An Australian Credit Terms Agreement (also called a trade credit agreement or terms of trade) is a contract between a supplier and a commercial customer that governs the terms on which the supplier will extend credit for the supply of goods and/or services. Rather than requiring immediate payment on delivery, the supplier agrees to invoice the customer and allow a period — typically 30, 60, or 90 days — for payment. The Credit Terms Agreement specifies the approved credit limit, the payment period, the consequences of late payment (including interest on overdue amounts), and the conditions under which the credit facility may be suspended or withdrawn.

A Credit Terms Agreement is a business-to-business (B2B) document. Unlike a consumer credit contract, it is not regulated by the National Consumer Credit Protection Act 2009 (Cth) or the National Credit Code, provided that the customer is a company or other legal entity and the goods or services are acquired for business purposes. This means the supplier is not required to hold an Australian Credit Licence and is not subject to mandatory responsible lending, disclosure, or hardship variation obligations.

In Australian trade and commercial practice, a Credit Terms Agreement typically includes several key protections for the supplier. A retention of title (ROT) clause ensures that the supplier retains ownership of goods supplied until payment is received in full. The ROT interest must be registered on the Personal Property Securities Register (PPSR) under the Personal Property Securities Act 2009 (Cth) to obtain priority over other creditors in the customer's insolvency. A personal guarantee clause requires a director or principal of the corporate customer to personally guarantee the company's payment obligations, providing the supplier with direct recourse against an individual if the company fails to pay. A debt collection costs clause requires the customer to bear the supplier's costs of recovery in the event of default.

Trade credit is one of the most important forms of short-term financing for Australian businesses. According to the Australian Bureau of Statistics, trade credit accounts for a significant proportion of business liabilities for Australian SMEs. A well-drafted Credit Terms Agreement reduces the supplier's credit risk, provides clarity on payment expectations, and gives the supplier enforceable legal remedies if the customer fails to pay.

An Australian Credit Terms Agreement is needed whenever a supplier extends trade credit to a commercial customer — that is, whenever the supplier supplies goods or services and allows the customer to pay at a later date rather than at the time of supply.

The following situations commonly require a Credit Terms Agreement.

Wholesalers and distributors supplying to retailers. Wholesalers and distributors who supply goods to retailers on account (allowing payment at month end or within 30 days) should have a Credit Terms Agreement in place for each customer. Without a written agreement, the terms on which credit is extended may be unclear or disputed.

Manufacturers supplying to businesses. Manufacturers who supply raw materials, components, or finished goods to other businesses on trade credit terms should use a Credit Terms Agreement to define the credit limit, payment terms, and ROT arrangements.

Construction and building suppliers. Suppliers of building materials, hardware, and equipment to builders and contractors frequently extend credit. The Credit Terms Agreement should include PPSR-registered ROT provisions and a personal guarantee from the company's director.

Service providers billing in arrears. Service businesses — such as IT firms, professional services practices, and maintenance contractors — that issue monthly invoices for ongoing services should have a Credit Terms Agreement specifying the payment period and overdue interest rate.

Starting a new commercial relationship. When a supplier is about to commence a new commercial relationship with a corporate customer, a Credit Terms Agreement establishes the credit terms from the outset and ensures both parties understand their rights and obligations.

Replacing informal credit arrangements. Many small businesses extend credit informally without a written agreement, relying on a handshake or email exchange. A Credit Terms Agreement formalises the arrangement and provides the supplier with legally enforceable rights.

A well-drafted Australian Credit Terms Agreement should contain the following key provisions.

Parties and date. The agreement must identify the supplier and the customer with full legal names, ABNs or ACNs, and addresses. The date of the agreement should be stated.

Credit limit. The agreement should specify the maximum credit limit — the maximum aggregate amount the customer may have outstanding at any one time — and the supplier's right to vary the limit on notice.

Payment terms. The agreement must state the payment period (e.g., 30, 60, or 90 days from invoice date) and the method of payment. The payment terms clause should also address the allocation of payments against multiple outstanding invoices.

Overdue interest. The rate of interest on overdue amounts should be clearly stated. The rate should be a genuine pre-estimate of the supplier's financing costs and not a penalty. The interest commencement date (the due date) and the accrual method (daily, monthly compound) should be specified.

Retention of title. The ROT clause should state that title to all goods supplied remains with the supplier until all amounts owing to the supplier are paid in full, and that the customer holds the goods as bailee until payment. The PPSA provisions should confirm the supplier's right to register on the PPSR and the customer's obligations to facilitate registration.

Personal guarantee. Where a director's personal guarantee is required, the guarantee clause should be clearly identified and signed separately by the guarantor. It should be unlimited, continuing, and unaffected by variation of the principal agreement.

Orders, delivery, and acceptance. The agreement should set out how orders are placed and accepted, when delivery is deemed to occur, the time limit for notifying the supplier of defects, and the supplier's limited liability for defective goods.

Debt collection costs. The agreement should expressly provide that the customer bears all costs of recovery (including collection agency commission, legal fees on a full indemnity basis, and court costs) in the event of default.

GST. The agreement should confirm that all prices are stated exclusive of GST and that GST is payable in addition to stated amounts on receipt of a valid tax invoice.

Privacy. Where the supplier collects personal information about the customer's directors, the agreement should include a short privacy disclosure consistent with the Privacy Act 1988 (Cth) and the Australian Privacy Principles.