Is It Time to Reassess your Standard Terms and Conditions
One of the many sad consequences of the Coronavirus pandemic is that a number of businesses are struggling or have completely foundered. However, those ventures that have survived may take some precautions when dealing with businesses that are suffering cash flow problems or possibly teetering on the brink of collapse.
One of the simplest measures of protection is to review your standard terms and conditions of trading. We assist several clients to recover debts and we frequently come across standard terms including those of professionals which are outdated, limited or non-existent when it comes to provisions for non-payment.
Now therefore, may be an appropriate time to check that your terms are up to date and include the following where appropriate:
- A clause specifying when payment is due on invoices.
- A provision for interest on late payment of invoices, stating the rate and when interest accrues. Under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act”), where there are no specified contractual interest provisions, businesses contracting with other businesses for the supply of goods and services for money consideration may recover interest at 8% plus the Bank of England base rate.
However, this Act does not apply to a situation where a business is contracting with an individual who is not trading in a business capacity. Additionally, where there is no agreed payment date generally interest accrues 30 days after the latest of delivery of goods or services, the invoice or acceptance, if applicable. An acceptance procedure is a procedure for checking whether the goods or services comply with the contract and if it applies, a debtor may have a significant period of time to settle the invoice before any interest accrues. Consequently, it is preferable to specify in your contract the applicable interest rate and that interest accrues shortly after the date for payment.
- A clause providing for the recovery of your costs and expenses including legal costs on an indemnity basis in seeking to recover payment. The Late Payment Act assuming it applies, permits a nominal fixed sum for the costs of recovering a late payment and reasonable costs for each time a supplier tries to recover the debt. However, the recovery of such costs is likely to be limited compared to the above-mentioned contractual clause.
- If your business provides for the supply of goods where full payment is not received prior to delivery, it may be wise to include a clause confirming that ownership of the goods does not pass until payment in full has been received. Businesses that provide services may want to include a provision permitting them to have a lien over goods belonging to their customer pending payment of the debt owed. A lien is essentially a right entitling a party to hold onto assets in their possession until the debt owed to them is paid.
- Even if the standard terms contain a clause confirming that title does not pass until the goods are paid for, if the recipient business goes into administration or liquidation, then the unpaid for goods may not be recoverable by the supplier if they are not easily identifiable as the supplier’s property. Again it may be helpful to include suitable wording in your contract to assist in recovering the goods in such situation.
The above is not meant to be an exhaustive list but will hopefully provide you with some food for thought. If you do need assistance in amending your standards terms and conditions then please feel free to contact Tanya Seevaratnam or Chris Ward.
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