How to ensure that you recover the goods you deliver if your customer does not pay

As a supplier, you obviously want to be paid for the things you deliver. This is especially true since, in principle, a buyer becomes the owner as soon as you deliver the goods. This is the case even if you have not yet been paid!

In practice, I encounter with some regularity that a supplier is not aware of this. This is because many suppliers think - wrongly - that ownership of the goods they supply is only transferred at the time the buyer pays the purchase price. In principle, however, this is not the case. In fact, the main rule is that ownership is transferred at the time of delivery of the goods to the buyer. This is therefore the case even if the purchase price has not yet been paid.

Now how can you avoid this and how can you ensure that you can claim your business if the purchase price is not paid?

To this end, you have - in brief - two options. First, the (contractual) retention of title. Second, the (legal) right of claim.

Retention of title

With a retention of title, you prevent the buyer from becoming the owner without paying. You remain the owner of the delivered goods until the purchase price has been paid. If this does not happen, you can reclaim and collect the goods. This is also possible if the buyer goes bankrupt. In that case you can reclaim the goods from the receiver.

There are a few pitfalls, though.

Thus, retention of title is a contractual right. It does not arise automatically. That means you must agree it with your supplier. This must be done before or at the conclusion of the purchase agreement.

If the retention of title is not agreed in the purchase agreement itself, but in general terms and conditions, it is important that these general terms and conditions are actually sent to the buyer before or at the conclusion of the purchase agreement.

To avoid proof problems later, as a supplier, it is best to ask the buyer to initial each page of the terms and conditions and return them to you. If you do not do this, there is a risk that the buyer - or trustee in bankruptcy if the buyer fails - will later destroy the retention of title. In that case, you will be left empty-handed.

Another pitfall is that as a supplier, you may only recover items that pertain to the unpaid invoices. For example, if invoice 1 has been paid and only items from that invoice remain, while invoice 2 has not been paid, you may not recover the items delivered under invoice 1. After all, this invoice has been paid.

You can overcome this by agreeing to a so-called extended retention of title. This means that you remain the owner of all goods delivered by you until all invoices are paid. With an extended retention of title you may - within the legal limits of Article 3:92 of the Dutch Civil Code - recover the goods you have delivered, even if those goods relate to an invoice that has already been paid.

Another common pitfall is having to prove exactly which items were supplied by you. This can sometimes be difficult, for example, if there are multiple suppliers supplying the same product. You would therefore do well to label the items you have delivered, making them individualizable. In that case, discussion about which supplier delivered a particular product is avoided.

In short, a retention of title can be useful under circumstances, but in that case it is at least important to overcome the (most common) pitfalls mentioned here.

Right of advertising

In addition to the contractual retention of title, there is also the legal right of complaint. The right of complaint also grants the supplier - within the legal limits of Article 7:39 BW ev - a right of repossession. This can be useful if, for example, you did not stipulate retention of title at the outset or if the retention of title clause as included in general terms and conditions is later annulled.

The main advantage of the right of action is that it exists by operation of law; therefore, it does not have to be agreed upon.

The main disadvantage is that the right of claim can be exercised within much more limited limits than the retention of title. For example, the supplier's authority to take back the goods expires 6 weeks after the claim for payment of the purchase price becomes due and 60 days after the goods are stored by the buyer. Once any of the aforementioned periods have passed, you can no longer claim those goods.

Thus, given the more limited ability to invoke the right of action, my advice would be to always agree a retention of title by contract.

Conclusion

As a supplier, be aware that, in principle, ownership of the items you supply is transferred as soon as they are delivered by you to the buyer. This is the case even if the purchase price has not yet been paid to you.

You can strengthen your position by using the (contractual) retention of title or the (legal) right of recourse. This allows you - even in bankruptcy - to claim the goods you have delivered if the purchase price is not paid. In this way, you can limit your losses by, for example, reselling the goods afterwards.

There are some pitfalls you can fall into, though, so it is important to pay close attention to these before entering into the agreement and delivering the items.

In the unlikely event that you are unable to invoke retention of title or the right to complain, there are still numerous (other) ways to ensure that your invoices are paid. I wrote an earlier article about this.