Credit management is not an easy business and it has more than its share of bear traps. It can also be an uncomfortable start to a business relationship, signing up customers to a credit agreement and standard terms setting out the supplier’s rights in the event of default. It’s like asking a bride or groom to sign a pre-nuptial agreement at the wedding.
The challenges don’t stop there. If the customer issues a Purchase Order that references its own terms, those terms may override the supplier’s terms unless the supplier reaffirms its own trading terms in response before supplying.
We recommend that:
- Any credit application details the terms of credit and when it can be withdrawn. It should also state that the supplier’s trading terms are imposed into every transaction (that’s not bullet-proof, for the reason stated above).
- The application should also include the terms of supply, specifically dealing with order process, delivery, warranties (or exclusion of warranties), limitation of liability, personal property securities registration rights and what happens on default.
- Any customer Purchase Order should be ‘accepted’ by a written confirmation that re-affirms the supplier’s terms.
- A supplier of goods should register its interest on the Personal Property Securities Register so that it retains ownership of the goods until payment. This is most valuable when dealing with an external administrator and is the difference between being a secured and unsecured creditor.
A supplier is in the best possible position to recover and retain payment if its own terms apply and it has a secured interest under the Personal Property Securities Register.