Establishing corporate identity
Article Date: Feb 26 2009
Know who you're dealing with
When you win a new client, make sure you know exactly who you are dealing with, otherwise you could be in for a nasty surprise, writes Steven Sekely, recoveries manager at law firm Matthew Arnold & Baldwin.
The three ingredients of a contract – offer, acceptance and payment – are fine when you’re buying a newspaper from your local convenience store. But when values are higher, it’s essential to know who you’re dealing with.
Here’s an example. Your company makes bathrooms and supplies 400 to a builder. Your hotshot salesman often cuts corners with paperwork.
By the time the goods are delivered, the salesman has left. The contract shows the builder as Sherlock Homes Ltd. Your chaser letter is unanswered. Your collections manager takes over. There is no company called Sherlock Homes Ltd. There are 17 companies in Sherlock Group such as Sherlock Homes (Southern) Ltd, Sherlock Homes (Midlands) Ltd, etc. Who does he chase for payment? Your bathrooms went to a storage company. They say the bathrooms were collected by “Sherlock”, but can’t tell you exactly which company collected them. Your paperwork does not help.
You come to me and we consider the papers, but sadly none helps. There are 13 Sherlock companies, all builders. Who did you contract with? We search, unsuccessfully, for a development with 400 bathrooms. Probably your salesman pooled several companies’ contracts into one deal, documented in one, non-existent, company’s name. Who do we sue? On the above evidence, no one, because it is impossible to identify a defendant. You can’t pick a company at random and sue because they’d apply to strike out your claim. The essence of your problem is that you have to show a contract with your defendant, which in your case you have not got.
You may think this is pure scaremongering and unlikely to happen. In fact, it’s a simplified version of a recent case. Reluctantly, my client had to write off the debt.
Fortunately, such problems are easy to avoid. The simple rule is to know who you are dealing with. Your contact’s business card is good, a headed letter, giving the company’s name and registration number, is better. Exercise common sense. If dealing with a big company, it’s probably fine to accept a £500 order from their facilities manager but a £185,000 IT system order? Probably not. It’s better if such an order is from their IT manager or the appropriate director, confirmed on notepaper. The web is useful: access the company’s website, print details of their contracting people and publicity literature. Or perhaps the latest annual return and list of directors from Companies House, all available online for a few pounds. Of course, the level of checking should match the size of the contract.
When I accept a fresh client and am to receive instructions from an individual, I get a letter from a director confirming that person is authorised to instruct me. A pain, but once documented, job done.
Even when you know precisely who you are dealing with, not all will be sweetness and light but you will have avoided a potential avenue of loss. There are so many ways to get caught out at the moment that it’s worth avoiding those you can.
