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ROT - Real or Trouble?
We realise that it's not quite correct for accountants to advise on retention of title ("ROT" clauses) - and we are in no way purporting to do so in this article - that's a job for a solicitor. In our insolvency work however we regularly come across the same issues and problems with ROT clauses and we think these matters are important enough to bring to your attention. In all cases we work alongside our legal colleagues in sorting these problems out - and you must do the same.
If you sell goods on credit, do you have any protection in place to recover those goods if your customer is unable to pay you? Many businesses use retention of title clauses to protect themselves in this event, by preventing or delaying the passing of the title to the goods until payment is made.
There are different types of clause that can be incorporated into your terms and conditions, with the result that the legal title to the goods may pass when the specific invoice that the goods are sold on is paid in full, or an ‘all monies’ clause which means that title only passes when all of your outstanding invoices have been paid. What you supply and how your customer pays you will both influence the type of clause that you need.
But things don’t stop there – remember that if you have a retention of title clause, you must have this agreed with your customer at the agreement / contract stage. Simply putting it on the back of the invoice may well leave you thinking you are covered, but, as the invoice is generally sent out after the goods have been delivered, it is likely that you will be left with a clause that is unenforceable. Also, can you identify your goods? Even if your clause is well designed, if you cannot identify your goods from those supplied from other suppliers, then again, it is unlikely that you would be able to enforce the clause. It may be worth thinking about identification of your products, putting serial numbers on your invoices, or ensuring the items have an identifying tag on them to show who supplied them.
There is possibly one thing worse than having no protection in place, and that is to think you have protection that subsequently fails when it is needed most.
As mentioned above, legal advice should be sought on the validity of any ROT clauses, especially if you think you may need to rely on it one day.
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