When selling goods to business customers, ensuring payment can sometimes be a challenge. Even after fulfilling an order, there's always a risk that the customer may fail to pay. To safeguard your interests and ensure you receive payment, it's crucial to understand how to secure your commercial contracts for the sale of goods. These contracts are primarily governed by the Uniform Commercial Code (UCC) and its adoption in various states.
What to Do If Customers Don't Pay?
If a customer fails to pay for the goods delivered, having a secured purchase agreement is essential. A security agreement is a contract that creates a legal interest in specific goods, securing performance (such as payment) by the buyer. This agreement provides you with rights over the goods in the event of nonpayment, allowing you to use these goods to satisfy the amounts owed.
What Goods Can You Secure for Payment?
You can secure a wide variety of goods under a security agreement. This includes inventory, equipment, materials, receivables, intangibles, and other assets. The goods secured under the agreement are referred to as "collateral."
What Can You Do with Secured Goods?
When you have secured goods under a security agreement, you have several options available to you in case of default. These options must be agreed upon in writing and can include:
- Possession of the goods
- Sale of the goods
- Leasing the goods
- Foreclosure on the goods
- Liquidation of the goods
- Conveyance or transfer of the goods
- Disposition of the goods in other ways
How Do You Secure an Agreement?
Securing a purchase agreement involves including specific terms that outline your security interest and rights. These terms are typically found in a security and financing statement within your purchase agreement. Important elements to include are:
- Identity of Goods: Clearly specify which goods are being secured.
- Perfection of Interest: Outline the steps taken to perfect your security interest, making it enforceable.
- Causes for Default: Define what constitutes a default by the buyer, such as nonpayment or breach of contract terms.
- Rights upon Default: Detail the actions you are entitled to take if a default occurs, including taking possession of the collateral and selling it to recover the owed amount.
How Do You Enforce a Security Agreement?
To enforce a security agreement, you typically need to register it with the state, a process known as "perfection." Perfection involves filing a Financing Statement with the appropriate state authority, such as the Secured Transaction Registry. This filing is public and serves to notify third parties of your rights to the collateral. In Florida, for example, you would file this statement with the Florida Secured Transaction Registry.
Detailed Steps for Securing and Enforcing a Security Agreement
- Drafting the Agreement: Ensure your purchase agreement includes a well-defined security clause that clearly identifies the collateral and specifies the terms of the security interest.
- Signing the Agreement: Both parties must sign the agreement to make it legally binding.
- Perfection: File a Financing Statement with the state's Secured Transaction Registry. This filing includes details such as the identities of the secured party and the debtor, and a description of the collateral.
- Monitoring the Agreement: Keep track of the buyer's payment performance and compliance with the terms of the agreement.
- Enforcing the Agreement: In case of default, take the necessary steps as outlined in your security agreement. This could involve repossessing the goods, selling them, or other actions to recover the owed amounts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.