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28th March 2018

Top tips for avoiding and dealing with disputes

Top tips for avoiding and dealing with disputes with customers or suppliers Almost every business will at some time or another have a dispute with a customer or supplier. This may be down to a lack of clarity as to what has been agreed, insolvency issues or simply coming up against a difficult person. Disputes with your customers are likely to cause cash flow issues whilst disputes with your suppliers may interfere with your production, so risk avoidance is key. As a solicitor who helps clients resolve commercial disputes every day, Gemma Pearmain of Cripps has complied her top tips for avoiding disputes and how best to deal with them if they arise. Pre-contract considerations
  • Make sure you know who you are doing business with. For customers, you will need to know which entity owes the money. This means looking beyond the trading name before contracting. Consider running credit searches on business customers. If they have a poor credit rating, why not ask for a personal guarantee or money on account?
  • Beware of oral contracts as they are difficult to prove. If you do agree something orally, follow up with email confirmation as a record of what was agreed.
  • Be clear as to which written terms apply. If you offer to supply goods on your terms but then your customer provides a purchase order attaching their terms, unless you expressly state that they are rejected, the latter could apply.
  • Be very clear as to payment and delivery terms. If time is stated to be ‘of the essence’ it means that strict compliance is required failing which the contract could be terminated and damages claimed against the defaulting party.
Contract variations
  • Variations are a breeding ground for disputes. Keep a record of any amendments to terms and confirm them with the other party in writing.
Late payment
  • If payment is overdue do not be afraid to stop supply, it can avoid debts racking up.
  • Notifying your customer that interest is accruing should encourage more prompt payment. Does your contract provide a contractual interest rate? If not then you may be able to charge statutory interest at 8% above base rate under late payment legislation as long as neither party is a consumer and the contract is for the supply of goods and services. You could also charge a fixed compensation sum per invoice. Bear in mind that if you pay your suppliers late they may also seek interest and compensation from you.
Breaches of contract
  • Have a system in place to monitor not only your own compliance with contract terms but also the other party’s.
  • If you think your supplier has breached a term of the contract, communicate this to them and invite their comment. If they do not engage then set it out in a letter. A solicitor’s letter can help to give gravitas.
  • If you receive a letter of claim do not ignore it – investigate the issues and formulate a response. Usually set out your best position and consider whether to make a separate without prejudice offer. This is particularly relevant if you want to maintain a good working relationship with your supplier or customer.
  • Review what the dispute resolution clause says in the contract. It might for example provide that the parties must refer the matter to mediation before issuing court proceedings.
  • Check the notice provisions and follow them to the letter. Check your counterpart has done so too if they seek to terminate. Despite what the contract says, the parties should be able to agree something different.
If a dispute arises
  • Appoint a person to deal with the dispute to avoid any conflicting communications and keep a record of all communications.
  • Seek legal advice at an early stage so as to avoid prejudicing your position and to understand the strength of your legal position.
  • Consider the importance of the supplier or customer. Is it a one-off or a reoccurring problem? Do you need to take a stand now as a point of principle? Consider the value of the dispute and do a cost/benefit analysis. Could your time and money be better spent elsewhere in the business rather than continuing to argue?
  • Consider reputation – court proceedings will be public whilst settlement outside of this process could be confidential.
Settlement discussions
  • If you make an offer to settle, make sure it is marked as ‘without prejudice’ so that if the matter goes to court, the judge will not see that you have made a concession, until costs are considered.
  • Do not go straight in with your best offer first as this is likely to be negotiated.
  • Record any agreement reached, setting out very clearly what claims are being settled and seek confirmation from the other party.
Learn and adapt
  • If things have gone wrong or disputes have arisen, put them down to experience and learn from it. If appropriate, you could make changes to your terms and conditions or processes to try and reduce the risk of the same issue arising again.