Factoring Companies Guidebook
Liquidated Damages
Definition
Where debtor contract conditions give rise to monetary claims in the event of non-performance or partial performance by the Client.
Alternative terms:
- Penalty Clauses
Concerns
Invoices subject to potential claims for liquidated damages may be subject to retentions until performance has been confirmed. Alternatively, the period up to which claims may be submitted may extend well beyond the payment date. Not only may this type of claim lead to retentions and offset against the invoices in question, but also against other valid outstanding invoices. Furthermore the extent of the claim may be of a scale that it leads to the demise of the Client. It may also extend to claims beyond the immediate customer, where they may have, for example, installed some bespoke equipment, which has subsequently damaged another customer's equipment to that business's performance.
Identification
Review Clients' and Customers' terms and conditions, together with invoices and purchase orders, for reference to retentions pending confirmation of satisfactory performance. Review Client's insurance policies for cover against liquidated damages for non-performance.
