A Sale is not a Gift

One of the biggest issues that businesses deal with is late and/or non-payment of invoices. The problem stems from either infrequent invoicing, irregular collections, or worse, insufficient documents.

Rachel, a client and fashion designer, has been dealing with a non-paying customer for a few months. She sold merchandise worth $100,000 to one customer in California. Apart from an initial payment of $15,000 made 2 years ago, the customer has failed to make any additional payments despite repeated requests. Rachel has invoices and shipping receipts to show that merchandise was sent to the customer. She wants to sue the customer to collect unpaid invoices. Now most business owners think that invoices are sufficient to claim non-payment. Do you need more? Why of course you do! That’s why I’m writing this post.

Let’s say that Rachel sues this non-paying customer. They are before the court and the judge asks Rachel to produce proof of sale to the customer. Rachel shows the invoices, to which the customer says that he never placed the order in the first place and Rachel sent the merchandise as a gift. Surprise! This is a legitimate argument and Rachel would end up defending herself even though she actually sold the merchandise based on an oral agreement with the customer.

How can you avoid this he said / she said situation? I understand that most orders are placed over the phone or in person at a store, showroom etc. Not all businesses take their customers through the process of putting in a purchase order. An email or written confirmation of the order can go a long way in showing the intent of your customer placing an order.  

Remember I talked about the insufficiency of oral contracts last time? Here’s a link in case you missed it. One of the requirements under the Uniform Commercial Code (UCC) which deals with purchase and sale of goods is that any contract to purchase or sell goods involving $500 or more must be in writing. An exception to that, known as the merchant’s exception, is that unless there is something in writing that indicates a contract for sale was made.

The language on an invoice setting forth the terms and conditions of sale, returns, refunds, cancellation, defective products etc. can satisfy the writing requirement under the UCC. Most businesses neglect to have basic terms and conditions on their invoice which can help save the day in a court of law.

Save yourself the legal hassle and have a system for your customers to place an order in writing, and enforceable terms and conditions for sale on your invoices.

At Nupur Shah Law, we help business owners draft business contracts. Call us at 646-820- 1366 or email us at nupur@nupurshahlaw.com. I am happy to have a complimentary conversation with you on how to secure and/or defend your rights.

Leave a Reply

Your email address will not be published. Required fields are marked *