DEBT – It’s a Four Letter Word !

If you’re in business, trust me, you will have problems with debt at some time or other. It’s inevitable but it’s what you do about it that is most important. We advise clients to anticipate it as early as in your Terms and Conditions. Always make provision for interest on unpaid debt. The most sensible thing to do is to link it to Bank base rate, most commonly 3 or 4 points above the current Bank of England base rate. Properly drawn Terms and Conditions will help you get interest on the debt from your customer in case you do have to sue them. One very important clause you can include is a retention of title clause (what we lawyers call a “Romalpa” clause – don’t worry about the name, just focus on what it does). This entitles you to reclaim goods that are not paid for. You retain title to them as owner until you are paid for them. The problem is it only applies to items which are not then incorporated into something else, so you could reclaim tables and chairs but not bricks and mortar which are then integrated into a house. Another point I often have to advise on, particularly in the building industry, is Personal Guarantees. If a Limited Company wants to become a customer and have goods supplied on credit, clients often require Personal Guarantees from the Directors of those Companies. Again, a standard Personal Guarantee, properly drawn up, will help to secure your position as supplier. The main message is – if you are worried about debt becoming that painful “Four letter Word” get your preparation right and always, for lawyers, that means getting the paperwork right!

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