It is important for a contract to contain the essential clauses and elements to ensure that a valid contract is being entered into, which can be enforced in a court of law. One such clause relates to payment terms, which plays a big role in the running of the business.

Payment terms define how, when, where and how much a client pays the supplier for goods or services. These terms are crucial for several reasons. It is important to note payment terms to monitor and make cash flow projections. It is also essential for effective budgeting and forecasting. Clear payment terms help businesses to make informed decisions in allocating resources, and to avoid disputes.

The following payment terms should be specified in agreements:

Impact of payments and payment terms on cash flow management

Payment terms that parties agree to can have a significant impact on a business’s cash flow. For example, if a business offers extended payment terms to its customers, it may experience a delay in receiving income. Primarily, it directly impacts how fast a business can and will receive payments, which translates to how the business will be able to cover its expenses and operational costs, and grow at the same time. Should the business be in a non-favourable position regarding payment terms, it runs the risk of putting itself in an insolvent state as it will not be in a position to cover its expenses from its cash flow.

Security mechanisms to receive payments and maintain cash flow

Difference between an invoice date and payment date

An invoice date is the date that an invoice is issued or submitted for the purpose of requesting payment. Whereas the payment date is the date payment is due or must be made. The invoice date can be the same as the payment date or it can be issued prior to payment having to be made for credit customers, depending on the payment terms agreed to. Understanding the difference between invoice date and payment date is crucial for businesses to effectively manage their cash flow, as it directly impacts when they can expect to receive funds and plan their financial operations accordingly.

Record-keeping of payments and transactions can be done manually by using cash receipts journals or going digital with accounting software. Keeping record is essential to:

Negotiating favourable payment terms

Price and payment negotiation involves a buyer and seller discussing and agreeing on the financial terms of a transaction. These negotiations play a significant role as it can impact the cultivating of lasting business relationships and protects all parties’ interests.

There are some techniques that can be applied in such negotiations in the attempt to get to a conclusion which is beneficial to all parties involved:

It is important to document the terms that have been agreed to, for mutual understanding and accountability, to avoid disputes and for enforceability should a dispute arise. Documented payment terms aids in stabilising cash flow and following through with budgets, as it manages expectations as to when money is to come in or leave the business, bearing in mind that this is a core element in the running of the business.

Clear payment terms in contracts are vital for enforceable agreements and healthy cash flow. Specifying key details like price, due dates, and late payment remedies minimises disputes and supports sound financial management.

Contractual agreements do not always unfold the way they are expected to. Unfortunately, there are instances where parties to an agreement will not fulfil certain obligations or contravene the agreement. This is known as a breach of contract, and it is important for a business to know how to address such occurrences. 

A breach of contract can be defined as a violation of or the failure to fulfil any term, condition or obligation that has been agreed to and specified in a legally binding contract. 

A notice of breach is a notice in writing by the aggrieved party to the breaching party.  It formally informs the breaching party of the contractual obligations that they have breached, the consequences of the breach and it also provides a time period for the breaching party to remedy the breach. Failure to give notice or an opportunity to remedy the breach may render any subsequent cancellation of the contract unlawful. 

To claim damages for breach of contract in South Africa, you must prove that: 

      o  Taking immediate actions to limit the extent of the loss.

      o  Avoiding actions that could potentially increase the damage.

      o  Taking actions that a reasonable person in similar circumstances would have taken.

There are 3 general remedy possibilities for the aggrieved party:

Understanding the types of contractual breaches and available remedies is crucial for businesses. From issuing breach notices to claiming damages or seeking specific performance, knowing how to address non-performance protects business interests and ensures accountability in contractual relationships. Consulting with a legal professional is highly recommended to navigate breach of contract situations and ensure the best possible outcome.

A business has a right to protect its proprietary information and can therefore do so by implementing a restraint of trade. By doing this, unfair competition can be prevented, and a competitive advantage can also be maintained.

Restraint of trade clauses are included in employment contracts to restrict an employee’s actions after leaving their position. It restricts an employee from entering into employment with the employer’s competitor, or it restricts them from starting a business in competition with the employer, for a specific period of time and in a specific geographical location after employment ends. These clauses aim to safeguard an employer’s business interests, including trade secrets and client information.

A restraint of trade must generally include the following:

Although a citizen of the country has the constitutional right to choose a trade, occupation or profession, a restraint of trade is legal and can be enforced against employees. There must however be a balancing of these two and it must be reasonable. In Magna Alloys & Research (SA) (Pty) Ltd v Ellis it was determined that a restraint of trade is enforceable unless it is unreasonable and thus contrary to public policy. If it is deemed to be unreasonable, the restraint will be invalid and unenforceable. If a restraint is considered to be in conflict with public policy or the public interest, it will be deemed to be unreasonable. The courts will consider whether the business proprietary interests in question are worth being protected. Further, the courts will look into whether the business interest economically hinders the employee’s interest and productivity to make a determination. Each case will be determined on a case-by-case basis. 

In Basson vs Chilwan and Others, the court outlines factors to be considered when evaluating the reasonableness of a restraint: 

A restraint of trade can be enforced by making an urgent application to the relevant jurisdictional court. The employer who brings the application to enforce the restraint is only required to invoke the restraint clause and prove a breach of its terms. If the employer seeks to enforce the restraint, they must first establish its validity. The burden of proof or onus then shifts onto the employee to prove the unreasonableness if they are to make the allegation of an unreasonable restraint or if the employer seeks to enforce it.

Businesses can implement other approaches to strike a balance between protecting their interests and not encroaching on an employee’s economic and career prospects: 

In conclusion, while businesses have a right to protect their legitimate interests through restraints of trade, these must be reasonable and balance the employer's needs with the employee's right to work. Alternative mechanisms like non-disclosure agreements and non-solicitation clauses offer less restrictive ways to safeguard business interests.