How do I make sure I have security over goods supplied to my customer until they've paid for them?
First, you need written terms of trade. See our October blog on terms of trade. Your terms of trade will need to have the security interest (e.g. you retain title over the goods you’ve supplied to your customer until they’ve paid for them) sufficiently recorded. We highly recommend having your terms drafted by an experienced lawyer.
However, to make sure that this security interest gives you priority over the goods (priority over other creditors) in the event that your customer becomes insolvent, your security interest MUST be registered on the Personal Properties Securities Register (PPSR). Unfortunately many small/medium size business still seem unaware of this despite it being a requirement for over 20 years! This means, if you don’t register and your client goes into liquidation, another creditor may have security over the goods you supplied and will have a better claim to them than you.
It costs only $16 to register your security interest on the PPSR and in the event your customer ends up insolvent, it’ll likely be the best $16 you’ve ever spent.
A few tips:
Have written terms of trade drafted by an experienced lawyer (to ensure they contain a sufficient security interest, among other things);
Ensure that your terms of trade are being signed or assented (e.g. by email acceptance) to by customers before you undertake work for them;
Ensure you know the correct legal entity that you’re dealing with (you can check company info at www.companies.govt.nz);
Ensure the correct legal entity is recorded on everything (e.g. your invoices and your PPSR registration);
Get advice on the collateral description to use on your PPSR registration (it should be wide enough to capture everything, but if it’s too wide it will be invalid - hence why we recommend getting legal advice); and
Register your security interest against your customer (not the site) as soon as possible (and ideally before you start work). You do this on the PPSR (www.ppsr.govt.nz). There are particular rules about timing so this is vital, particularly if your customer already has security interests registered over all of their property (often by big banks). Your safest option to ensure priority over those creditors is to register before you start work.
If you need any assistance, get in touch for an initial free, no obligation chat. www.rachelwebster.co.nz/contact
