There are plenty of reasons why creditors don’t get paid. In general, however, the most common is supplying products and services without clear written terms. In turn, this usually results in significant debt and lengthy disputes that you could have easily avoided if your buyers were clearly aware of your terms of trade to begin with.
Bearing this in mind, when creating your terms of trade, avoid making these common mistakes:
- Not clearly setting the price. For example, is it an estimate or specific quote? Does it already include GST? What if you find out about new circumstances that you should’ve added to the price?
- Not specifying the exact legal entity you’re dealing with. For instance, are you dealing with an individual, partnership, society or company?
- Failing to specify the due date. For example, should it be settled within a specific date or upon delivery?
- Failing to place a time limit on accepting quotes. For instance, could you still modify your quote in the event of a change in material costs?
- Failing to obtain a guarantee for customers you give credit to.
- Not specifying that you’d be collecting interest and collection fees if an unpaid debt hasn’t been settled on the due date.
- Failure to specify who’s responsible for insurance, such that at which point do buyers take on the risk?
- Not having a ‘Reservation of Title’ clause and not registering that security interest. According to the Consumer Guarantees Act 1993, for this clause to be legally enforceable, your consumers should clearly understand it. A consumer should acknowledge this clause in writing, and you should provide consumers with a copy of the document and then have them sign your terms of trade, explains debt collection lawyers in NZ.
Failing to implement the abovementioned steps could easily lead to late payments or unpaid debt through no fault of your customers. The worst-case scenario—you might not even get to recover debt at all.