Oftentimes, terms and conditions (T & C’s) are created and then not reviewed for many years. When there is a problem – like those that might arise due to the coronavirus pandemic - the first thing that is considered is the terms and conditions.
Under the current circumstances, many customers are going to delay payment and may even become insolvent. You need to put yourself in the best position possible to recover your funds.
Terms and conditions should be specific to your industry and your company, however you should consider the following as foundational guidelines:
1. Are you a secured creditor?
If possible, T & C’s should create a right for you to become a secured creditor and register an interest on the Personal Property Security Register (PPSR) – upon insolvency of the client, secured creditors enjoy priority over unsecured creditors pursuant to the Corporations Act.
2. Do you have a personal guarantee from a director?
If the company is placed into administration or liquidation, you can still pursue a personal guarantee against the director.
3. If it is for a supply of goods - when does title pass?
This is not only relevant if the company becomes insolvent, however also if the goods are lost or stolen in transit.
If title does not pass until you have been paid in full, this may give rise to an interest which can be registered on the PPSR.
4. What State / Territory do you want to prosecute any litigation?
The T & C’s should reflect the State or Territory where it is easiest for you to engage lawyers and attend Court if necessary.
5. What are the consequences of a default?
Is there interest payable upon default and if so, what is the interest rate applicable? If you do not set this out in your T & C’s you may not be able to charge interest on overdue invoices.
At this very uncertain time, it is imperative to have your T & C’s in order so that you can have maximum protection and rights if your customer fails to pay you.