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Areas of Risk for Suppliers - the Insolvency of a Trade Customer/Retailer

In almost every trading relationship, businesses rely on agreed delayed payment terms with their suppliers in order to stock outlets and manage cash flow in the period between taking delivery of goods and effecting an onward sale to a customer. The insolvency of a trade customer/retailer will often leave the supplier exposed without control of its goods and without payment.

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Retaining title to goods supplied is essential for a supplier to manage its exposure to the potential insolvency of its customer. If deployed effectively, a supplier can use its terms of business to prohibit onward sale of its goods in the possession of an insolvent customer and can require delivery of the goods by an administrator or liquidator. In doing so, a supplier can significantly improve its position where it may otherwise expect to receive very little return as an unsecured creditor.

Mitigate Risk

Steps for a supplier to take to mitigate risk upon customer insolvency:

  1. Review your standard terms of business. Do they contain appropriate retention of title provisions including automatic termination of the customer’s licence to sell on insolvency? 
  2. Review your ordering process. In practice are your terms of business (and not the customer’s terms of business) those on which the contract is formed?
  3. Are there any steps that can be taken to make the particular goods more easily identifiable from the other goods in the customer’s possession?

Review Terms of Business

Lanyon Bowdler’s commercial law solicitors can carry out a review of your standard terms of business and advise you on practical steps to take to ensure your legal risks on the insolvency of a trade customer / retailer are minimised.