Factoring Companies Guidebook
Installation/Commissioning
Definition
Where the subject of an invoice is not complete and the debts are not collectable until the goods have been installed and/or commissioned.
Concerns
The debt may only be payable after installation and commissioning but if the goods and the installation/commissioning are invoiced separately, then amounts may be advanced against the goods, dependant on the terms of sale. The terms must acknowledge that each aspect is a separate transaction and there is no potential for offset reclaim against the goods invoiced if installation and commissioning are not completed.
It should be noted that third parties may in fact carry out the later items and the client may have little or no control over the timing of the subsequent work or its quality.
If the installation or commissioning, depending upon the nature if the equipment, is faulty there is also a risk of corrupting other work e.g. in computer software installation, which may also lead to penalties and substantial damages claims. Even after commissioning, payment of debt may be subject to satisfactory operation of equipment for a period of time.
It is generally acknowledged that these types of issues tend to arise with large items of capital equipment and machinery, however it can arise with office furniture and computer software, although the latter would generally relate to bespoke rather than standard off-the-shelf packages.
Identification
Review the nature of the product. Review the terms and conditions of Sale and Purchase.
Determine whether the goods and any installation or commissioning are dealt with completely separately.
Identify the timescales for installation or commissioning and the parties that carry out the work.
Identify whether invoices are supported not only by signed proof of delivery but also signed satisfaction notes.
Review the ageing of the sales ledger and the reason for non-payment of old debts. This may identify retentions for installation or commissioning and indicators of the elapsed time after commissioning before the final invoice payment.
Treatment
Where installation or commissioning is involved these items should not be assigned or at least funded until the work is completed and evidenced by a signed satisfaction note, letter of acceptance or other proof of completion.
If the incidence of this type of work is identified to be a relatively small part of the total ledger, it may be possible to cater for it by the creation of a reserve or reduced PPF.
