SME cashflow protection - enforceable contracts count

When a key commercial supplier, or valued customer that is benefiting from longstanding payment terms and a line of credit, suddenly defaults on its payment obligations, it can be a disaster for the Small and Medium Enterprise (SME) that has provided the goods and services on credit.

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SMEs which take preemptive steps, often survive the shock of a major default within the supply and commercial chain. Whilst steps can be taken by an SME in response to a defaulting supplier or customer, the real protection often lies in putting in place practices, checks, protections, before the default occurs.

It's all about timing. Contracts governing supply and payment, standard terms and conditions, and trade practices, are usually only reviewed after a payment default strikes. This timing is a mistake, because it is often only at this late stage that the contract's terms and trade practices are found wanting, when it is too late to effect the changes that will make a difference.

Steps to insulate the SME from the fallout of a default, include regularly assessing whether or not the SME's trading practice allows for the enforcement of valid contractual obligations. There are fundamental assessments and reviews that should be taken, to ensure that trade practices and commercial agreements can be relied upon as intended.

Steps to reduce and reduce risks:

Check statutory compliance

Noncompliance with statutory provisions such as the National Credit Act (NCA), may nullify existing trading terms, or limit the SME's ability to enforce its contractual remedies when there is a breach.