personal data

Confidentiality clauses protect pricing, customer information and know-how shared during the contract. Where one business processes personal data on behalf of another, Article 28 of the UK GDPR requires a binding contract setting out the subject matter, duration, nature and purpose of the processing, the types of personal data and people involved, and the controller's obligations and rights, and requiring the processor to act only on documented instructions.

Disputes

Include a governing law and jurisdiction clause, particularly if either business is based outside England and Wales, and consider requiring senior managers to meet, or the parties to mediate, before either side issues court proceedings. Price and payment, limits on liability and termination are covered in the sections below.

Limiting your liability lawfully

Businesses are largely free to agree how risk is shared between them, but the Unfair Contract Terms Act 1977 sets limits. Liability for death or personal injury resulting from negligence cannot be excluded or restricted at all (section 2(1)). Liability for other loss or damage caused by negligence can be excluded or restricted only if the term is reasonable (section 2(2)). Where one business deals on the other's written standard terms, a term excluding or restricting liability for breach of contract must also meet the reasonableness test (section 3). A business also cannot exclude liability for its own fraud in inducing the other party to enter into the contract.

Reasonableness is judged by reference to the circumstances the parties knew about, or ought reasonably to have known about, when the contract was made (section 11(1)), and it is for the business relying on the term to show that it is reasonable (section 11(5)). Where a term limits liability to a fixed sum, the court looks in particular at the resources the business could expect to have available to meet the liability and how far it could have covered itself by insurance (section 11(4)). For contracts for the sale or supply of goods, Schedule 2 to the Act lists further factors, including the parties' relative bargaining strength and whether the customer knew or ought to have known about the term.

A well-drafted limitation clause excludes types of loss the supplier cannot sensibly price for, such as the customer's loss of profits, caps the remaining liability at a figure linked to the contract (for example, the fees paid in the previous 12 months) or to the supplier's insurance, and expressly preserves the liabilities that cannot lawfully be limited. A cap set far below the value of the contract, or a clause that tries to exclude everything, is more likely to fail the reasonableness test, and a clause that fails leaves the liability it was meant to limit uncapped.

Statements made during negotiations also carry risk. If a customer is induced to sign by a misrepresentation, a term excluding or restricting liability for it is effective only if it is reasonable (Misrepresentation Act 1967, section 3). An entire agreement clause helps to show that the written contract contains the whole deal, but on its own it does not remove liability for what was said before the contract was signed.

Payment terms, interest and late payment

If a business customer does not pay on time, the Late Payment of Commercial Debts (Interest) Act 1998 gives the supplier a right to statutory interest at 8% above the Bank of England base rate. The supplier can also claim a fixed sum towards the cost of recovering each late payment: £40 for a debt up to £999.99, £70 for a debt of £1,000 to £9,999.99, and £100 for a debt of £10,000 or more. Reasonable recovery costs above the fixed sum can also be claimed in some cases.

Where no payment date has been agreed, the payment becomes late 30 days after the customer receives the invoice or the goods or services are delivered, whichever is later. Businesses can agree a payment period longer than 60 days, but only if it is not grossly unfair to the supplier, and public authorities must generally pay within 30 days.

A contract can replace statutory interest with its own remedy for late payment, but a term that excludes or replaces statutory interest is void unless the contractual remedy is substantial. A remedy counts as substantial unless it is insufficient to compensate the supplier or deter late payment and it would not be fair or reasonable to let it displace statutory interest (sections 8 and 9 of the Act).

Other terms help you get paid. A retention of title clause keeps ownership of goods with you until they are paid for, which can allow you to recover unsold goods from a customer who fails to pay, although it is harder to rely on once goods have been mixed with other goods or sold on. A right to suspend work while invoices are overdue, and a requirement for the customer to raise any dispute about an invoice within a set period, both reduce the scope for delay. If you are owed money now, our guide to recovering unpaid invoices sets out the steps.

The Commercial Payments Bill, introduced in the House of Lords in May 2026, would cap payment terms at 60 days where large businesses pay smaller suppliers and make interest on late payment mandatory at 8% above the Bank of England base rate. It had not become law by 17 September 2026.

Ending a contract and customer insolvency

A contract should say how long it lasts and how it can be brought to an end. The usual routes are termination on notice after any minimum period, termination for a material breach that has not been put right within a set time, and termination for non-payment. The clause should also deal with what follows: payment for work already done, the return or deletion of confidential information and data, and which clauses, such as confidentiality and the limits on liability, continue to apply after the contract ends.

Rights to terminate because a customer becomes insolvent were restricted on 26 June 2020. Under section 233B of the Insolvency Act 1986, when a company enters administration, liquidation, a company voluntary arrangement, a moratorium or certain other procedures, a clause in a contract to supply goods or services to it stops having effect so far as it would let the supplier terminate, or do anything else, because of the procedure. A right to terminate that arose earlier, for example for non-payment, cannot be exercised while the procedure lasts. The supplier can end the contract only with the consent of the office-holder or the company, or with the court's permission on grounds of hardship, and cannot make payment of arrears a condition of continuing to supply. Some contracts, including many financial contracts, are excluded.

Suppliers should therefore act on warning signs such as late payment while their ordinary contractual rights can still be used. If a dispute does arise, a claim for breach of an ordinary contract must generally be brought within six years of the breach, and a claim under a deed within twelve years (Limitation Act 1980, sections 5 and 8). Our guide to commercial disputes explains the steps before court.

