Published: Mon, Nov 1st, 2004 by Mike Newdick
Newsletter - Spring/Summer 2004
If you are in business and have occasion to extend credit to your customers, are your terms of trade adequate to ensure the effective and efficient collection of unpaid accounts?
Your terms of trade need to be effective and work for you. Too often terms of trade are ambiguous and do not adequately provide for personal guarantees, collection costs and security over items sold. If you are wondering whether or not your terms of trade are adequate, here are a few questions for you to consider.
Compliance With The PPSR
The enactment of the Personal Property Securities Act 1999 ("Act") changed the provisions for taking security over personal property as a form of securing payment. Do your terms of trade reflect those changes to comply with the Act? Are you aware that retention of title clauses are no longer effective?
Interest On Unpaid Amounts
Can you charge interest on unpaid accounts? This must be provided for in your terms of trade. Otherwise you are limited to the statutory rate imposed by the Court, which can only be charged after you have obtained a Court Judgment against
Do you have provision for a personal guarantee? These are a very valuable tool in collecting unpaid accounts. However, personal guarantees must be in writing, be clear and unambiguous and executed in a way that ensures that the person
signing realises that they are to be held personally liable to pay you if the customer or borrower does not. If the guarantee is not clear or not properly
executed it may not be enforceable, and you may lose the last opportunity you have to get paid, especially if your customer is a company that has gone into liquidation or has otherwise ceased trading.
Can you recover your actual costs (including lawyer's fees) of pursuing someone that does not pay? Again you can, but only if you provide for it in your terms of trade. Otherwise you are limited to the amounts set by statute for "costs" in Court proceedings. Those "costs" are low and do not reflect the actual costs incurred in instructing a lawyer to assist in pursuing a reluctant payer.
Location Of Court Proceedings Do you supply to customers who are based out of town or in other centres? If you do, do you realise that you must issue any Court proceedings against them in the Court nearest to them – unless of course your terms of trade specify that you can issue in any Court that suits you.
It’s Worth The Effort Of Getting Them Right
Of course, terms of trade cannot guarantee that you will in fact get paid. However, the better they are the more likely you are to be able to effectively obtain payment of not only the amount owing to you, but the costs of doing so, as well as interest on the amount outstanding. You may also improve your chances of getting paid if the guarantee provision in your terms of trade is effective and
enforceable, as a customer may think twice about not paying.
Your lawyer is the best person to advise you on what should be in your terms of trade and how to best ensure that the terms you trade on are yours, and not that of your customer. Please contact Mike Newdick or John Stirling of this office for assistance.