Three Ways to Get Paid – The Answers
Fulfilling Orders Under a Customer’s Purchase Order
Answer: False
Oftentimes goods or materials are provided after your customer provides a purchase order. Did you read the purchase order? Did you read the “fine print”? Most often, the answer to those questions is “no.” The problem is that all of the powerful provisions in your credit application are trumped by the inconsistent provisions of the purchase order. For example, your terms require payment within 30 days of invoice, but your customer’s purchase order requires payment only if your customer is paid by its customer. This type of provision is well-known in the construction industry as a “pay-if-paid” provision. So long as the provision has language that makes it clear that you bear the risk of non-payment to your customer, these clauses will be enforceable and prevent you from recovering until your customer has been paid by its customer for the materials you supplied. To provide yourself with the best possible argument and protection from the nasty provisions of your customer’s purchase order, you could have a provision in your credit application that indicates the terms and conditions of the credit application take priority over any inconsistent terms contained in other customer-provided documents. In addition, when you receive a customer-issued purchase order, send it back with a note, to be signed by the customer, agreeing that if the purchase order’s terms are inconsistent with and/or in conflict with the terms of your credit application, the terms of the credit application shall apply.
The Balance Due is Small
Answer: False
You can and should have an attorney’s fees or costs of collection provision in your credit application. Having such a provision obligates your customer to pay your counsel fees and costs in the event you undertake collection activities. Such a provision negates the often-used strategy to negotiate based on the theory that you should compromise the value of your payment demand in recognition of the expected cost of collection litigation. Note, however, there are certain laws that allow for the recovery of counsel fees. Such laws do not always apply, are often narrow in scope, or give a judge discretion whether to award such fees. Notwithstanding this, an attorney’s fees or costs of collection provision still gives you greater leverage and assigns more risk to the customer in the event of payment default.
Your Customer is Having Difficult Financial Times
Answer: False
You can and should have a personal guaranty provision in your credit application. In cases where your customer is not paying, often it is because the customer is having its own financial issues. Instead of you financing your customer’s trade debt, a personal guaranty apportions liability to your customer’s principal(s) in the event that the company defaults. In my experience, when the principal(s) of the business have personal liability that is independent from the company’s exposure, you will have far greater payment leverage.