Selling to consumers

Different rules apply when you sell to individuals acting outside their trade or business. Under the Consumer Rights Act 2015, a term is not binding on the consumer to the extent that it would exclude or restrict the trader's liability for goods not being of satisfactory quality, fit for purpose or as described (section 31), or would exclude liability for a service not being performed with reasonable care and skill (section 57). A trader cannot exclude or restrict liability for death or personal injury resulting from negligence (section 65). Any other term that, contrary to the requirement of good faith, causes a significant imbalance in the parties' rights and obligations to the consumer's detriment is unfair and not binding on the consumer (section 62).

If you sell online, by phone or away from your business premises, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 require you to give specified information before the contract is made, including information about the right to cancel. The cancellation period is normally 14 days, running from the day after the contract is made for services and from the day after delivery for goods. If the trader does not give the required information about the right to cancel, the period can be extended by up to 12 months. Terms written for business customers should not be used with consumers without being adapted to these rules.

Templates, reviews and where to start

Templates are a common starting point, and they go wrong in predictable ways. Some are written for another country's law, or for consumer sales when you sell to businesses, or the other way round. Others include a limitation clause that would not pass the reasonableness test for your type of work, or leave out the terms your business depends on, such as who owns the work you produce or what happens when a client delays a project. Because those gaps usually show up only in a dispute, a template can appear to work for years.

The time and cost of putting terms in place depend on how many products or services you sell, whether you sell to consumers as well as businesses, how much negotiation you expect with larger customers, and whether we are reviewing documents you already use or drafting new ones. We agree the scope and cost in writing before we start.

If you are starting from nothing, work through these steps in order:

1. List what you sell, who you sell it to and how customers place orders.
2. Collect the quotations, order forms, website terms and customer contracts you use now.
3. Note the problems you have had, such as late payment, disputes about scope or quality, and cancellations.
4. Decide which risks you are prepared to carry and check them against your insurance cover.
5. Put the terms in front of customers at the point they commit, and review them when your services, prices or the law change.

If a customer has asked you to sign its own terms, have them reviewed before you do. Supply contracts drafted by larger businesses can contain uncapped indemnities, long payment periods and rights to terminate without cause, and those terms are easier to negotiate before the first order than after it.

Frequently asked questions

Is a verbal agreement legally binding in England and Wales?

Yes, most business contracts are binding even if they were agreed verbally or by email, provided the essential terms were agreed and each side gave something in return. The difficulty is proving what was agreed if the two sides later disagree. Some agreements must be in writing, including a guarantee of someone else's debt and a contract for the sale of an interest in land. Confirming the key terms in writing, even by a short email, makes a verbal deal much easier to enforce.

Can I limit my liability to the value of the contract?

Often you can, but in a contract between businesses a cap on liability for negligence, or for breach of your written standard terms, must be reasonable under the Unfair Contract Terms Act 1977. The court looks at what the parties knew when the contract was made, the resources you could expect to have to meet a claim and whether you could have insured against it. You cannot limit liability for death or personal injury caused by negligence, or for your own fraud in inducing the contract. A cap that is unreasonably low can fail altogether.

What interest can I charge a business customer who pays late?

Unless your contract provides a substantial remedy of its own, you can claim statutory interest at 8% above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998. You can also claim a fixed sum of £40, £70 or £100 for each late payment, depending on the size of the debt, and in some cases reasonable recovery costs above that. These rights apply to contracts between businesses, not to sales to consumers.

Do my terms and conditions apply if the customer never signed them?

They can, if the customer had them, or was clearly told where to find them, before the contract was made. Referring to your terms in a quotation or order acknowledgement and attaching or linking to them is the usual approach. Terms sent for the first time with an invoice after the work is done are generally too late. If the customer sent its own terms as well, the answer can depend on which set was put forward last before both sides went ahead.

Can a contract be signed electronically?

Yes. The Law Commission concluded in 2019 that an electronic signature is capable in law of being used to execute a document, including a deed, provided the person signing intends to authenticate the document and any formalities for that document are met. Typing a name, clicking to accept or using an electronic signature platform can all work for ordinary contracts. A deed signed by an individual must still be signed in the presence of a witness who attests the signature.

Can I terminate a contract because my customer has gone into administration?

Generally you cannot rely on the administration itself as a reason to terminate. Section 233B of the Insolvency Act 1986 stops a supplier of goods or services relying on a clause that allows termination because the customer company has entered administration, liquidation or certain other insolvency procedures. The supplier can terminate only with the consent of the administrator or liquidator, or with the court's permission if continuing would cause hardship. Some contracts, including many financial contracts, are excluded from the rule.

How often should terms of business be reviewed?

Review them whenever you change what you sell, how you price it or how customers order, and when the law changes. Changes to late payment rules, consumer law and data protection law all affect standard terms, and the Commercial Payments Bill before Parliament in 2026 would change payment terms where large businesses pay smaller suppliers. A review is also sensible after any dispute, because a dispute shows where the wording did not match how the business actually operates.

Sources & further reading

• legislation.gov.uk — Unfair Contract Terms Act 1977
• GOV.UK — Late commercial payments: charging interest and debt recovery
• GOV.UK — Largest crackdown on late payments in over 25 years as landmark Bill enters Parliament
• The Supreme Court — Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24
• legislation.gov.uk — Insolvency Act 1986, section 233B
• legislation.gov.uk — Consumer Rights Act 2015
• legislation.gov.uk — Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
• Law Commission — Electronic execution of documents

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).