Monday, 23 March 2009

Beat the bad debts

Shropshire companies are being warned to protect themselves from bad debtors by tightening up their terms and conditions.

Our Senior Partner, Graham Davies, said: “With the number of businesses facing insolvency in these difficult financial times, it’s clear that companies should do all they can to protect themselves against customers going bust.” He said one solution was to introduce a Retention of Title (ROT) clause in sale or supply contracts – or if companies already had one, they should make sure the details were reviewed, adjusting them if necessary.

“The aim of an ROT clause is to prevent the legal ownership passing over to the customer until the goods have been paid for in full. It is important though that the wording of the clause is correct, and the best protection is provided by an “all monies” clause.

“If you word it properly, it will ensure that the customer does not get legal ownership of the goods until they have paid for them in full; and they must also clear any other outstanding debts they have with your company too.”

Graham said the clause could be included in your general terms of business, but many clauses proved to be invalid because they were not incorporated into a company’s terms and conditions correctly.

“It may not be good enough just to include the terms on the back of your sales invoices – ideally, you ought to make sure your terms are clear to your customer before you deliver the goods, and that they are included on as many documents as possible.

“If your customer is declared insolvent, a valid ROT clause may enable you to reclaim any goods which are clearly identifiable as yours. Or it may give you some bargaining room with the insolvency practitioners who will be looking to trade the company and may need your goods for trading purposes. Make sure you protect yourself and your business by taking the time to draw up a clear and effective ROT clause, and then it can be used it to its full effect.”