Customer in Difficulty? Retention of Title - Action to Take
In the current economic climate it is possible that you will experience customers who are in or become in financial difficulty or are just using the economy as an excuse not to pay.
This article is designed to give you some practical “first aid” guidance on what to do if you are concerned about a customer or they are being difficult about paying.
By following this advice you should reduce the chances of non payment and speed up payment when supplying goods. This will assist your business in not only surviving but prospering in the economic downturn.
Please see the case histories below for some recent examples of how retention of title can be used.
Retention or Reservation of Title
Retention of title is where you supply goods and if they are not paid for in full you are entitled to recover those goods even if they have been mixed with other goods and in some cases any proceeds of sale of the goods. Retention of title is especially useful if your customer has gone into liquidation and some other insolvency processes. It effectively ranks you above any other creditor. This means you do not have to wait in line for a pay out which gets shared amongst the other creditors.
Similar provisions can be used if you supply storage or warehouse space. If a customer does not pay you and you have their goods on site, what are you entitled to do with them? The points at 1 and 2 below are just as important if you supply space as for the supply of goods.
- 1. Act quickly and properly
Any difficulties or doubts concerning the financial state of any customer must be dealt with immediately;
- 2. Sale Contract
In order to stand any chance of successfully applying a retention of title claim, your Standard Conditions of Sale must incorporate a valid retention of title clause and your Standard Terms and Conditions must be incorporated into the contract with your customer. If your paperwork is not in order then any further action will most likely cost you money rather than save it. If you have any doubts about your contractual terms or whether the method you use of contracting ensures they are incorporated into your sale contracts please let us know and we will vet them;
- 3. Identification
The goods supplied and in the hands of your customer must be identifiable as your goods. Wherever possible ensure full details of goods sold appear on all paperwork (including serial or batch numbers where possible) and (as with hire contracts) mark goods with Company identification;
- 4. Location
Find out where the supplied goods are located;
- 5. Recovery
Seek peaceful recovery of goods from customer or third party;
You must not use any force to gain entry to premises of customer or third party or to recover goods;
Always carry copies of paperwork and identification;
If you are refused entry or asked to leave the premises do so but note the identity of person(s) so requesting;
If violence is threatened or used against you, avoid retaliation and report it to the Police.
If a customer or anybody acting on its behalf notifies you of the existence of any Court Order or injunction you should refer the matter to us before taking any action. To do otherwise might involve a Contempt of Court and consequent serious penalties.
REMEMBER THAT YOU CAN ONLY EFFECTIVELY EXERCISE YOUR RIGHTS, SAFEGUARD YOUR PROPERTY AND COLLECT MONEY DUE TO YOU IF YOUR PAPERWORK IS ACCURATE IN ALL RESPECTS WITH CORRECT CUSTOMER AND ACCOUNT DETAILS.
Case Studies
- A business was sold which included livestock. The purchaser could not afford to pay for all the livestock on completion. Nevertheless the seller agreed to sell the business and livestock on the basis that the livestock remained in the ownership of the seller until the buyer had paid for them (retention of title). Following completion of the sale of the business the purchaser went into administration. After taking advice from us the seller located the pigs, arranged for transportation and removed them. The administrator eventually agreed that the retention of title was good and that the pigs which had been removed belonged to the seller. Instead of the seller being an unsecured creditor and getting nothing, he was able to sell the pigs and recover a substantial amount of the money that should have been paid by the purchaser.
- A company manufactured and fitted expensive fencing and a gate to a property. The customer decided that they would refuse to pay the agreed price for the fencing and gate despite their being no fault in the goods or fitting. Under the standard terms and conditions of sale the supplier had the right to recover the goods if the customer had not paid for them in full. After taking advice from us, the supplier warned the customer that if they were not paid the fence would be removed. No payment was received. The supplier went to the location of the fencing and began to recover the fencing. Payment in full was brought to the site and the supplier left the fencing in place.
- A client supplied warehouse space. A customer failed to pay for several months of storage. Not only was the client giving his space for free, the space taken up by the non paying customer could have been used by a paying customer. After giving the non-paying customer warning the client sold the goods and used the proceeds to pay for the unpaid invoices plus costs of disposal. The space was then used by a paying customer.
Retention of title documentation needs to be well drafted and accurate. It must also be incorporated into any contract you have with a customer. If you do not have a retention of title clause or you are unsure about it because it has been a while since anyone looked at them please let us know. A quick vetting of your documents and us helping with your contracting process could make a lot of difference to your business.
If you are thinking of enforcing a retention of title clause please contact Alistair Latham or Mark Daubney on 01482 324591. We would be happy to guide you through the process and help you avoid any pitfalls.
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