For those involved in the agricultural sector, there are numerous things which are largely or totally out of your control- whether it rains, whether it rains at the right or wrong time, unseasonably hot or cold weather, frosts and pests, just to name a few. There is a lot of work and cost that goes into livestock farming or growing a crop, particularly in the current climate with rapidly increasing costs for things like fertiliser and diesel.
Often it seems like the hard work has been done once the crop, livestock or product is sold, but unfortunately there are many instances where the problems are just beginning as farmers and agricultural suppliers then have difficulties in recovering the money owed to them.
Often this is as a result of the purchaser of the crop, livestock or agricultural product being placed into liquidation (in the case of a company). We have seen this happen recently with the well- publicised instance of SP Hay, which supplied hay overseas, going into receivership and liquidation with millions of dollars being owed to suppliers.
For those farmers or suppliers in the unfortunate position of having supplied goods to a company in this position, it places serious pressure on those enterprises, with it often putting a significant hole in their finances.
So what can be done?
Whilst it seems very simple, the first is making sure you have a properly drafted contract in place. It is surprising how often crops, livestock or products are supplied without any contract in place or a poorly drafted contract being used.
Whilst it is possible to rely on discussions as forming an oral contract, it can cause many issues, not the least of which is that with nothing in writing it is very much one person’s word against another person’s word if something goes wrong. This is why it is always preferable to have a written contract .
When it comes to the contract itself, there are some essentials for every contract.
The first one is to work out which legal entities are entering into the contract. This is important as these are the parties who will be legally liable to each other. There have been various instances where an agricultural supplier or farmer has had a lot of difficulty in recovering an outstanding debt on account of the contract not being executed by the party who received the product or the legal entity being incorrectly named. As part of the contracting process, it may also be worth undertaking some investigations, such as a company search, to make sure you are comfortable with the company you are contracted with.
When drafting the contract, there are a number of essential clauses that should be incorporated, including:
- clear and concise payment terms, detailing the manner by which the buyer will be invoiced and the timeframe within which payment must be made;
- terms as to the quality and quantity of the product being supplied;
- what happens if a party to the contract defaults, particularly in relation to payments due under the contract;
- when the ownership of the product passes to the buyer; and
- whether there is any security for the items/products being supplied.
If all of the parties are aware of their obligations from the start this will help to minimise the likelihood of issues arising. While it is impossible to guarantee a full recovery of any debt, having a well written contract, signed by all of the parties, will assist greatly.