Discuss how you would handle the following scenario: Your boss comes to you and says the company's largest customer refuses to pay last month's bill, something about the goods not being what they...

Discuss how you would handle the following scenario:

Your boss comes to you and says the company's largest customer refuses to pay last month's bill, something about the goods not being what they ordered. Boss says the products passed the quality inspection perfectly and there's nothing wrong with the goods. He knows you're studying business law and suggests that a call be placed to the company attorney and a lawsuit filed to collect the $72,000 bill. Then he says, "unless you've got a better idea."

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kipling2448's profile pic

kipling2448 | (Level 3) Educator Emeritus

Posted on

The scenario provides very little information regarding the relationship between the company and its customer, other than the fact that the customer is it’s “largest.”  No mention is made of whether the customer has a history of being problematic or is habitually late paying its bills.  Since the only information provided suggests that this is a one-time event, an aberration in the history of this relationship, the boss’s suggestion that the customer’s refusal to pay because of inadequate workmanship on the part of the manufacturer – your employer – should not be accepted, and the dispute should absolutely not result in legal action at this time.  While legal action may be warranted at some point in the future, it is illogical to alienate one’s largest customer, especially if this dispute is out of the ordinary.  The lawyer’s recommendation need not reference the law at all; the best recommendation would be to ship new goods to the customer.  If the customer accepts them and pays its bill, great; if not, and if discussions with the customer prove fruitless, then the lawyer should recommend writing off the loss, factoring it into its accounting procedures for tax purposes.  Once again, if this is a one-time occurrence, it is not worth losing your largest customer over a dispute of this nature. 

Should the customer be a habitual problem, then legal action may be warranted, taking into account that legal fees could easily exceed the amount owed by the customer by the time a protracted dispute is resolved through the courts, especially if the losing side files an appeal.  The lawyer’s first recommendation, though, should be the appointment, with the concurrence of the customer, of an arbitrator, a less costly process than a court trial.  This would be a fairly straightforward contractual matter – one party contracts with the other party to receive a specified shipment of goods in exchange for prompt payment – and, if the goods are examined and found to be within specifications required under the terms of the contract, then the prospects of prevailing either in court or before an impartial arbitrator are good.  Assume, however, that the relationship between manufacturer and customer is irreversibly damaged by virtue of the former’s recourse to legal action.  Again, the decision, and this is a decision for the boss, not the lawyer, is not what kind of legal action to take, but whether legal action that results in the loss of the largest customer is worth taking, even if the manufacturer prevails in the legal forum.

In conclusion, negotiate a compromise with the customer to either ship new goods, or pay for the already shipped items, assuming it can be proven that the goods in question are within parameters specified in the contract.  If legal action is pursued, the first option should be the appointment of a binding arbitrator to both minimize legal expenses while hopefully retaining the customer.  Worst case scenario: file a lawsuit for breach of contract and accept that your largest customer will no longer do business with your company.  It may not be worth losing the customer over an isolated dispute, but that’s a decision for  the boss.

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parama9000's profile pic

parama9000 | Student, Grade 11 | (Level 1) Valedictorian

Posted on

First things first, talk things out. Most of the time, problems are solved through a compromise, which is achieved through negotiations.

Especially when this is the largest customer for the company, you might or might not afford to lose the deal or suffer the repercussions this might bring to other deals or future deals.

Also, calling an attorney in may not guarantee you success in the case; it also means that you will permanently lose business from this customer, something which you again may not be able to afford.

rachellopez's profile pic

rachellopez | Student, Grade 12 | (Level 1) Valedictorian

Posted on

Like missgarcia said, since this is the company's biggest customer, it would look bad on the company's part to take immediate legal actions. First, ask the customer exactly what they didn't like about the products and do what you can to replace them. You wouldn't want to take the chance of losing this valuable customer, or any customer for that matter. If things still aren't resolved then calling an attorney would be the best option. Losing a small amount of money would be better than losing a large amount by losing customers. 

missgarcia's profile pic

missgarcia | (Level 1) eNoter

Posted on

This is the company's LARGEST customer. It wouldn't be smart from a business standpoint to immediately call an attorney to settle the bill. The customer said the goods were incorrect. Sure, your boss says the quality of the goods was acceptable. But this isn't a question of quality. The customer is always right. So replace the goods with the correct ones and then collect the $72,000 balance. If the customer refuses to pay for the correct product, then contact an attorney. 

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