The advent of Coronavirus and the likely economic implications mean that businesses should urgently check their terms and conditions of trade.
When the economy is strong and trade is good, T&Cs are often of minimal impact – goods and services are supplied and invoices are paid - no-one has cause to reach for the terms and conditions.
When the economic situation alters, things can change drastically and very quickly. Customers want to hold onto their funds for as long as possible, onward sellers may encounter difficulties with their own customers, cashflow difficulties and even insolvency events can make it difficult to get paid. Parties then start to review their T&Cs, often to find that they don’t afford them the protection that they might have hoped.
As we head into a likely downturn it is crucial that businesses take the opportunity to review their terms of trade to see how they might be strengthened or improved to give them greater protection in difficult trading situations. Where improvements can be made, they should be implemented immediately, so that as many transactions as possible are on the newer terms. Where there are ongoing trading relationships, they should serve notice of the new terms as quickly as they are able.
Those changes might include:
- Tightening credit terms
- Requiring payment or part payment in advance
- Retaining title to goods (ROT clauses) until payment in full has been received
- Taking assignments of the right to be paid from sub-buyers
- Seeking parent company guarantees, or other security for credit
Even if it is not possible to alter terms (for example where there are already ongoing contractual commitments) there will often be practical steps that suppliers can take to better secure their position.
Taking early steps is the key and most lawyers will be able to quickly provide advice as to how trading terms can be tightened up.