What do you do when a customer lets you down?

In our last article, we explored what happens when you have the “Feels” for a Customer and how to avoid debtor heartbreak (check it out here). The “Funk” is that ensuing feeling you get when you realise the Customer you have supported, fought for, gone out on a limb for, and even (rarely) told little white lies for, has let you down. There are two ways this happens in practice: – death by 1000 cuts or… the guillotine (sorry to be so graphic but it is “the final cut” as Marie Antoinette once said).

Now that you know the relationship is over, you should work on getting through your “Funk”. Action (plans) speak louder than words and, in any broken relationship, the experts suggest you work on yourself first.

For starters, gather up all that memorabilia of your relationship – get hold of copies of the Credit Application, any Guarantees, Terms and Conditions, Trust Deeds (if any – yes, we know, reviewing the trust that once existed may lead to tears before bedtime) and copies of any outstanding invoices. It’s probably best not to destroy any photographic evidence at this stage despite you wanting to rip up anything that has a memory.

Now take our checklist and action steps for what to do when you find yourself in the Funk of being dumped by a Customer (which also includes some tips to save yourself being dumped again or minimise the Funk next time):

Credit Application

• You found it? Good. Has the credit application been properly completed and signed if it is a paper version? Check names, addresses, company or other entity details and guarantor’s details (if any). Become the stalker you’ve always wanted to be.
• In the future, consider moving to an online credit application process that can verify information as provided and ensures there are no changes to documentation that may be overlooked. Unlike paper applications, an online credit applicant is bound to accept the application as it is presented and without amendment. No more return of documents with paragraphs struck out when Sales are pushing hard for approval.
• We all know that life can be mostly lived online (Insta anyone?) so maybe it’s online time if you want the next relationship to work better. Online Credit Applications can also include automatic lodging of financing statements on the PPS Register and enable you to be more productive – no more swiping left or right, just click the icon to feel secure.

Guarantee Documents and Guarantors

• How is this document/Deed looking since you last threw it in the file after it was signed? Has it been signed correctly (there are special rules for a Deed) and has it been signed by all parties? Has it been dated (this is not what you think – dated, as in an actual date, not a candlelit dinner)? Has it also been witnessed and, if so, by whom? If you’re in doubt about the formalities of any documents, you should seek advice.
• Did you register any financing statements against the Guarantors pursuant to the PPSA? Did you lodge any caveats against the Guarantor’s real property? If not, you should consider whether you need to register or lodge any securities on guarantors now.

Terms and Conditions

• Make sure the Customer was aware of the Terms & Conditions and acknowledged that they understood the nature and effect of those Terms & Conditions. All relationships are built on a set of rules between the parties, some unspoken but others should be in writing. Avoid the wink-wink, mind games stuff (all the implied terms) in both your personal and business life at all costs. Are there any other documents outside of the Terms & Conditions which could vary the contract between the parties?
• Were the Terms & Conditions signed and accepted before any supply of goods or services were made? Remember that the T&C’s govern the contract between you and your Customer and must be agreed upon at the time the contract is entered into (which is usually upon acceptance by you of the Application for Credit).
• Have the Terms & Conditions been signed by the correct party, and did the signing party have the authority to bind the Applicant? Were there any amendments and, if so, did you approve of those or were they dumped (there’s that word again) on you?
• If you’re in doubt, a thorough review of the drafting of your Terms & Conditions should be in order (a bit like your dating profile).

Trusts

• This is not what you think – having had the chop applied means trust has been dispatched to the wasted bin – here we are talking about how your Customer conducts business.
• It’s not uncommon that businesses choose to trade using a trading trust. It is a perfectly legal vehicle to use to conduct business for many reasons. Has your Customer been operating a trading trust?
• If so, do you have a copy of the Trust Deed? Did you have the Deed checked at the time the account was opened? Do you know who the adult beneficiaries are, and have you taken personal guarantees from those people? If the answer to those questions is no, now is the time to implement a policy for how to deal with trusts when you open credit accounts.
• If you have registered financing statements and you have been dealing with a trust, have they been registered correctly? Now is time to check otherwise you could be without the security you thought you had.

