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Tips to Secure Payments on Time Every Time on the Sale of Goods

It is a sad reality of business that sometimes those you are dealing with let you down, because of this, when carrying on a business involving the sale of goods, caution is always the best approach.

When you’re dealing with someone you don’t know well yet, there’s a real danger they won’t end up paying you, even after taking possession of the assets. Of course, in hard economic times, the danger of non-payment is also much higher even with people you have been dealing with for some time. So, what can you do to protect your interests while doing business? The answer comes down to implementing two things into your business process:

  • Ensure you have comprehensive terms of trade; and

  • Register a security interest over assets that have not been paid for.

Put in place comprehensive terms of trade

The beauty of business is that, subject to some important terms implied by consumer protection law, you get to choose (or at least negotiate) the terms on which you do business.

These terms of trade are the cheapest insurance you will ever buy. Further, the flexibility allowed by setting your terms and conditions allows you to control how you conduct your business, and has a number of benefits, including:

  • Defining what it is you are (and are not) going to do for your customer. By clearly setting out the scope of your obligations you will improve your relationship with your customers and minimise the chance of a dispute.

  • You ensure you can get paid by having recourse to the owners of the business, rather than dealing with a company “shell”.

  • You maintain retention of title, indicating that ownership of your goods remains with you until they are paid for in full.

  • You limit your liability in several ways, such as excluding warranties that may otherwise be implied by law and limiting your liability to an amount you can afford to pay, or to a limit for which you are insured. This avoids “betting the farm” each time you sell goods or provide services.

  • You set out when you will invoice, and when you expect to get paid. You also get rights to enforce payment, charge interest if you are paid late, and claim recovery costs.

  • You may take a security interest in the goods you supply until you get paid and get your goods back if your customer goes broke (more on this below).

Even better, once you have set up robust terms that you are happy with, you can keep using them for as long as they are relevant to your operations. However, while setting up your terms of trade is vitally important in the protection of assets, it is always worth going the next step to limit your exposure as much as possible.

Register a security interest

So how to go that next step in protecting your interests? The most effective thing you can do is register a ‘security interest’ in the unpaid goods on the Personal Properties Securities Register (PPSR) until you get paid.

There are different classes of PPSR registrations for your retention of title right, but essentially a PPSR registration helps you:

  • Get your goods back if they have not been on-sold or used yet;

  • Claim your interest in any ‘proceeds’ from the sale of your goods by your customer;

  • Ensure your security interest continues when you’ve sold goods and are still owed money for them, even after they’ve been mixed with others’ goods (for example, grain in silos), or made into something (for example processed food or clothing).

If you don’t register your interest in the goods then you will line up like all the other creditors of your customer and end up with cents in the dollar.

It should be noted that even if you do register your interest, chances are that your debtor will have other creditors. Secured creditors are paid in the ‘order of registration’ on the PPSR – an earlier dated registration beats a later one over the same collateral. However, if you are selling on ‘retention of title’ terms you can register a purchase money security interest (or PMSI).

If properly registered, a PMSI gives priority over earlier registered security interests over the same collateral. To gain this priority, you must register and claim your PMSI on the PPSR prior to delivery of the goods. If you don’t claim and register the PMSI on the PPSR in this way, you will lose out to an earlier registered security holder like a bank holding a ‘general charge’ against your customer.

Ultimately, while it is always important for businesses to establish and maintain good relationships with their customers and suppliers, it is always sensible to ensure that you aren’t left in the lurch if a business deal doesn’t go as planned. As the old saying goes…trust but verify!


This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.

We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.


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