Prevent bad debts with Retention of Title (RoT) clauses
Note: The following information is general in nature. Please consult your lawyers for advice appropriate to your business.
When selling goods on credit, the Retention of Title (RoT) clause ensures that ownership (or title) of the goods supplied are not transferred to the customer until the customer has made full payment, even if they have taken possession of the goods.
RoT clauses and Personal Property Securities Registration (see How do I register goods?) will prepare you for the scenario you hope never happens – being left with bad debts when people don’t pay.
What happens if the customer doesn’t pay?
If the customer does not pay, the supplier retains ownership of the goods and can take action to reclaim possession. If the purchaser or customer company becomes insolvent, ownership of the goods remains with the supplier who can reclaim possession of the goods.
What sort of goods can be registered?
Vehicles, boats and aircraft, crops and livestock, stock in trade, artworks, equipment (higher cost identifiable items or bulk items), new or second-hand goods, patents and copyright, commercial licences, debts and bank accounts, shares, cash and cheques.
How do I protect my business using RoT and associated clauses?
To be enforceable, all RoT clauses must be clearly communicated to, and accepted by, the customer before the goods are supplied. You must create a written agreement specifically to supply goods to the customer and the customer must agree that you will supply the goods which they will pay for later which then creates a debt owed to you. The RoT clauses should be printed on ALL invoices/statements and credit applications. A statement of acceptance that the customer accepts all conditions when goods are supplied should be prominent.
How do I register goods?
Online registration is vital so that Personal Property Securities (PPS) legislation can treat your goods as perfected security interests that receive priority payment amongst competing claims during insolvency. Ideally, you want to register BEFORE supplying goods. For more information visit https://www.ppsr.gov.au/registering/
What else can you do?
- Include a ‘no trespass’ clause with your RoT so that you may enter customer premises to collect your goods if required
- Include ‘all monies’ and ‘tracing’ clauses with RoT that stipulates any/all sale proceeds from the goods supplied are deemed to be held on trust for you the supplier
Don’t forget! You must have the ability to identify your goods by reference to non-removable ID such as serial numbers to be able to recover your goods.