If your business allows clients to purchase products or services now and pay for them later, you are essentially extending them credit, assuming they have the means to pay for the transaction. While this can help to facilitate business, it does leave you wide open to the risk of serious financial loss. For this reason, it is vital that you establish bulletproof terms of sale prior to extending credit to any client.
The terms and conditions in your credit application, together with those appearing on invoices, order forms and your website may all form part of the contractual agreement between you and a customer. It is these terms which will ultimately determine your rights in the event that your client does not, or cannot pay. They must therefore be drafted to create appropriate rights to protect your interests and handled in such a way that they are enforceable.
Why Do I Need a Lawyer to Draft My Credit Terms?
There are a number of ways a lawyer can assist you to maximise the protection conferred by your terms and conditions, ensure they are enforceable and greatly reduce your financial risk of trading on credit.
A lawyer can help you establish appropriate screening policies for approving credit
Credit can’t be handed out to just anyone. It is vital to put safeguards in place to mitigate financial risk. But how do you decide which clients to extend credit to? Which clients are financially viable? What questions should you ask credit applicants? And what information can you require them to provide?
A lawyer can provide you with a professionally prepared credit application form which collects all the necessary information to assess an applicant’s financial position and clear policies for accepting or rejecting an application.
A lawyer can ensure the enforceability of your terms and conditions
For a specific term to be enforceable, it must form part of a binding contract between the parties. Businesses often assume that once there is a signature on a document a party is bound by it however this is not always the case.
Proper legal advice can equip a business to understand when and how legally binding contracts are formed using its specific credit and sales documentation, and to ensure that all terms of sale are enforceable.
A lawyer can draft terms and conditions that create security interests to protect you if your client becomes insolvent
Clauses creating a security interest in personal property such as a retention of title clause can ensure that if a client cannot pay, you can seize or sell certain assets. Such securities not only provide a means of recovering your loss, but they can place you in a preferential position to other creditors in the event a client becomes insolvent.
A lawyer can ensure statutory and regulatory requirements are met to validate security interests
Many businesses are unaware of the statutory requirements and registration procedures that apply to security interests. Failure to comply with registration procedures impairs your rights to enforce a security. It is vital that businesses obtain reliable legal advice to ensure that all securities will be enforced by a court if necessary.
Take home point
The investment in professionally drafted sales and credit documents is an investment in financial protection and peace of mind and is the prudent option for all businesses.
If you would like to reduce your financial risk, talk to an expert about how we can bolster and streamline your credit and sales documentation. If you want a debt collection or debt recovery service in Sydney, Melbourne or Brisbane, you can call us 1300 668 699.
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