Know your customer! HomeBlogLegal NewsKnow your customer!

It may sound obvious but it is crucial to ensure that you are fully aware of the true identity of your customers and/or clients. For example if someone describes themselves as “X and Co” are they a limited company, limited liability partnership, a sole trader (trading under this name), a partnership or another form of association?

 

 
Each of the examples given above are entirely different legal entities and if anything does breakdown in your relationship (i.e. they stop paying your invoices) it is important to know that you have been sending the invoices to the correct legal entity and that the correct party is named in any legal proceedings. The identity of your customer is important in the context of legal proceedings as if you pursue “X and Co” as a partnership and they are actually a limited company then your claim is likely to fail on the basis that you have pursued the incorrect party (there are circumstances where it is possible to issue an application to the Court to substitute the Defendant but otherwise you may have to start the claim all over the again against the correct party – whichever way this all incurs wasted time and legal expense!).

 

 
It is not uncommon for debtors to allege that liability of a debt falls with a limited company rather than an individual and therefore the other entity should be pursued instead (and vice versa) which sometimes is merely a debt avoidance tactic but sometimes they could be correct. If the incorrect party is pursued this problem is not insurmountable but there are avoidance steps that you can take. Here are a number of tips (this list is not exhaustive):-

1.  Make it clear in your initial written correspondence with your new client who you consider the customer to be e.g. “I am dealing with you as X and Co Limited, registered address, 1 Maynotpay Drive” or addressing the letter as such.

2.  You should ensure that invoices, statements of account and contracts are correctly addressed and have the correct and full name entered on them e.g. if it is a limited liability partnership it should be addressed to “X and Co LLP”.

3.  You could ask for the identity and position of any of the people at the customer/client business that you deal with i.e. are they a Director, partner etc. (to establish what their authority is to place the order with you).

4.  Consider using a credit reference checking service and the free WebCheck service on the Companies House website to confirm the full and proper name and company number of any companies and LLPs that you are dealing with. If you subsequently have to then take legal action against them, it is imperative that you name them correctly in such court proceedings, e.g. if you issue a claim against “X Co Limited” when the company you have been dealing with is in fact “X and Co Limited”, you will be pursuing the incorrect party and your claim will fail (unless an application can be issued to substitute the party or amend their name in the action).

5.  If you do contract with a partnership try to obtain the names and addresses of all of the partners in the business. This makes the step of pursuing for any outstanding debts and subsequently enforcing any judgment order you may obtain against them much more straight forward. Enforcing judgment against “Mr A. Badpayer t/a X and Co” will give you a better chance of recovery rather than trying to enforce against “X and Co (a firm)”. This will then give you opportunity to enforce against any funds and assets held in the name “X and Co (a firm)” but also those held in the name of Mr A. Badpayer also.

6.  Consider getting new customers to complete an account/credit application form as a pre-requisite to trading with you so that you have all of their details at the outset of your trading relationship (and it would be useful to use the information provided to undertake a credit risk check on them to enable you to assess what line of credit you are prepared to give them, if any). It should then little misunderstanding as to who you are dealing with.

The above are just a few useful pointers. If you would like any further guidance on this topic then please do not hesitate to contact Stuart Thomas on 0151 649 1795 or stuart.thomas@kjplaw.co.uk.

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