Are your lay-bys legal?

Are your lay-bys legal?

A number of my clients find that, although it sounds outdated, offering lay-by as a purchase option can increase sales by encouraging some buyers who would otherwise be hesitant to close the sale.  In some instances, it is seen as an essential option to offer customers, particularly when the economy may be struggling.  Lay-by allows a customer to purchase an item using 2 or more payment instalments over a period of time.

Did you know that there is a lengthy list of legal requirements for lay-by agreements?  In order to avoid hefty penalties of $6,000 – $30,000, make sure you understanding of what is required ensure you get a qualified person to draft your lay-by agreement.

Is your agreement a ‘lay-by’ agreement?

Under the law, an agreement is “lay-by” if the consumer does not receive the goods until the full price is paid; and

  1. the consumer pays for the goods in at least 2 instalments and this agreement is expressly called a lay-by; or
  2. the consumer pays for the goods in at least three instalments and this agreement is not specifically called a lay-by.

Legal requirements

If you choose to offer lay-by, the Australian Consumer Law requires that you provide customers with a transparent, written copy of the lay-by agreement that contains all the terms and conditions of the lay-by – including:

  • Any termination fees – they must be justified and limited to your  “reasonable” costs associated to the lay-by agreement (such as storage or administration costs).
  • Cancellation by customer – the customer may cancel any time before the delivery of the goods and that the paid amounts must be refunded (minus any termination fees).
  • Cancellation by retailer –if the agreement is cancelled because of something that was your fault (such as damaged goods in storage) you cannot charge the customer the termination fee. As a supplier, you are only entitled to cancel the lay-by agreement if the customer has breached a term of the agreement (such as missing a payment); if you are no longer trading; or if the goods are no longer available due to uncontrollable circumstances.
  • Cancellation fee – details of the termination fee, such as the fact that if the fee is not covered by the instalments paid, the outstanding amount is recoverable by you.

Don’t neglect your lay-by agreements as there are tough penalties – even simply entering a lay-by agreement not in writing is considered an offence.  I have worked with many retailers and suppliers to tailor a contract that suits their needs.  Feel free to contact me on  or 1300 033 934 for a no-obligation chat to see how I can help you.