By Alex Barthet

I am sure you have processes in place to collect debts. But as a construction law firm that helps folks in the industry collect their debts, we have seen the best and worst practices. In this article, we will discuss how to improve your collection practices and how to protect your interests.

Shore Up the Basics

Get it in writing: Make sure the agreement that you have with your customer is in writing. This might sound obvious, but recently, we had a case involving a new client who owns a plumbing supply house. His credit agreement was literally just an information form that the customers filled out. This client does millions of dollars in sales, and all it had was just a simple fill in the blank sheet which allowed it to run some basic credit information on the customer. No real terms and conditions of consequence were included. Reexamine the process that you have in place.

Make sure the credit application includes favorable terms. When you receive a purchase order it may reflect terms and conditions either on the document or, what we are seeing more and more now, a reference to a website with a series of terms and conditions. When you either sign or fill the purchase order, the law implies that you have accepted those terms and conditions. You need to be very careful about the terms and conditions that govern your transactions. We see this as a problem, sometimes with our supply house customers who routinely fill credit application or purchase orders that have terms and conditions that are contrary to their own terms and conditions, and their own credit application.

The number one term and condition that is most contentious is ‘pay when paid’.  A supply house will almost never agree to terms for payment that says pay when paid. But a supplier may inadvertently agree to such a condition if they fill a purchase order that says the contractor will pay the supply house only when he or she gets paid. So, make sure you read and understand the terms and conditions for every transaction. Also, let your team understand that you want your terms to govern every purchase order you fill and that you want to avoid someone’s unfavorable terms from creeping into your deal.

What are some of the terms that you should add to your credit agreement?