Your options when a customer breaches your contract

When two parties enter into a contract, they must follow the agreed terms and conditions outlined. If one party does not fulfil the obligations they agreed to, then a breach of contract has occurred. Businesses often enter many contracts with their clients, and figuring out what to do next can be difficult and stressful.

The first step is to review your contract to confirm that a breach has been made. Having a written contract policy is a great way to make this process easier, as you can refer back to the specified terms and conditions. Written evidence will usually make it easier to resolve the dispute and receive compensation. If your contract was verbal, look for ways to prove that you both agreed on the key terms of the contract.

Businesses are often entitled to a payment that will cover ‘reasonable costs’ of any losses they incur as a result of a consumer breaching a contract. It is expected under the law that both consumers and businesses take reasonable steps to minimise the losses incurred as a result of a contract breach.

Some deals are bigger than others, and you should consider how much the breach will cost your business. For contracts dealing with a small amount of money, common forms of compensation include:

• A payment plan
• Commercial settlement
• An agreement between you and the customer.

If the customer refuses to reach an agreement with you, then you may need to take further legal action by taking them to court. Legal services and efforts to recover a debt can be expensive, so this option would only be suitable for large value contracts. To do this, you need to file a statement of claim, which lets the customer know that you are taking legal action against them. This file will include details of:

• The relationship between you and the customer that breached the contract
• What the breach was
• What sort of compensation you are after.

If you and the breaching customer are still unable to reach an agreement after a statement of claim has been made, the court will then decide if a breach of contract has been made and award you with damages.