Commercial Contracts: How To Make Sure You Get Paid

We all expect to get paid – on time – for the work we do and the services we provide. Any experienced businessperson will tell you however that it’s not always that straightforward. When you don’t get paid what’s due under a commercial contract, you have a wide range of legal options. But many of these remedies, including litigation and commercial debt recovery proceedings are extreme and unsuitable for two reasons:

• The time it takes to get a judgment and enforce it does nothing to address the practical cash flow difficulties often caused by regular non-payment.
• Acrimonious proceedings will undo any commercial goodwill you have with a non-paying party. Loss of a previously profitable business relationship might be more damaging financially than writing off the outstanding debt.

All of this means that it’s critical for you to have commercial contracts that are as legally watertight as possible. In particular this means being clear regarding payment terms and the processes to follow when payment is late or not forthcoming.

Below we highlight four ways you can make contracts more robust and reliable, protecting your position against a one off incident of non-payment as well as ensuring you have clear options to deal with serial bad payers.

At ParrisWhittaker our team of award-winning lawyers provides specialist advice on all aspects of commercial contract law. We’re available on 1-242-352-6110 and 1-242-352-6112 or you can always contact us online.

Four Ways To Strengthen Contractual Payment Terms

1. Get a written contract

   Oral contracts are enforceable but if you have to litigate over a contract it becomes much more difficult to establish the terms of an oral understanding than verifying what was agreed in a written contract. Court proceedings aside, from a purely operational perspective if you rely on an oral contract, it is usually more difficult to chase day to day payments or even establish payment terms. When drafting a contract make sure you cover all eventualities, such as interest charged on late payments, what happens if there’s a breach of contract and the procedure for dealing with unexpected events that make performing the contract more difficult than originally envisaged.

2. Make terms of payment clear

   The most effective way to ensure prompt payment under the contract is to make payment terms clear. Specify dates for billing and payment, and ensure each side has a direct contact to whom invoices and other payment related correspondence should be sent. You might also wish to consider a clause requiring payment before work under the contract starts or make provision for payment of a security deposit.

3. Deal with late payment in the contract

   In many jurisdictions around the globe, including the UK non-payment or late payment by one contracting part does not always allow the other party to terminate the contract. Everything depends on the way the contract is drafted. For example if you specify that time for payment is ‘of the essence’ you will be more likely to be able to get out of your contractual responsibilities in the case of late or non-payment. You can also include a clause enabling you to pause your performance of the contact until payment is made. However great care must be taken with the way such clauses are drafted. Reliance on these kind of terms where there is room for debate can result in you ending up in breach of the contract yourself.

4. Anticipate disputes

   Commercial disputes inevitably happen from time to time, and it is best to bear this in mind when entering the contract. Consider how you would want a dispute handled. By including a requirement that the parties must attempt mediation or some other form of ADR before taking formal legal action you increase the chances of a potentially costly dispute being resolved amicably and at less cost.

Comment

Contracts with business partners, suppliers and others are the bedrock of your business. In our experience one size rarely fits all. You will want to give different parties different terms based on a range of commercial factors. You will also want to consider the specific terms of payment in each contract. Remember that contract law varies from country to country.

If you are faced with late payment or non-payment, you should exercise caution when deciding how to react. In the UK, the Court of Appeal case of Valilas v Januzaj(2014) demonstrates that even when one party deliberately withholds payments under the contract (although it was clear the payments would be paid eventually) the other party is not entitled to terminate the contract. To do so in such circumstances could expose the party seeking payment to legal action by the non-paying party.

Commercial contract law is complex, and when you don’t get paid the damage to your business can be devastating. Bear in mind however your response to a case of non-payment could also have negative consequences for you. Always consider legal advice.

Contact Us

For advice from our specialist contract lawyers please feel free to reach out to us at ParrisWhittaker for an initial, no-obligation discussion.