International law firm Eversheds has warned that trading partners are being much more stringent and are terminating contracts with customers they view as “risky”.
Partner Fiona Ghosh said: “In the new global economic climate, trading partners are reviewing each other with much closer scrutiny than ever before.
“This applies not just in the financial sector, but across all industries as cash flow becomes king.”
Ghosh suggest the following as key principles for long-term or new trading partners:
1. Due diligence is essential – is there any past history of non-payment or late payment? If so, think carefully about the terms on which you enter into this relationship.
2. Are there provisions allowing you to terminate your arrangements and walk away if there is a delay in payment? There should be, otherwise there is a risk that you may be accused of breaching the contract if you end the contract.
3. Are you retaining rights of ownership over goods until you have received payment? It is critical that you remain the owner of your products until you are paid, especially in an insolvency of the purchaser.
4. Review your clauses on late payment interest – remember that interest should apply to late payments and there is UK statutory rights to late interest payment.
She added: “These few principles apply both in good times and bad but now, more than ever, companies should be paying close regard to those standard payment terms which have lain probably untouched for quite some time.”