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Contracts and coronavirus (4/5)

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Published 2 April 2020

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The COVID-19 pandemic will likely continue for some time. To help your business adjust to these uncertain times, each day this week we are posting on what to keep in mind concerning your business’s commercial contracts.

One major impact on businesses resulting from the coronavirus fallout will be on their cashflow. In order to mitigate this, your business can take steps now to address this by building in protective provisions in contracts that it enters into with new customers and suppliers.

For example, consider insisting in your standard terms and conditions that you have a longer payment period than you might usually offer (payment within 30 days of receiving an invoice is common across many sectors, but, depending on your bargaining power, you could negotiate up to 60 days). Conversely, you could stipulate shorter payment periods for your own customers. Of course, whether the counterparty will accept this will depending on the strength of your bargaining position.

Where you are acting as the supplier, you could also state in your standard terms that late payments will be subject to statutory interest (rather than stipulating a specific figure for the interest rate). Under the Late Payment of Commercial Debts (Interest) Act 1998, the annual interest rate on late payments is currently 8.1%, which is above what is frequently agreed between many contracting parties. You could also include a right to terminate for missed payments, as well as the right to suspend performance if a customer has not paid a previous invoice in time.

If your business is purchasing goods or services from another party who proposes all three of these consequences for late payment, you could, as a customer, argue that this is excessive and negotiate the terms of the contract accordingly.

In our final post in this series tomorrow, we will suggest additional provisions that you can include in your terms and conditions to give further protection to your business in these uncertain times. In the meantime, you can find more coronavirus-related resources from Collyer Bristow here.

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Shorter Reads

Contracts and coronavirus (4/5)

Published 2 April 2020

Authors

The COVID-19 pandemic will likely continue for some time. To help your business adjust to these uncertain times, each day this week we are posting on what to keep in mind concerning your business’s commercial contracts.

One major impact on businesses resulting from the coronavirus fallout will be on their cashflow. In order to mitigate this, your business can take steps now to address this by building in protective provisions in contracts that it enters into with new customers and suppliers.

For example, consider insisting in your standard terms and conditions that you have a longer payment period than you might usually offer (payment within 30 days of receiving an invoice is common across many sectors, but, depending on your bargaining power, you could negotiate up to 60 days). Conversely, you could stipulate shorter payment periods for your own customers. Of course, whether the counterparty will accept this will depending on the strength of your bargaining position.

Where you are acting as the supplier, you could also state in your standard terms that late payments will be subject to statutory interest (rather than stipulating a specific figure for the interest rate). Under the Late Payment of Commercial Debts (Interest) Act 1998, the annual interest rate on late payments is currently 8.1%, which is above what is frequently agreed between many contracting parties. You could also include a right to terminate for missed payments, as well as the right to suspend performance if a customer has not paid a previous invoice in time.

If your business is purchasing goods or services from another party who proposes all three of these consequences for late payment, you could, as a customer, argue that this is excessive and negotiate the terms of the contract accordingly.

In our final post in this series tomorrow, we will suggest additional provisions that you can include in your terms and conditions to give further protection to your business in these uncertain times. In the meantime, you can find more coronavirus-related resources from Collyer Bristow here.

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