Contracts - Make sure you have a written contract, the terms are clear and tailored to the situation, standard terms are properly incorporated, it is agreed whose terms apply, assignability to other parties is limited, they are governed by English law and English dispute resolution processes if you are dealing with foreign entities and that you can set off amounts you owe against amounts you are owed.
Credit control and Insurance - Keep the period of your payment terms as short as possible and be active on your credit control and financial due diligence, make sure you have the flexibility to amend your terms, keep your ear to the ground for industry rumour and explore, if appropriate, adequate insurance cover.
Retention of title – Look to include terms to retain title in goods supplied until you have been paid and if you already have those terms, keep as close an eye as you can on the storage of your goods and be ready to identify your goods as soon as possible if the customer goes into an insolvency process.
Security and guarantees – Look at obtaining security from the counterparty in respect of amounts due and that will fall due to increase recovery prospects and the ability to better control the situation and explore whether any other parties can guarantee debts and, if you have security and/or guarantees, ensure that the security is perfected and that the covenant strength of guarantors is maintained.
Other options – Consider whether you can better protect yourself by holding any customer money on trust, having liens over any counterparty stock you hold and/or checking that key IPR is properly licensed and accessible.
Why this is important - If your counterparty ends up going into administration, that will create a moratorium preventing creditors enforcing their rights, will unlikely give rise to statutory set-off and will likely lead to no recovery for unsecured creditors so you need to ensure, as far as you can, that you are protected and can improve your recovery prospects by considering the above.
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