Why debtor risk must be addressed legally
Accounts receivable risk is the risk that customers do not pay invoices or pay them late. Many entrepreneurs treat this as a financial or administrative problem. However, the cause is almost always legal:
unclear agreements, missing general terms and conditions, no retention of title, or no payment term stipulated in the contract.
Anyone with a solid legal foundation is in a stronger position when facing payment problems — and prevents many disputes before they arise.
What legal arrangements can you make to limit debtor risk?
There are five legal measures that make the difference between an entrepreneur chasing his money and an entrepreneur who has protected his position.
First: watertight general terms and conditions. In these, you set out the payment term, interest for late payment, collection costs, and your right of suspension. If your general terms and conditions have not been correctly
declared applicable or are missing, you are in a vulnerable position in the event of a dispute.
Secondly: a clear order confirmation or agreement. Oral agreements are legally difficult to prove. A written order confirmation sets out the price, the performance, and the payment term
. This serves as your proof if a client later disputes what was agreed upon.
Thirdly: retention of title. If you supply goods, you can include a retention of title clause in your general terms and conditions and on your invoices. This means that the delivered goods legally remain your property until the customer has paid. In the event of non-payment or bankruptcy of the customer, you can reclaim the goods.
Fourthly: a pledge on receivables or inventory. With larger business relationships, you can stipulate additional security in the form of a pledge. In the event of payment difficulties or bankruptcy, this gives you a
stronger position than an ordinary creditor.
Fifth: credit check before delivery. Legally, you can include in your agreement that you have the right to perform a credit check and suspend delivery if the outcome warrants it
. This way, you limit the risk before it arises.
What if a customer doesn't pay after all?
If your legal foundation is in order, you are in a significantly stronger position in the event of payment problems. You can send reminders more quickly, are entitled to interest and collection costs, and can assert
your retention of title or pledge in the event of the customer's bankruptcy.
Have you not yet got your foundations in order and is there already an outstanding claim?
Then the first step is a legal assessment of your position — so that you know what steps you can take and what risks you face.
When is it too late to mitigate debtor risk?
Legally speaking, you can no longer invoke a retention of title or pledge if you have not established this prior to delivery. General terms and conditions sent after the conclusion of the agreement
are in many cases not applicable. Furthermore, a payment term agreed upon verbally is difficult to prove if the customer claims otherwise.
The legal measures must therefore be in place before things go wrong — not afterwards.
