Tenant in trouble? Prevent, react, act... that’s the way to do it, says Steeles Law

PUBLISHED: 15:28 25 October 2018 | UPDATED: 15:28 25 October 2018

James Hopgood, Steeles Law  Picture: Contributed

James Hopgood, Steeles Law Picture: Contributed


As we have seen recently, failing businesses can create massive waves up and down the supply chain, leaving suppliers with significant bad debts. The solution lies in prevention, reaction and action, says James Hopgood, a solicitor in the Steeles Law commercial team.

It's better to limit the damage by acting quickly  Picture: Getty Images/iStockphotoIt's better to limit the damage by acting quickly Picture: Getty Images/iStockphoto


Well-drafted terms and conditions are a good place to start. Your terms and conditions should give you the right to suspend supplying goods and services if the customer falls behind on their payments or if you have reasonable fears that they might be near the brink of insolvency. While this can’t get you your money for goods and services already supplied, it stops a bad problem becoming worse.

Some terms and conditions have “retention of title clauses”. While the principle “if you can’t pay, we’ll take it back” sounds appealing, the reality is somewhat different. The effectiveness of these clauses is highly restricted and can lead to costly disputes.

In complex or costly transactions, businesses may need to consider security, but this can be commercially very difficult. Businesses with a significant exposure to bad debts might also consider obtaining credit insurance.

Terms and conditions are, however, only part of the solution.

Spot the warning signs

It might seem obvious, but businesses headed for difficulties often have to choose who to pay. This might mean increasingly late payment of invoices, but there can also be more subtle signs. Persistent querying of invoices or complaints about work might be used to negotiate smaller payments.

Persistence can pay dividends, but businesses prioritise. You are likely to be in competition with lots of other creditors, all vying to get payment.

Don’t bury your head in the sand

It might be tempting to think that your customer is having problems that will blow over. While action has to be proportionate to the amounts of money involved, don’t let debts rack up. This not only causes serious cash-flow problems, but it will also increase your exposure if your customer does go under. Put simply, you can’t be paid if there isn’t anything to pay you with.

Although threats of legal action can sometimes persuade businesses to pay up, once insolvency becomes inevitable there is often very little that can be done to recover your debt. Taking action as soon as you see warning signs might avoid that happening.

In an insolvency situation there is a strict order of priority for creditors. As an ordinary supplier and unsecured creditor, you will likely get only a small fraction of what you are owed. Whilst this is bad news, it will be worse if you do nothing.

A failing business will carry on racking up debts, putting extra pressure on what’s left to go around. It’s therefore far better to limit the damage by acting quickly.

If would like to find out more about drafting terms and conditions for your business, please contact us on

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