In this economic climate, everyone must concentrate on the cash position of the business. By implementing good business practices and some simple business documents business owners can minimise bad debts and collect those debts much faster.
ORDERS & INVOICES
Avoid disputes, which can severely delay payment, by having written and signed orders from customers. Your order forms must reflect the terms and conditions of business. If you do not use the appropriate order, then on receipt of a customer’s order, it is critical that you confirm in writing acceptance of the order only based on your terms and conditions of business.
It is not sufficient to refer to your terms and conditions of business in the delivery notes or invoices as the law treats those documents as coming into existence after entering the contract. Therefore, they have no, or very limited, legal effect.
Your credit terms should clearly state your terms and conditions of business and appear on the face of your order forms and invoices. Sometimes, you may require payment in advance or credit insurance, and where supplying to a customer abroad, a letter of credit or pre-payment.
TERMS & CONDITIONS
Terms and conditions are critical in positioning the business for success. There are many businesses without terms and conditions, or use terms and conditions, which are out-dated or are unenforceable.
DEFECTS & COMPLAINTS
Often debtors raise spurious complaints to delay payment. The terms and conditions of business should stipulate that the customer must make the complaint within a limited period and in writing. Keep note of what you and your customer say in conversations concerning complaints and prepare a detailed note of meetings. In the event of Court proceedings, your customer’s lawyers and the Court are entitled to see these notes, notes of internal meetings and discussions, so you must take care with these documents.
Terms and conditions of business may specify the interest that is chargeable if the customer does not pay within the stipulated credit terms, which should be higher than that which the customer pays on its own borrowings, so that the customer has an incentive to pay rather than treat you as its “banker.”
RETENTION OF TITLE & SECURITY AGREEMENTS
The objective is to enable you to recover your goods immediately rather than be an unsecured creditor in a customers’ insolvency. This area of law is complex and it is critical to maintain a proper retention of title clause, and need to take into account your particular business and the way in which you operate. You must consider the requirements of the Personal Property Securities Act 2010 to ensure you obtain priority from competing creditors.
ALTERATION OF TERMS
Customers who attempt to delay payment will sometimes allege that your terms and conditions of business, or part of them, did not apply because of discussions or actions that varied the terms. Your terms and conditions should make it clear that only a director of your company has authority and modified in writing.