Because of the coronavirus, we are unfortunately dealing with a recession of historic proportions. According to figures from Statistics Netherlands (CBS), almost half of companies fear they will not survive the corona crisis. Not to mention the liquidity squeeze that will arise from the decline in revenue. The chance that part of your business relations will ‘go under’ or pay much later than desired is therefore very real. Generally speaking, customers will also become more critical of the delivery of services and products.

With contraction comes cramp in trade relations.
In times of contraction, people are more inclined to nitpick over every little thing, partly in order to stretch out payment. This is therefore the time to sharpen your legal position in that kind of discussion in the small print, in your general terms and conditions. Read in this blog how you can optimally protect your company (via your general terms and conditions) against the coming crisis.

What are general terms and conditions and how do you use them optimally?
In the general terms and conditions, you can include contractual provisions that optimally protect your company’s legal position. Such provisions are often too extensive for the order or assignment confirmation, but you do want them to apply as standard to every assignment or delivery. When these are declared applicable in the right way, they protect your legal position. To achieve this result, not only must the content be sound (we will come back to this later), but the general terms and conditions must also have been sent along (digitally) before or at the time of the order confirmation.

What should I do if my business relation refers to their own general terms and conditions?
If your contractual counterparty refers, in the correspondence regarding the order, to their own general terms and conditions, it is important that, in your order confirmation, you refer last to your own general terms and conditions and explicitly reject the counterparty’s terms and conditions.

Sometimes the counterparty will not accept that, and then you will have to accept the counterparty’s terms and conditions. In that case, do not simply accept them without question, but put them to your legal adviser. Firstly, to make sure you are not taking on additional liability that, for example, is also not covered by your liability insurance. Secondly, to check whether there are other points that are really unacceptable, such as, for example, an interim option to terminate the agreement without any liability for damages arising. Usually, deviating arrangements can still be agreed.

The right content for your general terms and conditions.
A good set of general terms and conditions regulates, in your favour, among other things, the terms for delivery, payment, retention of title, set-off, suspension, liability, force majeure, warranties, dissolution, termination, etc. of the agreement.

What are good payment terms?
When companies have not agreed otherwise among themselves, for example in the general terms and conditions, then, in principle, statutory interest is due from 30 days after receipt of the invoice. It can also be contractually agreed that the payment term is a maximum of 60 days. Longer than 60 days is also possible, provided it has been agreed in the agreement itself and is not ‘manifestly unreasonable’. Furthermore, the government (and government bodies) must pay within 30 days. Large companies will soon also have to comply with this. The statutory period within which they must pay the invoices of their SME suppliers is being shortened from 60 to 30 days by the amendment to the Large Companies Payment Terms Act . That law is currently in the pipeline. The moment it will take effect is not yet known.

Agreeing that payment must take place earlier than the statutory (maximum) periods is always allowed. Not arranging anything, because the payment term then defaults to 30 days, can be dangerous if your counterparty declares its general terms and conditions applicable and these state, for example, a payment term of 60 or 90 days. Therefore, always include in your general terms and conditions that your debtor has a (final) term of a maximum of 30 days. State in addition that the debtor owes default interest and any (extra)judicial costs. If payment is not made after the term expires, the debtor owes this interest, as well as any collection costs. For these upcoming difficult times, you can of course also (temporarily) apply a shorter payment term of, for example, 14 days.

Please note, the general terms and conditions in principle only apply if they have been made available (digitally) before the agreement was concluded.

Clearly arrange your (extra)judicial costs.
If your invoices are not paid, it may – after the usual reminders – become time to enforce payment (extra)judicially. It is important that you can take these steps, but at the expense of your debtor! Therefore, arrange in your general terms and conditions that these additional extrajudicial and judicial collection costs are borne by the counterparty. It is possible to include in your general terms and conditions the provision that the debtor, in the event of late payment of the principal sum, is obliged to pay extrajudicial collection costs. These collection costs are of course on top of the default interest and the principal sum. The ‘actually incurred collection costs’ consist (at maximum) of an amount of 15% of the first €5,000 of the claimed principal sum (with a minimum of €250), 10% of the excess up to €10,000, 8% of the excess up to €20,000, 5% of the excess up to €60,000 and 3% of the excess above €60,000.

When you have included this in your general terms and conditions, you are optimally equipped to incur extrajudicial costs. If you do not include such provisions, these costs will be estimated based on a scale for consumers, which is a lot less favourable. The judge, incidentally, still always has the power to mitigate the extrajudicial collection costs. However, he will not do so if it has been made plausible that the extrajudicial collection costs you actually incurred are higher than the amount calculated using the scale, but that this amount is nevertheless in a reasonable proportion to the work performed.

