In the Cove has a broad and interesting demographic. We know that many Lane Cove business owners and Lane Cove residents, who have businesses located outside Lane Cove or online businesses, read In the Cove articles. ITC is excited to announce that local lawyers SRM Lawyers are now ITC Gold Sponsors. We will be publishing monthly articles, written by Renee Stevens, on interesting legal topics that may impact Lane Cove residents generally or business owners.
This month Renee is looking at how to put in place procedures that will make it easier to recover outstanding invoiced amounts from customers. ITC is sure that this is an issue very familiar to business owners. Take it away Renee…….
A problem that we often see in our litigation practice is the inability of a client to recover outstanding invoiced amounts from its customers. This is not because the customer disputes the quality of service or goods provided, but because of a lack of appropriate documentation that identifies the customer who will be liable for the invoiced amounts.
Every business should have an up-to-date set of trading documents to avoid non-paying ‘happy’ customers.
Who is the Customer?
Often agreements identify a group of companies, or loosely describe the name of the customer, without specifying the particular company or person responsible for payment.
A contract or invoice must specify the legal entity, either an individual or a company with an ACN, responsible for payment. As a supplier, you may not become aware of the implications of not having an enforceable contract until a dispute arises and you try to take enforcement action to recover the debt.
If a company is the relevant contracting party, the company’s ACN can be obtained by conducting an Australian Securities & Investments Commission (ASIC) free search. If you are entering into an agreement with a partnership, ensure that the person you are dealing with is a current partner and that the agreement/invoices issued are addressed to the persons trading as the named partnership eg. John Smith and Adam Trainer trading as Smith Partners.
Putting in Place the Right Documents
There should be a principal agreement which identifies the parties to the agreement and sets out the rights and liabilities of each party for all future dealings between them (terms and conditions of trade).
Apart from setting out the terms of payment, every invoice for goods or services should also refer back to the principal agreement/terms and conditions.
Your business’ terms and conditions need to be available on your website so that customers can access them and they can be easily updated at any time.
The principal agreement should obtain security for payment. In the event of non-payment of invoices, the supplier can then seek to enforce its security for payment of the unpaid invoices.
Suppliers should be aware of their entitlements to register security interests on the Personal Property Securities Register (PPSR). A Security Interest clause should be a standard clause in every agreement.
Dispute Resolution Clauses
A dispute resolution clause will prevent the majority of disputes being automatically referred to a lawyer. The dispute resolution clause should set out a clear process to be followed in the event of a dispute. For instance, if a dispute can’t be resolved within a set timeframe, the parties may then be required to set up a meeting between the relevant managers to attempt to resolve the dispute, failing which the dispute is referred to an agreed mediator for review and determination. It will only be after these informal processes have failed that the parties can commence legal proceedings.
A guarantee should be obtained from the company director, shareholder or a related company to ensure that you can demand payment from the guarantor in the event of default of payment.
Can you seek recovery of a debt from the customer and guarantor at the same time?
Yes. Recovery action can be taken against both the customer and guarantor(s) at the same time. The supplier’s terms and conditions should specify that recovery action for non-payment of invoices can be taken against the guarantor regardless of whether demands have been made against the customer.
Disclosing terms and conditions at the commencement of a customer relationship is always easier than discussing payment terms after the goods or services have been provided.
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This is advice of a general nature, this article does not constitute legal advice and is not meant to be complete or exhaustive.
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