Protecting Your Business: Managing Credit Risk When Selling Honey

Having read last month’s report on predatory honey buying, combined with a recent increase in clients from the honey industry, litigation and insurance lawyer Andrew Ferguson offers timely advice to help protect honey sellers.

By Andrew Ferguson

Being a litigation and insurance lawyer means I act for clients in disputes, and I also pursue insurance companies that deny claims. Recently I have been asked to get involved in disputes in the honey industry. This article is the first in a series aimed at helping those in the honey industry safeguard themselves against one of the oldest – and still very real – threats to their business: buyers who don’t pay on time, or at all.

The simplest way to avoid non-payment is to insist on cash on delivery. However, in today’s commercial world, that’s rarely realistic. In effect, when you ship honey without upfront payment, you're extending credit to the buyer – and with that comes risk.

Fortunately, there are practical steps you can take to reduce the risk of non-payment. Here's what you need to know:

1. If the Price Seems Too Good to Be True, It Probably Is

A buyer offering to pay above-market prices might seem like a dream come true. But it’s worth asking: Why do they need to offer such high prices? Sometimes, inflated offers are a red flag.

2. Know Who You’re Dealing With

Before you commit to a deal, do your homework.

• Ask for references: Speak to others who have dealt with the buyer.

• Check their credit history: In most cases, you’ll be dealing with a company rather than an individual. Search the company’s registration and history at the companies’ office. Consider searching for any property ownership, as it could signal financial stability.

3. Put Everything in Writing

In the honey industry, handshake deals are part of the tradition – and often, they work just fine. However, history shows that when the economy tightens or after a market boom ends, handshake deals can quickly turn into expensive misunderstandings. Written contracts provide certainty and, more importantly, they create a clear record if disputes arise later.

4. Read the Fine Print — Carefully

If a buyer provides a contract, don’t just skim it and sign. Read it carefully and, if needed, seek advice. Always ask yourself:

• In the worst-case scenario, who bears the risk?

• Is the language clear or confusing?

If it’s unclear, don’t be afraid to ask for changes or professional advice. The cost of getting advice upfront is often far less than the cost of a dispute later.

5. Scrutinize the Payment Terms

Take a close look at how long the buyer wants before paying — 30, 60, or even 90 days. Ask yourself:

• How long can my business afford to operate without this payment?

• Why does the buyer want such long terms?

  Remember, by agreeing to delayed payment, you’re essentially giving the buyer an interest-free loan.

6. Think About Security

When a bank lends you money, it secures the loan with your house. So why shouldn’t you have some form of security when selling honey on credit?Consider options like:

• A personal guarantee from the individuals behind the company

• Charging interest on overdue payments

• Retaining ownership of the honey until full payment is received

• Registering a security interest on the Personal Property Securities Register (PPSR)

These measures can help ensure that if something goes wrong, you have some protection.

In future columns, I’ll dive deeper into these strategies and share what to do if –despite your best efforts – a buyer still fails to pay. I will also introduce you to the system used in the construction industry both in New Zealand and around the world, which is designed specifically to maintain cashflow and avoid bad faith disputes. It’s a system that could work well in the New Zealand honey industry.

Selling honey is hard work. Getting paid for it shouldn’t be. With the right precautions, you can focus on what you do best: producing top-quality honey for the market.

Those wanting further advice can visit www.dempseyferguson.co.nz or phone Andrew on 021 225 7316.