11 October 2019

Five Elements for Chinese Companies trading with UK counterparts Part 1: Gold

This article was written by Dorothy Murray and Valentine Kerboull.

In our work with international companies supplying goods to the UK, we see a number of common issues arising regularly.  In this series of five articles based on the five elements of the Wu Xing, we flag these key risks of doing business with UK customers and how a supplier can best protect itself, ensuring harmony in its commercial activity and business relationships.  First is Gold, and ensuring you get paid for goods supplied, avoiding or minimising dangers, difficulties and dead ends. 

Gold:  harvest prosperity for your business and business relationships by getting paid promptly and in full

The top issue on which we are asked to assist our international trade clients is chasing payment. We therefore recommend that all suppliers ensure that they put themselves in the best possible position in the event of a customer default at the time when they enter into the contract or supply under standard terms of business.

The best claim is a property claim.  With a retention of title (ROT) clause, a supplier remains the owner of the goods delivered to the customer until it has been paid in full.  The supplier is entitled to repossess the goods (or receive payment) if the customer becomes insolvent.

Other contractual protections include:

  • Requiring full payment or a deposit in advance of delivery be made before further delivery of the goods/services by the supplier (or request a deposit payment which ensures that at least part of the payment is secured).

  • Providing for interest on late payments.

  • Other penalties in the event of late payment, such as a right of the supplier to withhold further deliveries.

  • Requiring bank guarantees for payment, credit insurance or other payment/delivery terms (letters of credit or documents against payment).

  • A lien, which is a right to retain other property or goods of the customer until outstanding sums are paid.

  • Allowing termination or suspension of the contract if the customer enters financial difficulty (to avoid being obliged to supply if payment is in doubt).

As with all contractual provisions, each of the above will need negotiating and then careful drafting to ensure they are effective and enforceable under applicable law.

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