As we are currently experiencing one of the worst recessions for many years, most companies are finding it hard to deal with the everyday decisions and financial hardship that seem to be part and package of these times. Much of the financial hardship appears to be as a result of other companies encountering difficulties over settling their bills, and this can even lead to the companies becoming insolvent. In turn, companies who had released goods to these companies on credit terms find that they are out of pocket when the company becomes insolvent.
It is a sad truth that most companies will be looking for some sort of contingency plan that may attempt to address these all too common problems, and this is why ‘Retention of Title’ clauses can provide the perfect assurance. However, such additional clauses to any contract must be handled in a very specific manner if they are ever going to get past an Insolvency Practitioner, who will always do his or her very best to go against it in the interest of retaining as much of an insolvency estate as possible.
Ordinarily, goods automatically become the property of a buyer once they are received. This remains the case even if the goods have been acquired on credit and the supplier has not actually received any payment yet. This is where Retention of Title clauses come in to play. They are specifically designed to reverse this assumption. If the clause can be legally enforced, the goods remain the property of the seller until they have received the amount of money indicated within the contract.
First and foremost, any such Retention of Title clause will need to be fully incorporated into the contract that exists between the supplier and buyer. Invariably, this will mean making sure that the clause does not just appear on the back of an invoice, but is fully defined in all contractual documentation.
A company would need to decide if it wishes the clause to extend to all of the money that would be due on the goods, or a certain percentage of the value. They may wish to state that the goods will become the property of the buyer once a company has received a certain level of payment that covers all of the relevant costs to the company. This might be at the 75 per cent level, for example; it is entirely up to each individual company. But to be honest, it is quite common practice for the clause to cover the full amount that is due for the goods.
The company can go another step further and clearly stipulate, within the clause, that it is the company’s contractually agreed right to enter the buyer’s premises and retrieve the goods if the company does not receive the necessary payment. This would eliminate any trespass laws and save the company a lot of stress trying to get the goods back.
The company could even require the buyer to ensure that all of the goods supplied are always kept separate from those of other suppliers and that they can always be easily identifiable to their company. This can, though, put some buyers off and it may not be a perfect solution for all companies. This is especially true when customers have a whole host of other companies that they can turn to. At the end of the day, companies must decide what will work best for them and their customers and what would be considered a step too far.
Retention of Title clauses, when set out exactly as they should be, can be a real boon to many companies, especially in these difficult times. If a company is to recognise the significant benefits of utilising such benefits, it will always be in its best interest to consult a Solicitor so as to ensure that the clause has a greater chance of success.
Of course, more so now than ever, companies should be very careful over the customers they extend credit terms to. They should assess the credit worthiness of their customers on a regular basis, just to ensure that there is no significant risk of loss to them. Moreover, they should consult a Solicitor on a regular basis to make sure the Retention of Title clauses and all contractual terms are definitely worth the paper they are written on.