Getting The Contract Right!


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Presentation on entering into a contractual relationship with your customers.

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Getting The Contract Right!

  1. 1. EFEFECTIVE DEBT MANAGEMENT Getting the contract right first time!
  2. 2. Know who you are contracting with • Consumer • Limited company – part of group • Individual trading as a business • Partnership
  3. 3. Why is it important! • Consumers have greater protection under the law – eg terms must be “fair” and in “plain, intelligible language” • Limited company – part of group? – even less protection under the law, but liability limited • Individual trading as a business – less protection – unlimited liability • Partnership – identity of partners? Unlimited liability unless LLP
  4. 4. More importantly... • You need to run credit checks on the right individual/entity • You may need to consider parent company guarantees when dealing with part of a group • You may need to consider personal guarantees from directors of limited companies • Knowing who to claim against is key when things go wrong
  5. 5. • Think about credit checks where in doubt (eg Experian,Equifax) • Use Companies House on line service to check company names and numbers • Set appropriate credit limits and stick to them, but review them regularly • Monitor payment histories closely to be first in the queue when things go wrong
  6. 6. • May all be expressed to be subject to the supplier’s or customer’s standard terms • Amount to offers and counter offers • Enquiries, quotations, orders, order acknowledgements, delivery notes, invoices Battle of the forms • Reality is, there is no formal acceptance • Both parties consider that there is a contract?
  7. 7. • For the avoidance of doubt, get the other party to sign and return the terms • Making contracts by phone? – Expressly agree your terms are to apply • Generally, the last “shot” before performance wins… Battle of the forms – how to win? • Fax and email? – Make sure you send a copy of your terms • But bear in mind – standard terms are only suitable for standard transactions
  8. 8. • Limit or exclude your liability in some circumstances if something goes wrong – subject to reasonableness • Where appropriate, provide that you retain ownership of the goods until they are paid for • Suitably drafted terms and conditions can… Why do you need to win? • Choose the governing law in international contracts • Provide the right to terminate/suspend all contracts in the event of late payment
  9. 9. • Read them, check that you can comply with them, and make sure that you do • If you do need to change them, focus on the important terms • If customers insist on trading on their standard terms… What if you can’t win? • Make sure that any changes are effective – eg do the terms require them to be in writing? • Use side letters to amend standard terms, or incorporate other documents
  10. 10. • Vary them by agreement, or use a specifically drafted contract – eg long term supply agreement? • You can incorporate standard terms in a specifically drafted contract – deal with what’s to happen in the event of any conflict • Standard terms and conditions are not always suitable… Non-standard contracts
  11. 11. Implied terms • Sale of Goods Act 1979 – implied terms as to quality, title, fitness for purpose • Supply of Goods and Services Act 1982 – implied terms that the supplier will carry out the service with reasonable skill and care • Also under the 1982 Act, implied term that services will carried out in a reasonable time for a reasonable charge
  12. 12. Late payment of Commercial Debts (Interest) Act 1998 • Applies only to ‘commercial’ debts – ie where both parties trading in the course of a business • Currently entitled to interest at 8.5% above base rate on ‘overdue’ debts • Also, entitlement to fixed ‘compensation for late payment’ : – Less than £1000 - £40 – £1000 to £10,000 - £70 – £10,000 or more - £100
  13. 13. Effective variation • Possible to vary contract terms after formation if both parties agree • Any variation must be supported by consideration – both parties must give something to make the new bargain effective • If the original contract provides for a specific method of variation – use it
  14. 14. Getting the foundations right - conclusions • Be certain – identification of the parties, objectives of the contract • Be aware – when you are entering into binding contracts • Be clear – on all commercial and legal terms • Be express – don’t leave it to chance • Be appropriate – standard conditions, individually negotiated contracts • Be alert – risks, rights and remedies
  15. 15. On behalf of Mercian Law we would like to thank you for attending If you would like any further information please contact Verity Grigg on 0844 736 1980