Understanding Retention Of Title – Cash Or Goods
Retention of Title is a clause found in a variety of business terms and conditions. It’s imperative to understand what it means as it can affect the business relationship considerably if payment is not made by the customer.
What the Clause Means
A retention of title (ROT) is a provision within a contract that essentially means that the customer does not own any goods that have been delivered to them until payment is made in full.
If for any reason the customer defaults on the payment, a company has the ability to enforce the clause by recovering the goods directly from the customer. Particularly if the goods are of value and have the ability to be sold again, it’s a good idea for a company to include a retention of title clause within a business contract.
Further, because of the nature of the clause, there should also be a comment about the seller having the right to enter the premises of the buyer in order to repossess the goods. This will prevent any kind of trespassing charge from occurring.
The business contract can be written in such a way that it makes it easy for the company to handle the repossession. This includes such things as:
- Marking the goods as property of the seller
- Storing the goods separately
- Allowing the seller into the premises in order to verify compliance
Handling Retention of Title
When you are a seller and you decide to add a retention of title clause within a business agreement, you need to make sure you handle everything appropriately in the event that a customer fails to pay.
The detail in which you write the retention of title is of the utmost importance. For example, if you do not identify that the buyer provides you with the right to enter their premises, you cannot force entry into their premises. If they refuse your entry, you would be required to obtain a court order, which would involve the customer having to “deliver up” the goods. This simply means returning the goods to you.
Other problems can arise when enforcing the retention especially if the customer sells your goods or they attach the goods to something else, making it difficult to remove or identify. Essentially, the moment the goods leave your hands, it can be difficult to enforce what the customer does with them. If they store the goods separately or mark the goods as you identify within the clause, it will be easy to obtain. However, should they do anything else with them, it becomes difficult to enforce.
There are various provisions that you must deal with as well. For example, should you issue proceedings for the invoice value or other price, you then lose the right to reclaim goods using the retention of title clause passed the state. In some instances, payment of the price is a better alternative than the return of goods, particularly if you are unable to resell those goods at a similar price.
There is also the “all monies clause” allows you to reserve title and all of goods supplied to the buyer until they are up to date on all of their outstanding invoices. This is beneficial because it eliminates the need to relate specific goods at the premises of the buyer with specific invoices that are unpaid.
In the end, a retention of title for cash or goods can be beneficial, although you need to make sure that the contract is written in such a way that you protect all of your monetary interests.
Find out more about debt collection law by visiting the legal proceedings section of our blog.