Protecting Transaction Credit

What do I do if my customers are in administration or are withholding payment because they are in financial difficulty?

The onus is very much on businesses to adopt whatever measures they deem prudent, in order to protect credit granted to customers.

Typical measures may usefully include:

• Requiring a deposit (or the entire contract price) to be paid at a certain stage in the transaction. Here the issue for the supplier is purely commercial, balancing prudent credit control against trying to stay competitive in a difficult market.

• Obtaining security in respect of high value transactions or where there are concerns about the credit-worthiness of the customer. This may typically be in the form of personal guarantees from the directors of a company or of a charge, registered against an asset of value, e.g. real property or collectables.

• Where goods are sold, ensuring that there are contractual ‘retention of title’ arrangements, which prevent legal ownership in the goods supplied from passing to the customer until they have been paid for in full.

• Being aware of the concept of “battle of the forms” and ensuring that, when contracting with a customer, the supplier uses its own preferred terms of business rather than those of the customer.

There will be inevitable pressure on suppliers of goods and services to agree whatever terms are necessary to secure a deal but, in the current economic climate, acting as a customer’s banker over a prolonged period is unlikely to be a recipe for trading success.