Nobody, least of all a business person, needs to be reminded of the economic gloom that now pervades almost every aspect of our daily lives. And with further economic storms on the horizon, businesses are now exploring every means possible of improving cash flow and ‘bumping up’ their balance sheets.
An increasingly popular way of doing so is pursuing claims against suppliers, which in less gloomy times might have lingered at the bottom of a burgeoning in-tray, or even been dismissed as being insignificant in the grand scheme of the business.
I have always been an advocate of ensuring that one’s contractual relationships are clearly defined in writing, preferably in unambiguous and user-friendly terms. But in the current climate, having your contractual ‘ducks in a row’ is more important than ever.
Three key areas of your contractual terms to look at are:
Exclusion and Limitation Clauses
These are provisions in contracts which seek to exclude, or limit, a party’s liability for, say, breach of contract or negligence. Unfortunately, attempting to limit one’s liability in this way is a legal minefield, since, in many circumstances, such clauses are required by law to be ‘reasonable’ and there is a host of mind-boggling case-law on what constitutes a ‘reasonable’ limitation or exclusion. Not only that, but there are certain liabilities which cannot be excluded, such as death or personal injury resulting from a party’s negligence. Having said all that, properly drafted exclusion and limitation clauses can be highly effective, both as deterrents to litigious clients and as a means of capping your potential liability under a contract.
Payment terms
The fundamental issue here is ensuring that you cover off all of the key aspects of payment in your contract, such as: when can you raise invoices; how must your customer pay; if not you, who must they pay; when must they pay; and what happens if they do not pay on time, or indeed, at all? It all sounds very simple, but you would be surprised how frequently businesses get it wrong, and pay the price for having done so.
Insolvency Clauses
It is extremely important that your contracts address the possibility that either you, or your customer, may become insolvent and include provisions for how your business relationship is to be conducted in such circumstances. Some of the principal issues are whether you can terminate the agreement immediately; whether you can you take your goods back; and whether you can raise an invoice for work done to date.
Addressing these fundamental areas of your business contracts is not a panacea, but it should give you a certain amount of protection, and some comfort, as you ‘batten down the hatches’.
To contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Alternatively you can contact her by email - Fionula.scanlan@raworths.co.uk
