Beware all suppliers: who owns your goods if you are not paid?

Whilst keeping up sales is very important, companies selling goods need to be ever mindful of protecting themselves as best they can against bad debts with their customers.

Companies in the manufacturing sector continue to face very challenging times, especially in the steel industry, as evidenced by the recent closure of SSI’s large steelmaking plant in Redcar and the recent appointment of administrators over a substantial part of Caparo’s operations.

Given these recent large insolvencies, a leading commercial litigation lawyer is advising businesses to examine closely their sales contracts to ensure that they have valid retention of title clauses, which should hopefully give them the chance of recovering at least some of their goods, in the absence of payment, should any of their customers suffer a similar fate.

Neil Williams, partner and head of commercial litigation at Midlands’ law firm, George Green LLP, said ‘it is obviously very frustrating for a client to find when a customer goes bust that it has no retention of title of clause to rely on, or even worse, it had one in its terms and conditions of sale, but those terms did not form part of the contract with the customer’.

He added, 'Unfortunately, by then it is often too late, as without terms and conditions of sale forming part of a contract which contain a retention of title clause, the process of recovery of goods or money can, at worst, potentially be impossible and, at best, be both lengthy and costly.'

According to Neil Williams, who is based at George Green's Cradley Heath offices, recovering goods from a customer which has gone into administration or liquidation can be a particular problem for a lot of companies as they sell on credit and deliver goods long before payment is due for them.

He said: 'Companies need to ensure that they use their standard terms and conditions of sale to form a contract with the buyer and that these conditions include a clause which seeks to ensure that they retain legal title to as many goods as possible until the buyer has paid for them’.

'It is vital that this clause is specially drafted to ensure that the retention of title is for all monies owed for goods supplied, rather than simply for specific goods, as the buyer could otherwise claim to have sold the specific goods to a third party, making recovery impossible.'

To try to ensure that its terms and conditions are incorporated into a contract, companies should include their terms and conditions on all quotes, order acknowledgements, invoices and delivery notes.

'In good trading conditions, the strict application of terms and conditions may not be carefully policed, but without them companies have not got much of a leg to stand on, if it should come to an argument with an administrator or liquidator,' said Neil Williams.

Permanent identification through etching on packaging or robust labelling can also be crucial in protecting title to goods. Suppliers must prove which goods still belong to them to the satisfaction of an administrator or liquidator.

'As soon as they are aware of the situation, companies should visit the premises to identify their goods, get an inventory signed by the administrator or liquidator and assert their retention of title claim,' he said.

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