The need for correct Ts&Cs

A story recently made headlines regarding a UK firm who impersonated its debtors in order to offload them onto other companies, stating that as a young company they would not have survived with so many bad debts on their books.

by Ian Kay, head of debt recovery at Curtis Law Solicitors

While not a traditional approach, the company reached the conclusion that the act of transferring the customers was the best option to deal with their growing debt problem.

But how was this possible? The answer essentially lies in a company’s terms and conditions – they allowed the company to take this route as an alternate way of dealing with the debts. Although the approach appears right in law, it has caused outrage in some sectors.

So what lessons can be learned?

Don’t be clever with your Ts&Cs If you’re too clever when drawing up your Ts&Cs, sometimes it can be bad for business. An example of this is a former client who supplied services to customers for a paid trial period of several months and if the contract was not cancelled, it would then continue for 12 months. Listed in the company’s T&Cs was a clause stating that all customers had to provide 30 days notice of cancellation.

Towards the end of the trial period there were a lot of disgruntled customers who’d failed to cancel in time, making them liable for the year-long contract. My client had not foreseen the customers would be unhappy with this and then simply refuse to pay -this left them with a large book of relatively small debts of £1000-£2000.

In the end they effectively wrote off a lot of the debt by simply deciding not to pursue it. They changed their business practices and now operate with rolling contracts supported by direct debits.

Always consider what happens if no payment is made It’s vital that businesses always consider how they are getting paid and what happens if a customer fails to make payment. There are various options you can add to your Ts&Cs such as guarantees, arbitration clauses and deposits. Sometimes this will be easier with a contract which you discuss with your customer, however there is no reason why standard terms and conditions cannot be amended – just make your customers aware.

Recently I assisted a client who was having building work carried out at their house and were nervous about making a payment in advance as the company they were contracting with were quite young. The solution agreed was simply that the director of the builders provided a director’s guarantee – this made him personally liable if the work was not completed.

This simple solution assisted the parties because it gave my client another option as opposed to simply suing the company. As a result the contract was carried out to both parties satisfaction which is the ultimate goal of any contract.

Always ensure that your Ts&Cs cover what you want It may sound obvious but it’s vital you ensure your Ts&Cs allow you to take the action that you want. A common occurrence is clients believe they can do what they want if a customer hasn’t paid, however they could in fact be in breach of their own terms and conditions if they’re not careful.

A simple example is that at a phone company you would expect that if a customer failed to pay they could simply disconnect the service. However if the Ts&Cs don’t cover this then the phone company can’t disconnect and would be liable for the customers losses if they disconnect anyway. On the other hand if the Ts&Cs had been correct from the start, there never would have been a potential claim.

The ultimate message to all business owners is that the start of the relationship with a customer will be the determining factor of how a matter progresses. If you don’t give enough consideration to your terms and conditions or your relationship with a client, don’t be surprised if you struggle to receive payment in the future. Ian Kay is the head of debt recovery at Curtis Law Solicitors. He has a wealth of experience recovering debts of varying amounts, achieved by taking the time to understand each individual business he works with.