Secure receivables
Which guarantees can help secure a receivable?
Securing a receivable begins by limiting exposure, then choosing protection suited to the contract, client and amount. A late or poorly drafted guarantee may offer little protection.
Reduce risk first
- —Deposit on order
- —Milestone billing
- —Credit limit
- —Suitable payment period
- —Direct debit for recurring amounts
Possible contractual guarantees
Depending on the transaction, parties may consider retention of title, a surety, an independent guarantee or another security. Form and enforcement vary, so professional drafting is advisable for significant exposure.
- —Identify the secured obligation
- —Obtain security before delivery or increasing exposure
- —Check the guarantor’s identity and capacity
Choose proportionate protection
Intellectual services are not secured like goods. Retention of title may be less useful where an asset cannot be identified or the service has been consumed.
- —Common mistake: copying a generic clause
- —Some guarantees require strict formalities
Conclusion
The strongest protection is often a coherent combination of checks, deposits, milestones, evidence and an appropriate guarantee.