Fools Rush in

12th Dec 2011

Businesses are being warned how to avoid the pitfalls of rushing into new contracts in their keenness to grab work or the chance to offer their services in the downturn.

Legal experts say in a tough economic climate businesses may be tempted to accept any offer that comes their way without doing their normal due diligence.

Helen Lisgo, a solicitor at regional law firm BHP Law, said: “It’s easy to be so keen to get on with providing the work or goods sought that we don’t take enough time to stop, clearly establish the terms of the proposed contract or even to establish the correct business name of the new contact.”

She added that there were many reasons why businesses should not go headlong into new contracts, especially with new clients, without careful thought.

As well as establishing if the contract was with an individual, a partnership or a company based in the UK or abroad, she said checking that the other party was solvent, or potentially in financial difficulties, was critical.

“You will ultimately need to produce invoices, which will need to be properly addressed. If invoices are addressed to people with no obligation under contract to pay you, then how will you recover the money due to you?” she added.

In cases where court proceedings had to be issued to recover payment, suppliers must properly identify the defendant.

“If a claim is not addressed to the correct defendant, then it is possible to amend the claim at a later stage. However, this will result in further costs and court fees being incurred which would not have been necessary had the defendant been properly identified in the first place,” Helen explained.

She recommends a number of actions businesses can take to ensure their new contact is likely to be a good prospect.

Being armed with information about the company’s identity allows suppliers to carry out further checks.

“A simple and free check using the Companies House website can give you some basic information when the business in question is a company. It will confirm whether the business is registered as a company and give you some information as to the company's insolvency history if it has any. It will be clear if the company has been dissolved.

“For a small fee, the Companies House website can also tell you the names of the directors of a company, allowing you to confirm whether your contact at the company is authorised to enter into contracts on behalf of the company. Even more basic is carrying out an internet search for the name which you have been given.”

It is also possible to carry out basic credit checks against companies and individuals, though this often carries a charge.

Finally, Helen warned: “If you are unable to clearly ascertain who it is you’re dealing with then you should consider very carefully whether you want to do business with your new contact.”

 

Author: Helen Lisgo (info@bhplaw.co.uk)