Undertaking work before being paid is a part of business. If you’ve been in business for a while you’ll know the difficulties that can arise in getting paid after the fact.
This is a situation where prevention is much better than cure. There are a number of steps that a business can take to greatly reduce the likelihood of payment problems arising.
Although it seems simple, the first is often overlooked. It is important to properly identify who your business is dealing with and to make an assessment of the creditworthiness of the entity you are contracting with. People and companies can enter into contracts, but nobody else. Identification troubles arise particularly when businesses purport to contract with business names, trusts and partnerships. The identity of companies and the people behind it can be verified by a search with ASIC.
Secondly, a business needs to have enforceable written contracts. Often these contracts can be generic documents suitable for adaptation to many different jobs, but, it is important that they clearly state the scope of the work and the payment terms. For the supply of goods, they may include retention of title clauses which provide the supplier with a form of security. The use and effect of such clauses is controlled by the Personal Property Securities Act.
When dealing with smaller companies particularly, the lines can be blurred as to whether the company owns any assets capable of satisfying its financial obligations or whether the assets are really owned by the people behind the company. In these situations it is always prudent to have the people behind the company guarantee the company’s performance of the contract. That is, if the company doesn’t pay, the people that stand behind it must.
In some cases, it may also be appropriate for a business to consider taking some form of security for the money they are to be paid. The mortgage is a form of security that most people are familiar with – if you don’t pay the bank as you promised, they take your house – but there are a great many other forms of security available to businesses. It’s possible to take security over assets other than land or to have a third party offer some form of security on behalf of the contracting party.
If you want to improve your business’s financial security, contact Everingham Solomons because Helping You is Our Business.
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