By Darrin Mitchell, Senior Associate at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group
A fundamental of any relationship is knowing who you are dealing with. This goes especially for business relationships where dealing with the correct customer may make the difference between getting paid, and missing out.
Your customer is not generally the purchasing clerk who rings up to order your goods or the foreman who requests your services on site. However, even more importantly, the customer is not a business name! Rather, this business name will normally be owned by, or used by, a legal entity. It is of the most fundamental importance in business that you properly understand the legal entity with whom you are dealing. This may be a corporation, partnership or sole trader. In addition, entities trading on behalf of others, for instance trustees, add another layer of complexity to business relationships, and to debt collection.
The foundation of the business relationship where the customer purchases goods or services on credit should be set out in your debt collection procedures and starts with a written request from the customer for credit. This request can be as set out on a pre-printed form, or credit application, setting out the details you will require to enable the credit request to be considered.
One of the most fundamental details of course is the legal entity who is asking for your goods or services. So many times in our debt collection practice we see incomplete or unhelpful (or no) credit applications which do not properly identify a legal entity. The credit application should require the customer to specify the legal entity which is seeking credit from you. If this is not a person, then a company name, Australian Company Number (ACN), or association name, should be obtained. A small fee can provide a search of the records held by the government to verify the details provided. There is a multitude of other details that can be sought in the credit application to enable you to asses the credit worthiness of the customer.
If the customer is a corporate entity and/or for some reason you have concerns over the credit worthiness of the customer, you may also seek that a person, or persons, or even another corporate entity, provide a guarantee as to the performance of the customer in their dealings with you. Again, the same issues arise in relation to identification of the legal entity providing any guarantee.
Should the customer default on payment and you elect to commence legal proceedings, you need to issue any claim against a legal entity. The details of the legal entity have to be accurate or else you spending time and money tracking down the correct entity, or worse, risk issuing against an incorrect party which may require amendment or dismissal of the proceedings, and possibly an order for costs against you. Near enough is not good enough. For example, ABC Holdings (Aust) Pty Ltd is similar to ABC Holdings (NSW) Pty Ltd but not the same. Each company will have a different ACN as it is a different entity. Reliance by you on “who you spoke to” to identify the correct party may not be good enough. Clear concise details as contained in a credit application, or some other form of document (possibly a purchase order), is the best way to identify the entity responsible for the debt due to you.
In addition, if you have persons guaranteeing the performance of the customer in written form, these persons too can be held liable for the monies due and so could be included as defendants in the claim issued.
Contact Our Debt Recovery Team For Assistance
If you would like more information or advice in relation to insolvency, restructuring or debt recovery practice and procedure, contact Darrin Mitchell on 02 9806 7428 or darrinm@matthewsfolbigg.com.au or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
