WHAT TO DO WHEN A CUSTOMER DIDN’T HAVE AUTHORITY TO SIGN THE PAYMENT TERMS CONTRACT

WHAT TO DO WHEN A CUSTOMER DIDN’T HAVE AUTHORITY TO SIGN THE PAYMENT TERMS CONTRACT

When you work in the accounts receivable department of any company, you will likely hear every excuse in the book over the course of your years collecting. One that ends up being fairly common is that the company will not pay the invoice because the employee who signed the contract never had the authority to do so in the first place. Although this may sound like a legitimate excuse, most companies are just using this as an excuse.A company refusing to pay an invoice because an unauthorized employee signed the contract may either not be aware of the law or be pretending like they are unaware of the law. The law that some may be unaware of is Apparent Authority. Apparent Authority is the area of the law that states if a reasonable business would assume that the employee they are dealing with has authority to act, then the party is bound to that employees actions, even if they had no real authority.

This does not mean that an employee may have gone behind their bosses back and was deceitful towards your company. In order for you to reasonably assume that the employee has authority simply means that they may have been using logo-ed stationary, business cards with the company logo or even just using the company email address or phone number to enter into the contract. An employee with any of these things while entering into a contract makes it binding, not whether the company themselves saw them as someone who had authority or not.

If you find yourself in a situation where a company is claiming that they will not pay the invoice because an unauthorized employee entered into the contract, it is best to ask them a few questions first to find out whether they are simply unaware of the law or pulling your leg. You may want to ask how many people work for the company. If they are a large corporation, they are likely aware of the law. Ask where they work from. If the employee was not working in the office when they signed the contract, they may truly not have had the authority. Once you’ve had a few of your questions answered, then remind them of the law of Apparent Authority. Have some literature from a legitimate website explaining what it is and how it works.

Once you have let the customer know what Apparent Authority is and why they are still bound to the contract, don’t allow the customer to bring the subject up again while trying to get them to pay. They now owe you money and it needs to be collected on time. Focus on working to get it paid as quickly as possible.

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