In addition, it is wise, as regards the judicial costs, to include that the counterparty, in the case of judicial recovery, also owes the judicial costs. This includes all actually incurred costs of legal assistance and the litigation costs. The counterparty then owes this if it is found wholly or predominantly in the wrong.

Suspension and dissolution.
There are conceivable scenarios where you would rather suspend the agreement, or even dissolve it free of any liability for damages. In terms of suspension, given the coming crisis, one could think of an impending bankruptcy or other reasons that lead you to assume that your counterparty will not pay for the services/products you are still going to deliver. In that case, it can be useful to be able to threaten suspension without liability for damages, until the outstanding invoices have been paid. It is then wise to include a provision that gives you a broader power of suspension, while excluding that same power of suspension on the part of your counterparty!

Force majeure.
Recent case law has shown that an appeal to force majeure due to corona is not readily accepted by the courts, since there must be an ‘impossibility to perform’. Whether or not one can rely on statutory force majeure remains dependent on the circumstances of the case. That is also because no definition of force majeure has been included in the law. That is why it is very important to lay something down about this in your general terms and conditions.

For example, you could exclude certain situations in your general terms and conditions from an appeal to force majeure by the counterparty. Excluding an appeal to force majeure, for example in the case of a pandemic or nuisance caused by government measures, can also better protect you against future outbreaks of viruses. In this way, you can also name scenarios in the general terms and conditions that will, in advance, count as force majeure in your favour, so that you are not liable for damages when you fail to perform the agreement due to force majeure. In doing so, you can arrange that your counterparty (temporarily) has no right to suspension, dissolution or damages as a result of that same force majeure situation. Note, however, that a judge can of course always set aside such a condition, in whole or in part, if it turns out to be too unreasonable.

Securities.
To ensure that you (even in the event of your debtor’s bankruptcy) are not last in line among the creditors, it can offer additional security to stipulate legal securities for payment of your invoice. Well-known security rights include, among others, the right of mortgage (on immovable property) and the right of pledge (on movable property, assets and debtors), but for these, (notarial) deeds must be drawn up. That is not something you simply arrange in the general terms and conditions. What you can arrange in the general terms and conditions, however, is that such securities must be established upon first request, as soon as you ask for them. Depending on the moment at which you ask for that, it may or may not offer relief.

Retention of title is an easier variant that you can indeed include directly in your general terms and conditions, but of course only when you also deliver products. Here, ownership does not pass to your customer until the full amount has been paid. You could therefore even retrieve the product from a bankrupt estate. It is important, though, to use the correct wording for this in your general terms and conditions. Many texts circulate on the internet that also contain incorrect provisions. Bad copy-and-paste work.

Besides this, there are further options to stipulate security outside the general terms and conditions. Think of suretyships and guarantees. It is important that this is done in a legally correct manner, otherwise you may run the risk of these provisions being annulled, meaning you would still end up last in line when creditors are paid out.

Limiting your liability.
One of the important provisions in the general terms and conditions is the so-called ‘exoneration clause’. With this, you can exclude your liability for direct damage and consequential damage. This is possible for all damages, or only for consequential damage, or only up to a certain amount. For example, up to the amount that the liability insurer pays out to your customer after acknowledging liability. In principle, in B2B relations, you can exclude all liability, thereby drastically limiting your risks. By excluding liability, your company will not simply be confronted with large incidental damage claims in these tough times. However, a counterparty does not always agree to that. In addition, it is not legally possible to exclude liability for damage caused by intent or gross negligence. Insurers also do not cover that. However, intent or gross negligence will only very rarely be capable of being proven.

Advice: update your general terms and conditions now!
In short, update your general terms and conditions now so that your legal position is better secured. You can always fall back on this in times of need, if only to have a stronger position in a negotiation. After all, we always advise first trying to reach an amicable resolution with your customer.

Even with the best set of general terms and conditions, a decline in revenue can sometimes be unavoidable, but you can nevertheless ensure that you are in a stronger position in collection disputes, performance disputes and liability claims.

Questions or advice?
As an entrepreneur, do you have questions about the above, or do you need help/advice with screening and/or drafting your general terms and conditions? We can, of course, help you with this. Contact us by filling in this contact form or calling: 020-3450152.

The corporate legal advisers at The Legal Company specialise in employment law, contract law, company law and privacy law.

Nothing changes as often as laws and regulations. We would like to point out that our blogs may no longer be in line with current laws and regulations and may therefore be outdated. If you have questions or a problem relating to this blog, or if you require legal assistance, please contact us.