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Welcome to Our New Commercial Credit Management Q&A blog

credit management function

This week we will be covering Risk

Q: I understand we need to look at the risk of not getting paid when we onboard a new contract, but are there any other risks we should be looking to reduce?

A: There are many risks in business, one big one is risk of claim of consequential loss.  Examples of consequential loss claims are:

  • A cleaning company damages a carpet when cleaning an office. They are liable for the replacement carpet for the whole office, which is open plan, not just the area where the damage is. 
  • A mailing house delivers marketing mail late. Customer claims for lost sales as they say they can prove there is a higher uptake if mail is delivered on a Wednesday rather than the Friday when it was delivered
  • Asbestos specialist missing some asbestos in a shop when surveying the property. Builders find the asbestos when competing work, the Asbestos is a grade that requires not only the shop in question to shut down until the asbestos is removed but all other shops in the shopping centre where the shop is situated, all shops claim for loss of profit.

As you can see, consequential loss can far outweigh the cost of the initial work. Therefore, we always recommend that our client’s terms and conditions specifically exclude consequent loss and limit any losses to actual costs. Whilst consequential loss can be difficult to claim, if it is not specifically excluded from agreed terms, the door is open for your customer to attempt to make a claim which may involve substantial legal fees in any defence you make.

In some industries, being liable for consequential loss is unavoidable, such as construction. It is common for a sub contract to specify Liquidated and Ascertained Damages for delays in handover of the finished property to the ultimate client. Even if your work is at the beginning of the construction process such as demolition, if you delay completing your work, there may be a knock-on effect of delaying future trades that result in a delay to completion and handover. Then you might be penalised for loss of profit because the ultimate client is delayed in trading from that property. In these cases, we advise you are aware of your contractual obligations to submit delay notices. For more information please look at our outsourced collections for construction by clicking here