In the current economic climate, more businesses are looking at ways in which they can obtain security for payment for the goods they supply where their customer has been afforded credit. Obviously the best possible form of security is payment up front and we expect to see a rise in the number of suppliers requiring payment up front as a condition of delivering goods. However this will not always be possible and suppliers need to consider what practical alternatives may be available where payment up front is not available.

One of the ways in which sellers are able to protect goods that have passed to the buyer but have not yet been paid for is through a "retention of title" clause. With an effective retention of title clause, the seller is potentially able to avoid the standard position of title of the goods passing to the buyer on delivery even if the goods have not yet been paid for.

The usual position at law is that ownership of goods passes when goods are delivered; if the buyer then fails to pay for the goods, the supplier no longer owns them and its remedies are limited to either suing for the amount due or commencing insolvency proceedings against its customer. This is not only time consuming and potentially costly, but it also leaves the supplier with little chance of recovery, if the buyer has become insolvent. For this reason, many suppliers are looking at including retention of title clauses in their contracts for sale which would allow them, in the event of default, to recover the goods. Critically, this also means that the title to these goods remains with the supplier so that, in the event of the buyer entering liquidation, the goods do not form part of the customer’s assets.

In an economic climate of increasing uncertainty, suppliers are looking to secure their position and the use of retention of title clauses, in certain circumstances, can be a prudent source of confidence. For more information on terms and conditions of business please contact Nia Godsmark at nia.godsmark@johncollins.co.uk