Invoices

• Yes, the Funk can come at a high price but let’s just see how high. Initially, check the ledger to see the trading pattern. Can you see any amounts that may be in the “preference zone”? If so, can they be explained? (“Honestly, there was nothing to it, it was purely platonic, just a couple of drinks after work”).
• Can you prove your debt? Get copies of your invoices together that show what was sold, how the outstanding amounts have been calculated and make sure nothing is missing.
• Ensure the invoices have been issued to the correct entity. A lesser known evil, but no less important – also make sure your business has sent invoices by the correct entity (when your business has a number of trading entities dealing with the same Customer, there should be no confusion with the entity that provided the services or sold the goods).
• Confirm that the invoices have actually been sent and that it was sent to the correct address (you might be surprised to know how often this can happen in practice). There is nothing worse than unrequited invoices.

Securities

• You’re probably not feeling all that secure during the Funk but pull yourself together, this could make or break you. Look at what security you do you have and make sure it has all been done correctly.
• We are talking caveats (can you lodge one now or have you already placed them on the Customer’s land or the Guarantor’s land?), PPS registrations (have they been registered correctly?), and Guarantees you need to call on (personal and bank). Do you have these? Ask yourself how can they help minimise any loss? Seek advice if you are not sure what to do.
• Are there any notice requirements you must comply with before exercising your rights under any securities you hold? If so, think about when you will give those notices.

Searches

• This is not the time for soul searching, your future “One” has turned into a pumpkin and it’s time to reassess.
• Has the Customer changed houses or acquired property? Not that we would encourage crazy ex behaviour, but you should do some financial, property and personal searches for any property movements of your ex Customer.
• If your Customer was a company, then complete an updated company search and review it – has there been any new Directors/change of office holders or even lodging of applications to wind up? If so, you may be able to use this information to understand why the relationship broke down. Was your ex telling the truth or have they done a complete phoenix on you?
• Consider signing up for alerts from ASIC or a provider that can tell you immediately if there has been a change of circumstances. Forewarned is forearmed and had you had prior knowledge of the dumping that caused your Funk, you may have acted differently on that first date.

External Administration

• You have received the dreaded notification that an Administrator or Liquidator has been appointed (or even that your Customer has been made bankrupt). We know, we know, it’s like rubbing salt in the wound. What should you do now?
• Advise the Administrator, Liquidator or Trustee of your claims and ask for a Formal Proof of Debt form. Provide him or her with your evidence of a broken heart and provide copies of your documentation (Terms and Conditions, copies of verification statements, invoices etc.). Specifically tell the Administrator, Liquidator or Trustee that you expect him or her to protect your secured interest. But just be careful how you lodge any Proof of Debt form and describe your debt so that you do not prejudice any secured status.
• Ask for a stock list, if your goods are on it then try and recover them. If not, then stake your claim for any proceeds from their sale (assuming you have registered to enable you to make such a claim). It may be your goods are needed urgently by the Administrator/Liquidator/Trustee and you could extract the maximum if that was the case (revenge can be sweet but best served cold).
• Ask for the debtor’s list and see if any of your goods have been sold but not yet paid for, there may be further proceeds claims to be made here so act promptly. Don’t get side-tracked by thinking there is nothing you can do.

As a final note, the Funk is something that will probably happen to all of us at some stage in business. After all, as the 19th Century poet Lord Tennyson said, “It is better to have loved and lost than never loved at all”. If you wish to extend credit to help achieve sales, just be prepared for that Customer to break your heart and give you a dose of the Funk.

Building strong Customer relationships, ensuring your documentation is up to date, protecting your business, and having both a structured process for the risk assessment tasks and an early warning monitoring system in place is vital to avoiding debtor heartbreak. But if being dumped is inevitable, following our checklist and action steps outlined above will help ensure that the Funk can be minimised.

More articles like this: Does your customer give you “the feels”? (A light-hearted guide to avoiding debtor heartbreak)

About the authors

Terry Ledlin is Special Counsel of Ledlin Lawyers, a boutique CBD law firm with 50-years of experience specialising in Credit Management and Collections, Commercial Litigation, Insolvency and Commercial Documentation. Terry is a practical and experienced lawyer who has worked with government agencies, private and publicly listed national and multinational companies across many industries. His speciality is helping to solve complex commercial issues. 

Holly is a Lawyer at Ledlin Lawyers. At 6ft2 tall, the number one question Holly gets asked is, “Do you play basketball?” The good thing is, she’s a better lawyer than she ever was a basketball player. Holly takes advantage of her height in commercial litigation and dispute resolution, where a certain presence can often be key on and off the court (room). With her commercial approach, “slam dunks” are something Holly truly enjoys striving for in credit management and insolvency. Even on the bench, Holly is well-versed in great letter writing, drafting commercial contracts, and providing valued advice with the team at Ledlin Lawyers.