Have a written agreement in place between the two parties (the buyer and the seller).
Let’s be clear. If you don’t have a written agreement setting out the terms of the sale and purchase, then don’t expect to have much joy collecting on a debt if you need to ‘go legal’.
And, don’t be someone’s ‘wood duck’ or ‘bunny: If you think a purchaser is ‘shopping around’ and they choose you (without you having a written agreement in place) then you have just dramatically increased your chances of not getting paid. Make no mistake – you are their wood duck, their bunny.
Your agreement should cover a number of things, the most important of which are:
a. Legal entities to the transaction: Who is the seller and who is the buyer?
A legal entity can be sued and can sue for a debt incurred. A legal entity is a person (eg a sole trader), a company, a partnership or a trustee of a trust (NOT the trust itself – this distinction between a trustee and a trust is relevant if you want to go legal to get paid – more on this later).
b. If the legal entity is a company it must have an ACN (Australian Company Number) which is registered with ASIC (Australian Securities and Investment Commission www.asic.gov.au). This number should be quoted in the document. A Company name ends with either Limited (Ltd) for a public company (most but not are listed companies on the ASX (Australian Securities Exchange) or Proprietary Limited (Pty Ltd).
An important aside: an ABN or Australian Business Number, is issued by the ATO (Australian Taxation Office) and it does not necessarily relate to the legal entity you would sue. Confused? You should be! However, there is a simple explanation for this apparent anomaly. An ABN is often issued to a trust (which is the taxable entity for the ATO’s purposes) whereas the party you are contracting with for collection purposes is the trustee. Often, the trustee is a company or an individual. Where it is a company, it will have an ACN. Get this ACN on your documentation.
Back to ACNs. You can do a free search for an ACN and the legal entity to which it relates. It takes 5 minutes and this is a very worthwhile investment of your time. Go to the right hand side of the ASIC home page (www.asic.gov.au) and find the heading ‘Search ASIC Registers’. In the boxes available, enter either the ACN or the company name. If the entity you think you are trading with is not registered here (the search will show “REGD”) then it is either not a company or, it is not who you think it is.
One last thing on ASIC registered names: if you are dealing with a foreign company or an incorporated association it will have an ARBN (Australian Registered Business Number) – not to be confused with the ABN issued by the ATO mentioned above. This is fairly rare but it can occur so it is good to be aware that it exists.
If your buyer is trading under a business name (BN) and not a company then you will need to do a further search – at a cost – to find out who owns and who is trading under the business name. This is a bit more difficult but for a fee of around $25, well worth it. (We can assist you with this if you need this done).
If a legal entity is not a company and is not trading under a business name, then its name will be that which appears on its documentation.
c. What you are selling and what the person is buying?
Is it just ‘the goods’? Does it include any pre, during or post sale services? Be clear what it is you expect to get paid for (i.e. what you are selling) and what you are offering for free (i.e. what you are not selling and expect to get paid for).
d. When is the sale completed – and when does the buyer takes ownership of the items being sold?
Is the sale completed upon delivery or some other point in time? Be clear when this is as it can get tricky, particularly with service providers, multi-stage sales, long term contracts etc. Also, be clear about the associated documents required – particularly the need for purchase orders from the buyer (from someone authorised to buy) and signed and dated proofs of delivery that they have received what you have sent them.
e. What rights does the buyer have to return the items sold?
This may be limited to certain conditions (damaged, faulty or not working items) and it may be limited by a period of time, subject of course to the various legislative requirements (the Commonwealth’s Trade Practices Act and the States Consumer Protection Acts).
f. What rights does the buyer have if the product is faulty?
Many suppliers will have warranty periods if their product needs fixing for a recognised fault. It is important to be clear what is covered and what is not covered under warranty.
g. What document(s) specify payment: how much and when?
It is important that your payment terms and any discount terms are clearly set out.
“Payment terms: the gross invoice value to be received within 30 days of invoice date”;
“Discount terms: 2.5% discount on invoice gross value if the total gross invoice value net of discount is paid and received into our bank within 7 days of the invoice date” are both pretty clear.
Many major retailers will try and claim a discount even though they have not paid the amount within the agreed terms for the discount on the basis that ‘this is what they do’. If your terms are less than crystal clear, expect to get rolled by them. They do this for a living and make good money out of suppliers who don’t pay the same attention to this that they do.
Another good idea (if you can do it) is to get either a direct debit set up so you automatically get paid what is owing each month. A bit like a phone company with a payment plan.
Or, give them the option of paying by credit card if they pay up front. Sure, it costs you the commission for the card but you get the cash and they get terms from their credit card supplier (30 to 60 days) as well as the reward points – and their credit card supplier wears the credit risk.
h. What if they don’t pay on time?
You need to set out your legal rights and when you can enforce them. In many cases these days, suppliers will have Retention of Title or Romalpa Clauses drafted into their agreement. They allow the supplier to retain ownership in the goods until they are paid for – which can be more than handy if the customer goes into liquidation as you can either take back the goods or have the insolvency administrator account to you for the sale proceeds of the goods – provided you go and identify on day one (or as close to day one as you can get) what goods of yours are still on hand.
Also, it is good to agree that you have the right to charge them for any costs you incur if they have not paid the amount overdue by say, more than 30 days.
i. If it is a company as the buyer, can you get a guarantee from the directors?
If you are dealing with a private company (either in its own right or as trustee of a trust) then a guarantee from the directors of the company is an excellent idea. Most large suppliers insist upon it. Why don’t you?
And remember the lesson on being someone’s wood duck above – if they won’t give you a guarantee, the chances of their company not being able to pay has probably increased many times.