Knowing the type of customer you are dealing with should be one of the first steps taken to assess risk and legal requirements – this should be considered at the start of dealings and should also be regularly reviewed.
In this article, we will look at “KYC” from a Business to Business (B2B) debt recovery point of view. Taking formal recovery steps through the courts against the wrong debtor allows for a complete defence of any recovery proceedings.
If you would like any more information on the topic discussed below, don’t hesitate to contact us.
What type of customer are you dealing with?
There are typically five forms of legal personality:
- Sole Trader
- Partnership
- Limited Liability Partnership (LLP)
- Private Limited Company (LTD)
- Public Limited Company (PLC)
From the outset of dealings, you MUST know exactly who you are dealing with. It is far easier to obtain this information when at the start. There are two ways to do this –
- through the completion of an account opening questionnaire
and/or
- an order form. Either of these documents should ensure that the correct information is obtained and recorded.
A review of information should also be carried out from time to time with existing customers to ensure that the correct and up-to-date information is held. This may occur following a change of personnel or company status.
At Beeston Shenton, we can assist you in formatting a questionnaire to ensure that all the necessary information is captured to protect you, should it prove necessary to take recovery steps.
Ostensible Authority
Not only is it important to ensure you have the right customer details, but it is also important to establish that the person you are dealing with has the required authority to bind your customer. Ostensible authority is the power of an agent to legally bind its principal (the customer) with you. The authority to bind the principal is “ostensible” because it is the perception of you as a third party concerning the apparent power of the agent which binds the principal. When an agent holds themselves as having authority over other businesses or the world at large and does not inform the third party of a limitation of the actual authority, the principal may be bound because of the ostensible authority represented by the agent.
Holding Out with Authority
The holding out is satisfied by appointing a person to a particular position within a company’s office or by producing the indications of authority, such as letterhead, notepaper, business cards or email footer, knowing that the agent is purporting to represent the company. All these involve the company permitting the agent to purport to act on behalf of the principal entity.
Impact of Ostensible Authority
The agent is liable to the principal for exceeding their power, as it is a breach of contract to exceed one’s authority to act for another. The third party is not bound by the principal unless the principal ratifies the contract. Directors of companies are in a special position concerning the affairs of the companies to which they are appointed. A presumption arises whereby the director is presumed to have the power to bind the company when the third-party acts in good faith.
Continuation of Authority
Ostensible authority may continue after the actual authority has terminated and the principal has revoked the actual authority of the agent. This continuation of power to bind the principal may arise where a third party has acted in good faith on prior conduct and does not have notice of the termination of the actual authority of the agent.
Examples of Ostensible Authority
The Sales Director has no authority to sign any document on behalf of the company or has actual power to sign a specified class of documents (such as purchase orders up to a certain value but not anymore) and exceeds their authority. Instances of a person having ostensible power include:
- The agent represents themselves to third parties as a director of the principal company, such as a Sales Director, when in fact the person is not formally appointed as a director of the company.
- An employee represents that they have authority to bind the company or person when they do not have actual authority.
How Beeston Shenton Can Help
We have a wealth of knowledge and expertise in debt recovery steps to aid your business. We provide a considered approach to speed up debt recovery collections whilst minimising customer conflict and reducing the risk to your business. Our service is tailored to match the individual needs of your business and we pride ourselves in offering bespoke, cost-effective solutions to aid your debt recovery needs – from simply chasing late payers to legal proceedings, including all county court and insolvency processes. We are dedicated to helping our clients improve cash flow and increase the profitability of their businesses and we use the latest in Debt Recovery software, enabling us to process both prelegal and legal collections promptly and efficiently.
Contact us for a free consultation
If you need any advice or further information regarding this article, please contact us. As discussed above we offer a free initial consultation and if clients have a viable claim, we offer a variety of retainer options including no win – no fee arrangements. Every case or potential case will be assessed, on its own merits.
If you have found this article interesting and would like to learn more about how Beeston Shenton can help you please feel free to contact the writer, Iain Bould, at iain.bould@beestonshenton.co.uk or via the contact page on the website.
