Business development · 24 October 2018

The difference between B2B and B2C contracts and how to assess your customers

B2B contracts
It can be very difficult to decide the status of your customer and what rights they have

Following his guide to product returns for online retailers, Grid Law founder David Walker helps a Business Advice reader understand the difference between B2B and B2C contracts and explains when a customer is considered a business or a regular consumer.

Question

I was just reading your article on product returns and consumer contracts – thanks for the info!

We sell a range of lamps. Some are bespoke products that are personalised to a customer’s needs (which can’t be returned) but most are “stock” items which we can resell if a customer returns them.

I would like to have different terms and conditions (and a different returns policy) for business and consumer customers but need some guidance on who counts as a “business” customer.

We often sell to interior designers, architects or the contractors of a project where an architect has specified our products. Do all of these count as B2B sales?

Sometimes we are paid by the designer/architect, sometimes by the contractor/electrical company and sometimes by the end client themselves.

Would I be correct in thinking that if the client pays then they are a consumer and not a business customer?

Thanks in advance for your advice.

Answer

Thank you for your question.

You are well within your rights to have different terms and conditions (including a different refund and returns policy) for your business and consumer customers.

However, if you decide not to have a refund and returns policy for B2B customers (or if you do have a refund and returns policy that offers fewer rights than B2C customers are entitled to under the law) you need to be careful to ensure you are correctly identifying your customers as either businesses or consumers.

As you quite rightly point out, sometimes the distinction is obvious, but often it’s not. For example, a limited company or a limited liability partnership (LLP) can never be a consumer. So, if an order is placed on behalf of a company or an LLP they have no automatic right to cancel the contract and you don’t need to offer them the option to return products and obtain a refund.

If the company is buying your lamps and selling them on to their customers (who are consumers), it is down to them to comply with all the consumer protection laws. They must have a returns and refund policy but you don’t need to reciprocate. There’s no obligation on you to refund the company just because their customer (who is a consumer) has exercised their rights to cancel the contract.

If the end customer is placing the order directly with you and paying for the lamp themselves (even if they have had help choosing it from their interior designer) then I would say this is clearly a consumer contract. You therefore have to give them the right to cancel the contract and you must have a returns and refund policy.

Those are the two ends of the scale where it’s easy to decide whether your customer is a business or consumer. However, there’s a middle ground where it can be much more difficult to decide the status of your customer and what rights they have.

Business or consumer?

Say, for example, an individual places an order with you. They’re an interior designer by trade and they are either a sole trader or a partner in a partnership. It may not be immediately obvious whether they are acting in a business or consumer capacity.

To help us decide, we need to look at the definitions of “consumer” and “trader” (business) and then look at the purpose of the contract.

The Consumer Rights Act 2015 defines a consumer as:

“an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession.”

It defines a trader as:

“a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.”

If it’s clear that the interior designer is purchasing a lamp for their client, even if the client has chosen the particular lamp, I would say that the interior designer is acting for purposes relating to their trade. So, from your perspective it’s a B2B contract and you don’t have to offer them the right to cancel the contract, return the product and obtain a refund.

But what if that same interior designer loves the lamp and places another order for themselves because they are redecorating their own home?

If they want the lamp for their lounge or bedroom I would say that they are acting outside of their trade, business, craft or profession (even though they are using their professional skills to decorate their home). This is now a consumer contract and you do, therefore, need to offer them the right to cancel the contract, return the product and obtain a refund.

To complicate matters further, what rights would the interior designer have if, instead of redecorating their lounge or bedroom they wanted the same lamp for a home office?

If the interior designer doesn’t have a separate office or studio works and works almost exclusively from a home office they may be making the purchase for purposes relating to their trade, business, craft or profession.

Now, it’s a B2B contract again and they no longer have the right to cancel the contract!

As you can see, the distinction between business and consumer customers is not always clear. You will need to assess each case individually and you may have to elicit a lot of information to make the correct decision.

Sometimes, you may think a business customer is falsely claiming that they’re a consumer just to gain more rights, and in particular have the right to return the lamp if their customer changes their mind. If you suspect this, the burden of proof is on you to prove it. As you can imagine, it’s likely to be very difficult to obtain sufficient evidence to do this.

So where does this leave you?

Whilst you have the right to have different returns and refund policies for business and consumer customers, you have to ask yourself whether it’s in the best interests of the business to make such a distinction.

If you make the wrong decision (or the customer feels like you’re asking too many questions for you to make the decision) it can be very damaging to your business relationships.

Also, if you don’t offer a consumer customer all of their legal rights, they can actually end up with increased rights. For example, their cancellation period can be extended and they will have even longer to decide whether or not to return their lamp.

I hope this helps and if you would like any further clarification, please feel free to email me again at editors@businessadvice.co.uk.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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