In business, getting paid on time can be tough, especially in the current economic climate. That’s why it is more important than ever to ensure that you have laid the best possible legal and commercial foundations to enable you to achieve the best possible outcome. Below are some key issues to consider:
Are your Terms of Trade / Service up to date and as effective as possible for the industry sector you operate in?
Before any Terms are written, the first thing to consider is what your business actually supplies, in what industry sector, and whether that may then align with one or more special legal options as may be available to incorporate into the Terms when drafted. Apart from ensuring that your business is legally compliant with any applicable industry regulatory rules, it may also assist with getting paid.
For example, if your business performs or supplies “construction work” or related products (which has a reasonably wide legal definition), the payment recovery assistance provisions of the Construction Contracts Act might end up being a ‘life saver’ for your business one day. If you supply goods, are you taking maximum advantage of the provisions within the Personal Property Securities Act 1999 to help maximise your chances of recovery? Is the ability to call for greater security, such as over land, or a personal guarantee, legally and commercially realistic?
Could your payment terms be written more effectively?
If possible, requiring an upfront deposit helps to offset risk. Also, including a provision that any customer dispute must be raised in writing within a particular time frame may help too. The wording should clearly remove the ability of the debtor party to set off or deduct any amount under any claim.
The recent High Court case of Sika (NZ) Ltd v Pegasus Engineering Ltd [2023] NZHC 834 highlights how useful it is for a creditor party to have the correct “no set-off” wording in their customer engagement terms. Sika sought Summary Judgement against Pegasus for $244,130.80 arising from the non-payment of Sika’s invoices. Pegasus raised a range of counter claims arguing that the matter should proceed to a full defended hearing. The Court disagreed, finding in favour of Sika by finding that the “no set-off” clause meant that Sika’s Summary Judgement application could proceed and be successful. The Court highlighted that nothing prevented Pegasus from bringing its own claims independently. The result was that Sika as creditor gained much legal and financial benefit from effective legal wording in its terms of trade.
Provisions relating to default interest and costs recovery are also important to include.
Are your terms as clear as possible in relation to what is being supplied and when so as to best avoid any dispute about that?
It may come as a surprise, but these basic components are often the reason why disputes arise and then payment is withheld. Clear written communication is key. If your supply is part of a wider project for the customer, then you will need to be alert to issues relating to ‘change control’ (for scope and price), ‘fitness for purpose’ (or otherwise) and timing delays and related force majeure type exclusions. Effective ongoing supply management will also be required in that regard.
Is your customer engagement process correct and effective?
Are you gaining agreement to your desired legal terms at the correct time and not after the supply contract has actually been concluded? What evidence of agreement do you have should that ever need to be enforced? These are important issues if one day you might need to enforce the terms.
The above would need to factor in any ‘business to consumer’ legal issues as may exist and which might also limit your ability to include certain provisions.
