Understand your legal rights as a small business

Small business owners should invest in a good lawyer. It’s amazing how many businesses ignore this crucial part of their business. Good legal advice will save your business more money then it cost, but quite often small businesses dismiss the benefits of having a legal adviser.

When I first engaged a taxation lawyer under the advice of my accountant, one of the first things he said to me was “It’s good you have come to me before there was an issue, most people do not consult a lawyer until after they have a problem. Prevention is always better, but no one thinks about that until its too late.”

Being proactive is important in business, because business dealings can go sour at any point in time. While legal fees and advice can be expensive, the benefits outweigh the costs. As small business owners we can’t be experts in every field. And whilst we may be equipped with adequate knowledge in most areas, we still need to rely on an expert every now and then.

Recently I was dealing with a client who had not paid their accounts. Their overdue balance was in excess of $10,000. There was no contract in place since the client was a COD customers which means there was no signed credit term agreement. However, this particular client had managed to skip his obligations of paying cash on delivery for the services. One of the benefits of working with small businesses is that they usually can cater for more flexibility in their policies as opposed to larger organisations who have set guidelines for all employees. However this is the same reason they can get into a lot of issues when they are providing leniency to win business.

In this scenario, the client demanded that he had a +60 day credit term agreement with the supplier – approved by the sales rep. After review, the sales rep had confirmed there was a requested by the client, however based on management advice the request was declined and therefore no contractual agreement was in place for the client. From small business to small business there were 2 issues that had occurred:

  1. The supplying business broke policy by not collecting cash on delivery for goods.
  2. The client did not understand their legal obligations and the legal rights of the supplier.

Flexibility on policy is one thing, but not understanding your legal obligations is another. From the supplier side, whilst they did not collect payment on delivery, the order was placed and delivered to the client by the clients request and if unpaid for, the product belongs to the supplier. To collect the outstanding payments the supplier would now have to suspend the account and issue at least 3 notices and a final warning with each notice giving the client an opportunity to work out a payment plan. Before taking a client to court and taking legal action, a business should show that they have provided reasonable effort to establish a solution independently.

On the client side, the client insisted they had a verbal agreement to establish a credit account and requested to not be hassled with debt notices. However the client did not understand that without a signed credit agreement, the supplier was in their right to request debt recovery or pick up the product. Whilst verbal agreements can be a valid contract in the court of law, they must also be proved. Contractual agreements require all parties to agree and verbal agreements also need a “Hand shake” to seal the agreement. Therefore, just because you say something to someone, does not validate the agreement. Both parties must be in agreement and seal that agreement. Verbal agreements therefore are much more harder to prove unless you have a witness or recording, which is why the best practice is to always have contractual agreements written and reviewed by your lawyer to ensure all parties understand and sign their obligations to the contract.

While legal fees and taking a client to court can be expensive, having a lawyer draft a written contract or review a contract for anything important can save you a lot of headache. In business, we enter contractual agreements all the time which is why reading and understanding your obligations is essential in the event someone wants to take you to court or you want to sue someone for breach of contract.

In business, we quite often think we know what our legal obligations are. But after dealing with so many small businesses it is evident that we only have a basic level of understanding. This understanding may be enough to get us through business negotiations, however we should also have a reliable expert on hand. Experts provide guidance and allow us to improve our business decisions and daily operations to strengthen our position. Strengthening your position with reliable legal advice allows you to gain an upper hand in avoiding lawsuits and gaining more protection from your business dealings. It’s amazing things lawyers pick up in contracts that you did not think would be important and its on flow impact on getting your mind thinking about what you really want out of the agreement.

Remember – it’s best to avoid problems wherever possible. Learn and grow your business effectively with reliable advice.

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