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I don’t have a written agreement: can I still make my customer pay?

The short answer to this question is… yes!

What constitutes a binding agreement?

An agreement is enforceable if it meets the requirements to be a valid contract in the eyes of the law. A legally binding, or “enforceable”, contract can take many different forms.

The form of a contract may sit somewhere on a spectrum from purely verbal, through to being evidenced by continued conduct, or an email chain showing agreed terms accepted by your customer, all the way through to a formal written agreement signed by both parties.

What all enforceable contracts have in common are certain elements which show the parties intended to enter a legally binding agreement and have the legal capacity to do so (i.e. are of sound mind and legal age).

Elements required to make an agreement legally binding

In summary, legally binding contracts are considered valid if they can show the following elements:

  • Intention of the parties to enter a legally binding contract;
  • An offer made by you and accepted by your customer;
  • A price paid in return for a promise; and
  • The parties entering the contract must have legal capacity.

Also, contracts are not considered valid if they either:

  • Contain an agreement to do something illegal;
  • Contain a breach of other legal requirements; or
  • Are made between family members and were never intended to be legally enforced (such as pocket money paid from parent to child).

Proving agreements that aren’t written

The law will therefore recognise verbal agreements as enforceable if they satisfy the above elements of a valid contract.

If you only have a verbal agreement, a proven history of a customer buying your goods or services could also be used to show an agreement by conduct. The history can be used to show an understood set of terms. Other evidence of a valid contract could include a series of emails between your business and a customer, your recollection of the conversations and file notes of conversations with your customer. The best file notes will be those made at the time (or shortly after) each conversation.

Some contracts must be written

There are some contracts which the law will not accept other than if they are in writing, including:

  1. Agreements about buying, selling or mortgaging land and houses;
  2. Consumer finance or credit arrangements;
  3. Agreements to buy a car from a licensed dealer;
  4. Door-to-door sales agreements; and
  5. Agreements for something to be done more than a year from when the agreement was entered into.

The better question therefore is: “What is the best form of agreement to have in order to ensure payment from my customers?” An agreement does not need to be written by a lawyer to be legally binding but to have the best opportunity to enforce the agreement, it should be written and signed by everyone involved.

Steps to making the customer pay

Once you reflect on your agreement and whether it is enforceable, you should then consider writing a letter of demand for payment.

In the letter you should clearly set out the terms of the agreement, how and when you have delivered your side of the bargain and the debt you are seeking to be paid. This would include, for example, the dates, reference and amounts of unpaid invoices.

If you do not receive a response, you can then issue proceedings in Court to recover the debt. Which Court you go to will depend on the amount of the debt.

You can view our Director’s recent video on tips for getting paid on time here.

For any other information on how Taurus Legal Management can help your business either in preparing written agreements or in recovering a debt, do not hesitate to contact one of our experienced commercial lawyers on (03) 9481 2000 or info@tauruslawyers.com.au.

Posted by Taurus Legal Management

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