Client in dispute with Customer over cancellation charge

Client in dispute with Customer over...

Didn't find your answer?

Client has received an advance payment on a Sale several months ago. Customer whom is based in Africa then cancelled the order and requested the monies to be returned.  The Amount in question is £125,000 and there is no evidence any goods were despatched.  Client is saying there is a dispute over the cancellation charge and the intention is to pay the money back albeit instalments.  It also seems they have already spent a lot of this money as well and do not have the funds to pay it back

When drawing up the statutory accounts,  I entered the full amount as both the director and accountant (who do not get along) said the amount was in dispute and should not be considered as a "Sale" My mistake was not seeing evidence e.g emails.  

A couple weeks ago I receive an email from an ex employee who was fired from the company and seem bent on revenge (long story) saying the client stole the money from the customer and would report this to HMRC

I am concerned on two fronts: 

I did not get the evidence for the amount in dispute - client is saying there is no emails which I do not believe.  Though the accountant who has left the company and have a good relationship (Whom I saw last week) said there are emails and director has a poor memory so probably can't remember and the amount is definitely in dispute but the director conveniently is burying his head in the sand.

Secondly HMRC may investigate and then expect the company to take the cancellation charge  (whatever that maybe) as income in the accounts 

Replies (33)

Please login or register to join the discussion.

avatar
By Roland195
27th Jul 2015 13:07

Wouldn't be losing sleep over it

Assuming you did not formally audit the accounts you have acted in accordance with the director's instructions and could be realistically argued to be the prudent accounting treatment anyway if the amount is still under dispute.

The cancellation charge will presumably appear in the next periods financial statements and I can't see HMRC getting hugely excited about it in the mean time.

The only exposure I can see here for yourself is if you think the client actually has stolen the money which would be a AML issue to tie yourself in knots over.  

Thanks (1)
By johngroganjga
27th Jul 2015 13:18

You say on the one hand that there is a dispute and on the other that the client intends to repay the money.

So which is it?

And if there is a dispute, what is the nature of it?

Thanks (1)
avatar
By taxwizard
27th Jul 2015 13:28

Cancellation charge

According to the director There is a dispute over the cancellation charge but once they agree they will pay the money back

The Ex-Accountant thinks he probably doesn't have the intention paying the money back until he gets the legal notice.  Though I am sure since the amount in question is substantial that he may consider liquidating the company.

I do not have any evidence that he has stolen the amount unless the amount still remains outstanding by the time I file the next set of accounts. 

 

 

 

Thanks (1)
By johngroganjga
27th Jul 2015 13:31

Do you mean there is a dispute over whether the £125,000 should be repaid, or over something else?

Thanks (1)
avatar
By taxwizard
27th Jul 2015 14:03

£125,000

Yes the customer thinks whole of £125K shold be repaid while client thinks a cancellation charge applies.  There is nothing in the terms and conditions on the cancellation charge.

Thanks (1)
By cheekychappy
27th Jul 2015 14:09

If there's nothing in the T&C

If there's nothing in the T&C's or contract regarding cancellation charges, and no other documentation to substantiate a claim for cancellation, your client has no grounds to apply the fee.

£125,000 should be repaid to the customer. This just sounds like a delaying tactic from your client.

Thanks (1)
By johngroganjga
27th Jul 2015 14:31

So in that case you keep the entire £125k in creditors, and simply await the resolution of the dispute.  What could be simpler?

Thanks (1)
avatar
By taxwizard
27th Jul 2015 14:32

yes

Yes it is a delaying tactic and is just staying quiet hoping they go away but surprised the customer has not sent in a legal notice though maybe due to the fact they are based in Africa. I think it is dishonest and maybe maybe tantamount to theft

Thanks (0)
By johngroganjga
27th Jul 2015 14:34

It's not theft - it's a dispute!

Thanks (1)
Replying to Crouchy:
avatar
By taxwizard
27th Jul 2015 17:32

deception ?

johngroganjga wrote:

It's not theft - it's a dispute!

Yes according to the director its a dispute but the ex accountant thinks its just an excuse  for the company to keep the money which seems very close to deception or maybe fraud.   No reason for the company to hold the money and nothing in the T&C about cancellation charge

There hands maybe forced at some point when the customer starts to put pressure on them and can't see them having enough funds to pay the money back . 

Thanks (1)
By johngroganjga
27th Jul 2015 14:35

Like I said the decision about how to account for what has occurred so far could not be simpler.

Thanks (1)
avatar
By Banzai
27th Jul 2015 14:59

Money Laundering

this whole thing smells like a ML exercise to me, with money coming from Africa and going back again having been cleaned up in a UK account in the meantime.

 

 

Thanks (3)
Replying to tamasv:
avatar
By taxwizard
27th Jul 2015 15:14

No

[quote=Banzai]

this whole thing smells like a ML exercise to me, with money coming from Africa and going back again having been cleaned up in a UK account in the meantime.

 

 

[/quote

No nothing to that extreme

Thanks (0)
avatar
By Banzai
27th Jul 2015 15:18

Fair enough

it just looks so much like one of the scenarios in one of the many many online AML courses i have done over the years :)

Thanks (0)
avatar
By User deleted
27th Jul 2015 15:37

If it's money-laundering ...

... they're not being particularly clever. I agree that there are certain similarities to various examples but it would usually be the case that the customer would accept a cancellation charge - (a) ensuring that they get the cash back promptly and (b) adding a degree of legitimacy to the transaction. I've heard it said that money-launderers are among the few people that are happy to pay tax and other charges  :¬)

Thanks (2)
avatar
By WhichTyler
27th Jul 2015 17:30

Hmmm....

If your client thinks a cancellation charge applies, why doesn't he return the balance of the money, and keep the cancellation charge? This would show he has honest intentions (which would help if it ever goes to court), and reduce the risk of a legal claim (because the amount at stake is smaller)?

