Every business goes through the pains of non-paying clients. Collections is a common problem that small business owners often face. Very often, non-paying clients/customers take the position that the goods that were sold to them were defective, or faulty, or not what they had ordered, and will return the goods in lieu of payment. They do this well after they’ve received the goods and without raising any objection of defect/fault upon receiving them.
For example, a client who is a jewelry designer/supplier was selling merchandise to a store in California. The customer paid the first 2 invoices and defaulted on payment of 3 subsequent invoices. My client emailed them a few times asking for payment, but they didn’t get a response. 6 months later, the customer returned unsold merchandise to the client claiming that the goods were not what they ordered. Some of the pieces were broken and damaged.
The client did not have any terms and conditions on the invoices. The invoice amounts were pretty large and the client sued his customer. The court had to rely on the oral understanding between the parties and it was hard to tell on which side the judge was leaning. Ultimately, the parties reached a settlement and the customer agreed to pay part of the outstanding dues.
I get that you don’t want to go to court especially if the amount is not very large. Litigation can also take a long time and can be a drain on your financial resources. Even if you were to take the matter to court, without a written contract/agreement, it would get difficult for the court to determine what the oral agreement was between the buyer and seller and would have to rely on the parties’ oral testimony.
It is therefore, good practice to have terms and conditions on the purchase order/invoice itemizing the goods/services rendered, price and delivery terms, and other terms relating to the sale. Of course, these terms would vary depending on the industry.
Here are some terms and conditions that you want to include on your invoice:
- Price and Payment – Whether the transaction requires payment in advance, payment after net 30 days, cash on delivery, interest on late payment etc.
- Return and Replacement – Whether goods are returnable, returnable for cash or credit, time period for return, restocking fees, time period for notice of damage etc.
- Inspection and Rejection of Goods – Buyer should require written notification of rejection of goods within a prescribed time period.
- Warranty – Whether all goods carry manufacturer’s warranty only, 30 days limited warranty etc.
- Title and Risk of Loss – Risk of loss passes to buyer upon delivery to carrier. Usually, title passes to buyer upon full payment of the goods.
- Jurisdiction – In the event of dispute, courts in which state/county will the claim be filed.
At Nupur Shah Law, we help entrepreneurs protect their business. Call us at 646-820- 1366 or email us at firstname.lastname@example.org. I am happy to have a complimentary conversation with you on how to secure and/or defend your rights.