After a recent visit to the West Coast on business, I can honestly say that the “vibrant Coaster spirit is alive and well” especially in the outlying areas of Ahaura, Ikamatua, and Omoto. The common thread the business owners share with their counterparts in the larger cities of Greymouth and Westport is “bad debt”.
Often the decision to chase bad debt is not always about the size of the debt. Often the pursuit of smaller debt comes down to it being “a matter of principal”. An Omoto business owner shared a story with me about being owed $4,200 by a local man that was struck in a deal between the two in 2014. Despite numerous phone calls, letters etc the man refused to pay citing “tough times” and “back issues” supposedly confining his activity to a wheelchair.
Things escalated when the Omoto business owner spotted the local man in the pub looking “as fit as a fiddle “ shouting a round of beers for a dozen blokes paid for with a “fistful of one hundred dollar notes”.
Well you can imagine the vernacular that sprayed from the Omoto business owner’s lips. Expletive laden, it ended with the words “he’s nothing but a filthy blowfly”!
After the emotions cooled, it was agreed that “enough was enough” and EC Credit Control were given the job to collect the debt. Although we had a reasonably clear paper trail to work with eg original e-mails, times, dates, what was offered and what was accepted. The tragedy was that the Omoto business had no “Terms of Trade”. The Omoto business owner still relied on a “handshake” and the “she’ll be right” old school attitude.
By not having legally binding “Terms of Trade” in place we were unable to charge costs of collections, interest and admin fees, legal fees on to the local man that owed the $4,200. The Omoto business did not have the right to default and were unable to give the local debtor an adverse credit rating without going to court.
So, the question at this point is “Why on earth would you not have concise, simple Terms of Trade documentation in place to ensure the debtor pays the extra fees and costs incurred “. You are not a bank!
If “Terms of Trade” had been in place disclosure would have been important. Because in order for the “Terms of Trade” to be enforceable, both parties need to understand what is being agreed to. The only way to do this is to have the customer sight and consent to “The Terms of Trade” i.e disclosure !
My advice is to get Terms of Trade written specifically for your business, don’t opt for obscure, generic documentation that won’t withstand legal scrutiny. Make it “robust and fit for purpose”.
Include the amendments and clauses relevant to your business and exclude those that aren’t. There are six essential requirements before a contract is binding. Intention, Agreement, Consideration, Capacity, Consent, Legality. The key requirements that are met by correctly implementing your”Terms of Trade” are that of agreement and consent.
You are responsible for meeting the other requirements by the manner in which you negotiate your contract as they are not affected by the contents of your “Terms of Trade”.
Remember that agreement is where one party makes an offer which is accepted by the other and is met by ensuring that your ”Terms of Trade” are disclosed prior to any debt being incurred.
Consent is where the parties to a contract genuinely agree on its terms and is met by ensuring your “Terms of Trade” are signed and agreed to prior to any debt being incurred.
Make this year’s business goal to get “Terms of Trade” in place – You won’t regret it!
Ray Marshall EC Credit Control
Nelson, Blenheim and West Coast