When a supplier agrees to sell to a customer then he or she is entering into a contract which has legal consequences.  A contract does not have to be in writing to be binding on the parties.  To prevent misunderstandings or confusion, and as a safeguard should legal action become necessary, perhaps consider asking customers to sign a written contract or order confirmation with clear payment terms before any goods are dispatched or the service is performed. This would be essential if the value of the contract is significant.

If the customer signs the supplier’s terms and/or conditions of sale, they are more likely to pay in line with your payment terms. If they do not adhere to your payment terms, enforcement action should be an easier process to take if it gets that far.

A copy of the (signed) terms will be of great importance should legal action need to be taken.  Of course this may not be necessary for all sales or services but it may be advisable to have any terms written into the contract or order confirmation.  The Terms should also be available on your website.

If you need your Terms reviewing or a Terms of Business/Terms and Conditions drafting – please get in touch.

A clear credit policy reduces the likelihood of bad debt.

A good credit policy and knowing your debtor (linked to our previous series of “Know your Debtor”) will put you in a good position going forward.  As much information about your customer should be gathered before entering into any contract so that you have a strategy should non-payment become an issue. 

A Credit Policy establishes clear rules on how to deal with different types of customer, how to issue credit or not and if so, on what terms and whether the credit amount is to be reviewed on a monthly basis. 

A clear credit policy should reduce the risk of bad debt if it is followed by all employees in all departments. The customer should also be made aware of what action will be taken if their account falls into arrears.

Also, it seems a small detail but it is important to know the correct trading entity of who you are doing business with.  It is certainly important for later down the line should Court action be necessary as if Court Proceedings are issued against an incorrect trading entity, it is timely and costly for the Claimant. 

Different Types of Customer include:

  • Sole traders
  • Individuals
  • Limited Companies
  • Partnerships
  • LLP’s
  • Unincorporated Associations or Clubs
  • Crown, Government, Local Government
  • Societies

To ensure you know your customer, you should check the legal entity that you are dealing with and obtain as much information and documentation as you can at the outset.

For example, and these are just some suggestions, for an individual do you already obtain their full name, address and do you request some identification to support this such as a driving licence/passport and a utility bill along with trade references or similar?

You could also perhaps carry out a credit check on that individual if you have such a facility.  A Land Registry search could also be carried out to see whether they are the owner of the property details they have given you. You can also check Royal Mail to confirm the address provided is a correct registered address.   This information might well be useful at a later stage.

For dealing with limited companies, Companies House is usually your first port of call.  Some organisations will have access to their own credit search facility which goes into a little more detail than Companies House such as whether there are any CCJ’s and what the company’s credit rating and score is as well as what charges they have and what assets.

To check whether a limited company has been presented with a winding up petition you can call the Central Index of Winding Up Petitions or you can search the London Gazette. 

If the debt does go bad then the above information will assist in recovering what you are owed.  Therefore the more information and documentation about your customer you have, the better.  Many businesses do not consider this far ahead as you hope your working relationship will not go sour.

If you have any customers where you might need some help getting paid, speak to Laura Charles on 01283 526200 or contact Laura at laura.charles@elselaw.co.uk.  

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