Retail surgery: Do late payments to suppliers put me at legal risk?

The short answer is yes.  The risks, however, can be minimised, if not eliminated.  Richard Curtin, finance and restructuring practice lawyer at Faegre Baker Daniels LLP, says your first step should be to check the terms of conditions.

“You should then consider approaching your supplier to renegotiate the payment terms,” he says. “Most suppliers will look on this favourably. If you are regarded as a good customer, then they will wish to keep your custom and income stream rather than lose you to a competitor.”

However, Curtin warns against excessive renegotiating to the extent that your terms become unviable.

Another reason to approach your supplier is that creditors do not like surprises, so initiating contact should stand you in good stead. “The knowledge of your supplier gained from your trading history may also prove helpful,” says Curtin. “Remember that, in the light of the economic climate, your supplier could well have issues of its own to deal with.”

It is better to attempt negotiation before missing payment becomes a habit. Curtin advises that continually breaching your payment terms puts you at risk of legal action, such as a claim for outstanding money.

“You should also address whether or not your company is insolvent,” he says. “If it is, and you knew or ought to have known as director that your company would most likely go into insolvent liquidation, you could be vulnerable to an action for wrongful trading by a liquidator.”