Terms of Service Can Protect You and Your Company
Why eCommerce stores need to have a Terms of Service
You’ve probably agreed to a Terms of Service (TOS) if you’ve purchased something online. If you are running an online store or are planning to do so in the near future, you may be asking yourself whether your website needs to have a Terms of Service as well. Terms of Service (also referred to as Terms and Conditions, TOS, or T&C) is a document that explains the rules of using your website, answers commonly asked customer questions, and helps you limit your liability. Thus, if you want to protect your business, you should consider adding Terms of Service to your eCommerce website. In this article, we will discuss important provisions of a TOS and how it can protect you.
Provision 1: making a purchase
A Terms of Service will tell your customers whether you use a third-party payment processor such as PayPal. A well-written TOS will help you limit your liability in case your customers’ payment information is breached. For example, if the payment processor is hacked. In addition, the TOS will require the customer to have the legal right to use the payment method, thereby helping reduce the likelihood of fraudulent transactions.
Provision 2: cancellations and refunds
Can your customer cancel their purchase? If so, when? Will you charge a cancellation fee? Can your customer get a refund? If so, when? Can your customer get a refund for any reason or in specific circumstances only (e.g. the product is damaged)? Most individuals purchasing online have these questions. If they cannot easily find the answers they will choose a different vendor or submit a support request. This could result in a lost sale or time out of your day to respond.
A Terms of Service provides the answers to commonly asked questions. It also helps move customers along to making their purchase. In addition, if you do not offer refunds or offer them in certain circumstances only, having a Terms of Service makes this choice “a matter of policy”, meaning that your customers are more likely to accept this choice as a business decision and not as an arbitrary and unfair whim. Letting your customers know about cancellations and refunds enables them to make an informed decision about their purchase. That helps reduce the change of disputes in the future. Lastly, certain payment processors require you to have a cancellation and refund policy to be able to use their services so having a Terms of Service with these disclosures ensures that you meet this requirement as well.
Provision 3: warranty on purchases
A Terms of Service usually also specifies what warranty, if any, you offer on the goods or services that you sell. A warranty is a promise that you are making to your customers regarding those goods or services. An example of a warranty is a promise to repair or replace a washing machine if it breaks down within the first year of use. Warranties are especially important as they state your obligations and responsibilities to your customers. A Terms of Service helps you be clear about the promises that you are making. This can help you limit your liability by disclaiming additional implied warranties – warranties that apply by default unless they are specifically disclaimed in writing. You could be responsible for implied warranties, even if you didn’t want to offer them if you don’t have a Terms of Service.
Provision 4: damages and limitation of liability
If a customer gets injured by a good or service that you sell, there are many types of damages that they could potentially collect from you. These damages include direct, indirect, punitive, special, and consequential damages. A Terms of Service can help you limit the amount of damages that you are responsible for to what you actually received from the customer for the goods or services. This can help you save thousands of dollars in compensation in case of a lawsuit.
Provision 5: intellectual property
How sure are you that you have the proper licenses for every single image on your website? Or that all of the text on your website is completely original? Stock image companies offer multiple types of licenses. This can confuse even the savviest of website owners which could lead to a copyright infringement law suit.
While it is certainly not a “get out of jail free” card, a Terms of Service can help you limit the likelihood of these types of lawsuits. A well-drafted Terms of Service will provide your contact information and encourage copyright holders to contact you directly and solve the issue amicably instead of going right to court. This can help you save a fortune in legal fees. In addition, a Terms of Service can even require the copyright holder to pay for your costs in defending against a fraudulent copyright infringement claim, further protecting you from copyright trolls.
Provision 6: dispute resolution
If you are selling goods or services online, you probably have customers all over the United States. If you get sued in New York, but your business is in California, you might be able to save the expense of travel with a Terms of Service. That’s because it can specify where you want to resolve disputes. A Terms of Service can help protect your business by limiting liability, answering FAQs and reducing risk of being sued.