Unfortunately, disputescan be part of business life. But there are steps you can take to avoid them – or indeed toresolve them with minimal expense and effort, when and ifthey occur:
10. Terms and Conditions
If you intend for the transaction to occur on your standard terms and conditions, ensure that these are effectively incorporated into the contract. Where you are dealing with another business make sure that they do not think that their standard terms will be used.
9. Customers’ legal status
Where possible, establish the legal status of your customer. Are you dealing with an individual, a partnership or a company with limited liability? If your customer has limited liability then this may cause you problems later on, particularly if they do not pay. If you are dealing with a company on a substantial transaction, find out the history of the company eg obtain references, perform a Companies House check.
8. Guarantees
If you are dealing with a limited liability company about which you cannot find sufficient information – or you are unhappy with what you find, but still want to trade – then seek personal guarantees from the Directors. This will enable you to pursue a Director and their assets personally, should the company default.
7. Payment terms
Where possible structure your payment terms to provide you with maximum protection. Request some payment up front where you need to purchase materials. If the transaction is likely to be a long one, introduce staged payments. If you are purchasing a service or product, then seek to include a retention amount which you can hold back until work is completed or goods are delivered.
6. Preserve evidence
If things do go wrong make sure that you retain the evidence you will need to rely on. If agreements are made prior to the transaction by email or letter, then keep copies. If you agree something on the phone then make a note at the time and keep a copy of this. If the contract is unclear, then evidence as to what the parties agreed can be key.
5. Evaluate the economics
Where another party has defaulted, evaluate the economic cost of pursuing that breach. Sometimes it is entirely right to purse a breach and if necessary engage in litigation, but on other occasions it may not be economic. If you are unsure then seek advice at an early stage as to the likely costs of pursuing an action.
4. Insurance
Where possible, ensure that you have adequate insurance in place to cover your business in the event of another party defaulting. Also, investigate whether your insurance provides you with any funding to pursue legal action.
3. Settlement
If a dispute does arise then it is generally far more cost effective to reach an early settlement. Sometimes lawyers can assist with this by providing advice on the respective positions and an independent position.
2. Mediation
Explore the possibility of using mediation to resolve a dispute. Invariably appointing an independent mediator can assist parties in resolving their disputes – or can certainly focus minds on the advantages or disadvantages of pursuing a dispute.
1. Read your contracts
Read through and make sure that you understand the contract you are entering into. A contract should be clearly worded so that each party knows what is expected of them. If you are at all unsure then seek advice. Ensuring that the contract does what you intend can save a multitude of problems later on.