Imagine this – you own a business selling widgets. A man called John Smith calls your business and orders 100 widgets for a total cost of $10,000. He pays a 10% deposit of $1,000, and asks you to send the widgets and the invoice for the balance of $9,000 to JS Building. You prepare the invoice with 7 day terms and deliver it to the given address, along with the widgets.
JS Building doesn’t pay. You call John Smith but he doesn’t return your calls. You send a number of statements for the overdue balance to JS Building at the address where the widgets were delivered, but you don’t receive any payment.
You consider commencing court proceedings to recover the balance. But who do you sue? Do you sue John Smith? Do you sue JS Building? Or could it be JS Building Pty Ltd?
To avoid this happening to you, it is crucial that you correctly identify who your customer is, because if you commence proceedings against the wrong legal entity, then it will be difficult if not impossible to recover the debt. If you sue John Smith, he may file a defence saying that he was representing JS Building Pty Ltd. So you then commence proceedings against JS Building Pty Ltd and find out that the company has since gone into liquidation and has no assets to its name.
Make sure that you correctly identify your customer from the outset. Ask for a purchase order. Make sure that the purchase order identifies who the customer is – it is not enough for there to be a stylish logo on the purchase order with the words “John Smith Building”. You are not contracting with the logo – you need to know who is behind the logo. As suggested above, it could be John Smith trading as JS Building, or it could be JS Building Pty Ltd. Depending on the value of the transaction, it may be worthwhile for you to obtain an online ASIC search of the business name and/or corporation.
Make sure everything is documented. Not only should you ask for a purchase order, but you should then provide an invoice, noting the payment terms and your other terms and conditions, and follow up non-payment as soon as it is overdue. The longer a debt is unpaid, the harder it will be to recover – as noted above, you don’t want to be the last creditor in line waiting payment from a company that is in severe financial trouble and heading into liquidation.
Contact the team at Shire Legal if you require assistance with drafting your terms and conditions and/or recovering an unpaid debt.