When things get tight though you need to keep your wits about you.
And you don’t wish that on anyone. But whether we like it or not, some people you do business with are going to be affected at some stage and it can impact your business if you’re not careful.
Why should you be the sucker left holding the can if it falls apart?
Lets say you’ve sold your products to a company and they’re meant to have paid you on the 20th. But they don’t. Nor the next month. Eventually the company goes into receivership. What does that mean for you?
The receiver will have been appointed by the company’s bank or another secured creditor. Secured creditors have first dibs if things go bad because they will have a General Security Agreement which gives them security over the company’s assets and cashflow. Most normal trade creditors will be in the queue behind the secured creditors and will get paid IF there is money left over.
Because people know this, too many small businesses just assume that they’ll miss out if the company they’ve supplied goes into receivership. That the products you supplied will be snapped up by the receiver and sold to pay secured creditors.
But it doesn’t need to be like that.
There are some steps you can take and Queenstown Law can help you with them.
Firstly, lets examine the Terms of Trade you give to your customers before they bought off you. If you don’t have Terms of Trade at all you’re in trouble as that is fundamental. I know some don’t.
If you do have terms of trade, do they have a “romalpa” clause in them? This is a clause that states that you retain ownership of the products you’ve supplied until you’ve been paid for them. Even if they are sitting in the customer’s yard!
Secondly, have you registered a charge in the Personal Property Securities Register? This is becoming reasonably standard nowadays. You can record that you have a “Purchase Money Security Interest” over the goods that are sitting in the company’s yard.
Thirdly, did you get the company to sign your Terms of Trade to acknowledge the above points?
If you did then you’ve got a chance.
Queenstown Law can help you with this, and its fair to assume that at some stage of the cycle insolvency is going to rear its head. So get prepared now.
The above steps will help with what are fairly normal day to day sales.
There are other things you can also pay attention to, and again Queenstown Law can guide you:
Firstly, think about the options when you are providing goods on any sort of credit arrangement. For example:
Have you undertaken a credit check of that new customer? Do they have a track record? What else do you know about them – for example, if they have left your competitor to come to you, why? Are they a difficult customer? Did they not get around to paying your competitor? Do you actually want them as a customer?
Remember, if it doesn’t look good you don’t have to do business with them. Even if you decide to take a punt, should you get money up front?
Secondly, if the customer is a company, have you obtained a personal guarantee from the party behind it?
Thirdly, if it is a substantial job or supply, can you get additional security such as a mortgage over property, a bank bond or a General Security Agreement (bearing in mind that if your GSA is behind the bank it may not be of much value). Or should you insist on cash on delivery?
Fourthly, and perhaps more fundamentally, what sales and marketing activity are you doing? If this is your one big customer and you really need the job, and are deluded by the money that you’ll make if it comes off, then you need to get out more. Go and get some more customers.
Let us help:
Queenstown Law phone 03-4500000 or firstname.lastname@example.org