A contract protects both parties involved in an agreement should any dispute arise in the future. In this article we look at how a good basic contract can help any business during the debt collection process.

In order to help protect yourself in any debt collection dispute, it is vital to ensure that your contract meets all the necessary requirements. This could be the key to ensuring you do not miss out on collecting a debt.

An invalid contract will only be upheld by the courts in very limited circumstances, so it’s smart for business owners to get the process right at the outset.

After conducting preliminary due diligence on the proposed other party to the contract, it is crucial to then put in place an adequate and legal contract, otherwise commonly known as your “Terms of Trade”.

Below are some of the provisions that should be included in a contract. Be aware that this list is generic and does not include every provision that should be included, but can be helpful in your understanding. It is important to note the value of having a lawyer draft, or at the very least review, the contract.

  • Identify the parties to the agreement

Terms of Trade should always be recorded in writing and should correctly identify the parties to the contract. For example, if a party is a business, then you must ensure the contract is in the correct name of the business, which could be a company or a partnership.

  • Legal obligations / Scope of the business relationship

The Terms of Trade should outline the scope of the business relationship, defining each party’s obligations. This is crucial as both parties need to recognise the legal significance of their responsibilities and duties.

  • Cost

Unsurprisingly, the main factor that causes disputes is disagreement over money. Agreement on cost must be recorded. Any agreed variation to cost in the future should also be recorded and signed by the parties to the contract.

  • Set out payment terms

The Terms of Trade should identify when invoices will be issued and when they will become due, so that it is clear to both parties when moneys owed must be paid by. This removes any uncertainty in relation to payments made to and by each party.

  • Default Clause

A default clause will give you the right to take steps to recover a debt from the other party should they fail to make a payment on time. It is crucial to include that debt recovery expenses are also recoverable as a debt, for example filing fees and lawyers’ fees.

Including these terms in a contract will ensure that there is less opportunity for legal disputes to arise while working with other parties. If you are confused about how to draft a contract or what to include in a contract, it pays to seek advice from a professional with experience in the area.

 

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Alan Knowsley and Hunter Flanagan-Connors