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Paying Up Front/Supplying on Credit

August 03, 2017

This week we’ve been working on a contract which is one piece in a larger puzzle involving:

• a $1 million deal;
• one Chinese company manufacturing products in China;
• another buying them and shipping to Australia; and
• our client buying them and distributing to a chain of over sixty franchisees in Australia.

However, our client is paying money up front, so is seeking security over the goods being supplied by means of a charge registered on the PPSR and a personal guarantee from its sole director.

We added a provision such that money paid by our client is held on trust for the payees, so that the money can only be used to discharge the second company’s obligations to the manufacturer, freight consolidator, the freight and the GST.

While the negotiations have been going on for some months, this week they decided that things needed to move. We had to prepare the contract in a hurry, so I was working a little late last night on my birthday.

While our client has to pay in advance, the franchisees get time to pay, so the next step is to update the credit arrangements with the franchisees to ensure our client’s interest in the goods is protected by registration on the PPSR.

If you know of any business having to pay up front for goods, or supplying goods on credit, we have ways of minimising the risks associated.

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