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Retention of Title Clause

Protection against the possibility of the buyer's default or insolvency

Overcoming the Challenge of Late and Unpaid Invoices

It’s very common for businesses to invoice their customers once goods have been delivered. Unfortunately, however 1 in 3 Invoices are paid late and 1 in 10 Invoices go unpaid indefinitely.

Therefore, what happens to goods you’ve already delivered to your business customer but they then to fail to make payment? It is a major problem which effects thousands of businesses annually and can have fatal consequences to their own trading health. Fortunately, there are ways to provide some protection against a business customer not paying their Invoice(s).

Protecting Interests

Understanding Retention of Title Clause for Protecting Business Interests

A Retention of Title clause can be inserted into your Terms and Conditions of Trade prior which simply states that you (the supplier) retain ownership rights of those goods until payment has been made in full. Always ensure the customer signs this document to evidence they have acknowledged your terms and be sure to reference this on your Invoice too.

A basic Retention of Title clause will state that legal ownership, or title, to the goods will not pass from the seller to the buyer and that you reserve the right to repossess the goods if a) Invoices are not pad in full by [Deadline Date] and/or b) Your customer becomes insolvent.

Other obligations can be included to ensure that repossession, if necessary, is made as easy as possible. These could include obligations to:

  • store the goods separately from goods belonging to third parties;
  • mark the goods as the seller's property;
  • allow the seller access to the buyer's premises to verify that the obligations are being complied with (and that you seller are not committing trespass in doing so).
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‘Simple’ ROT clause

‘All monies’

‘Proceeds of sale’ clause

‘Mixed goods’ clause

Basic Retention

'Simple' ROT Clause

This is a basic retention of title clause that states title to specific goods is retained by the supplier until payment has been received in full for those specific goods only. This is usually done per Invoice paid.

Contractual Retention

'All Monies' Clause

If you have separate invoices each relating to an overall balance you should ensure that title is reserved until the whole balance has been paid by the debtor. This contrasts with the order-by-order basis of a simple retention of title clause. An ‘all monies’ clause is often included separately, but in addition to, a ‘simple’ retention of title clause within a contract.

Resold Goods

'Proceeds of sale' Clause

This type of ROT clause addresses the problem of goods having already been sold on, and may entitle the original supplier to the proceeds of sale.

Raw Materials

'Mixed Goods' Clause

If the goods supplied were used in the manufacturing process, and mixed with other goods, a ‘mixed goods’ clause may allow the supplier to claim right of ownership over the original raw materials. This can be a problematic situation depending on whether the goods can be separated without causing damage to the third party goods. If they cannot then these goods are likely to remain property of the buyer.

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Normal course of trade

Balance on purchaser account

Ruined Product

Perishable Goods

If your business supplies perishables such as fresh fruit, meats etc you may find that trying to enforce a ROT clause may be not hold much water due to very nature of the products your selling

Damaged Goods

Changed Form

If the goods you supply are fundamentally different and cannot be separated or removed from other materials then you may not be able to enforce a ROT – an example of this may be if you supply materials to a manufacturing company which then uses your product to then produce their own product.

Trading Limitations

Normal Course of Trade

If you the Supplier are aware that goods will be used in the buyers ‘normal course of businesses’ and therefore sold on before payment has been made to you then there may be severe limitations to a ROT.

Owed Monies

Balance on the Purchaser’s Account

Only goods delivered after the date on which there is a nil or credit balance on the buyer’s account, are eligible for retention of title. Therefore if you originally owed monies to your buyer beforehand it may be much harder to implement a Retention of Title.

Use our Effective Terms of Sale document service

We can help your business create an effective Terms of sale document which will contain a robust Retention of Title clause which can the be submitted alongside your quotation and later referenced within your Invoice documents.

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