Recovering Overdue Accounts and Establishing Terms of Trade

Relationships between businesses are often based on two documents: the credit application and the terms of trade agreement. The information set out in these documents will affect how you will be able to deal with debts owed to your business. Therefore it is important to have terms that can assist you in recovering those debts efficiently and cost-effectively. In this article we outline the most commonly absent terms and conditions that you should consider adding to your current documents.

Cost Recovery Term

This term will fully indemnify you so that you can recoup costs associated with recovering debts such as solicitors debt collections fees.

Interest Term

Your documents should provide a rate of interest that you are entitled to charge on unpaid debts. The term should be designed so that interest begins to accrue as soon as payment is due and payable (ie the due date of the invoice).

Personal Properties Security Interest (PPSI) Registration

By updating from a simple Retention of Title term to a PPSI Registration term, you gain a secured interest in the goods in question.

Director Guarantee

This term means that the directors would become liable for the debt if the debtor company has no assets. This term should be drafted to allow you to lodge a caveat over any property owed by the directors.

Variation of Terms

You will need to include a variation clause in order to update your agreement with your customers. This will make it simpler to change your business practices as circumstances require.

Condition of Accuracy of Information

Your customers need to provide you with accurate information so that you are aware of the risks of extending credit to them. This term means that your customers warrant that the information they give to you is accurate.

Trustee Capacity

If a debtor is a trustee, it may hold no assets of its own because all the assets are held on behalf of the trust. This means that you may not be able to access those assets to secure the debt. You should ensure that any trustee debtor is bound “in its capacity as a trustee”.

Limitation of Liability Term

You should include a condition that your liability is limited to the extent that it is legally possible to do so (ie you cannot exclude the operation of certain legislation such as the Australian Consumer Law). For example you may want to limit your liability to the purchase price of the goods in question.

The Dispute Resolution & Restructuring Team at Chamberlains Law Firm – are experts in PPSA Registrations, Credit Documentation, Debt Recovery & Insolvency and are able to assist you in getting up to speed, staying informed or tackling that elephant in the room you have been avoiding.