[Answer: because he has spent it?]

 

Thanks (1)
avatar
By taxwizard
30th Jul 2015 14:52

update

I am getting a lot of grief from an ex-employee who was sacked for gross misconduct.

This employee is based overseas but has been sending me threatening texts, emails and making calls.

He has a vendetta against the company as he feels he has been mistreated and is owed money hence has targeted me too

He has said that the company has stolen money and I am aware and know about this fraud as the company has not returned the money.  When he called me all I said it was none of his business or mine hence told him to move on in life.  In the end he went berserk so put the phone done.

The employee has clearly lost the plot and has reported me to benefits agency (yes benefits), FRC (I do not audit) , ICAEW (I am not a member of the ICAEW).  I think he has contacted HMRC too.  My concern is if starts writing bad reviews on Google as the guy is totally irrational and unpredictable.

All I have been told by the company is that despite this transaction happening over a year ago, there is a dispute over the cancellation charge and that a payment schedule needs to be agreed once they contact me formally.  I have been told verbally.  Should I get this in writing to protect myself.

 

 

Thanks (1)
By johngroganjga
30th Jul 2015 15:01

What is the connection between this scenario and the previous one?

Your last paragraph suggests there is, but what it is is not clear.

Thanks (1)
avatar
By Roland195
30th Jul 2015 15:21

What do you need to protect yourself from?

You were not a party to the transaction in question and it is not within your power or responsibility to settle any of the disputes between the company and it's customer and it's ex-employee.

All you have done is prepared the accounts on what seems to me to be a prudent basis on the instruction of the director. The ex-employee can report you to the police, MI5 or the A-Team and as much good it will do him.

Perhaps David Winch will provide you with a better answer for any AML reporting obligations you may have, but for what its worth, I can't see any evidence of a crime being committed - it is certainly looks odd to hold onto the money if no goods where ever dispatched but if there is a genuine dispute over costs incurred then this would feasibly drag on for an extended period.

 

Thanks (1)
Replying to ccaspell:
avatar
By taxwizard
30th Jul 2015 15:43

AML

Roland195 wrote:

You were not a party to the transaction in question and it is not within your power or responsibility to settle any of the disputes between the company and it's customer and it's ex-employee.

All you have done is prepared the accounts on what seems to me to be a prudent basis on the instruction of the director. The ex-employee can report you to the police, MI5 or the A-Team and as much good it will do him.

Perhaps David Winch will provide you with a better answer for any AML reporting obligations you may have, but for what its worth, I can't see any evidence of a crime being committed - it is certainly looks odd to hold onto the money if no goods where ever dispatched but if there is a genuine dispute over costs incurred then this would feasibly drag on for an extended period.

 

I was thinking too on AML but unsure if such a transaction would merit a disclosure,  

The client will probably pay something once the customer starts legal action which for some reason it hasn't (maybe as its based overseas).  The customer has just made calls and sent emails which have been ignored.

Yes it would be great if David Winch would provide his invaluable advice

Thanks (1)
avatar
By andy.partridge
30th Jul 2015 15:36

Confidentiality

1. Client confidentiality prevents you from discussing sensitive commercial issues with a disgruntled ex-employee.

2. If the ex-employee's actions amount to harassment you can take appropriate legal advice.

3. If you are satisfied, on a professional level, with the client's explanations there is no more to be done. The real question is, are you?

4, If you are not then you might explore matters until you are.

5, If the matter is not explained and resolved to your satisfaction then you must consider AML issues.

I am wondering what grounds the client has to regard this as a 'dispute'. Is this dispute contrived merely to deny a just repayment?

Thanks (0)
avatar
By WhichTyler
30th Jul 2015 16:14

So perhaps ask youself...

"If he had the money in the bank account and put it aside then I wouldn't have an issue but he hasn't got the money and has spend most of it."

 

So does this mean that if you show the full amount as a creditor (as recommended by JGR above), then the company is balance sheet insolvent? 

If they have spent it on (for instance) plant & machinery within the company that can''t be liquidated easily, then are they able to 'meet their obligations as they fall due'?

In either case, it's clear what the next step should be...

Sometimes it seems most of AA could be replaced be a short flowchart that says:

Q. Have you got any money?

     If YES: Consult an accountant

     If NO: Consult an IP

 

Thanks (2)
avatar
By qad999
31st Jul 2015 13:23

its his company and his problem

ask the director what his best estimate of the cancellation charge is ( he might be claiming he is due damages for cancellation )  , show that as income and the rest as creditor , include it in a letter of representation (i still use them even for unaudted accounts) .. and its not your problem so i am not sure why you are getting entangled in this dispute

if he's spent the money , unless there was a condition whereby it was to be held in client a/c or trust a/c , its just too bad   ..and  if the company is insolvent , just alert the directors to their responsibilities

and while you are at it tell the ex employee not to ring you anymore

Thanks (1)
By Democratus
31st Jul 2015 14:27

There may be some legitimate reason to withhold some money...

... if your client had expended some time and effort and indeed money in commencing the sourcing/ manufacture / procurement of the product or service they provide before their customer "cancelled".

That being said i would expect that refunding the non disputed portion would show goodwill and a positive attitude to dealing correctly with the dispute.

taxwizard wrote:

Yes the customer thinks whole of £125K shold be repaid while client thinks a cancellation charge applies.  There is nothing in the terms and conditions on the cancellation charge.

Surely no one sent £125K to your client without some reasonable level of paperwork and contract conditionality. I suspect there is some somewhere, though it's not really your problem. Accounting for the facts as given by the director is your responsibility.

Thanks (1)
David Winch
By David Winch
01st Aug 2015 12:03

MLR (not)

It seems that you believe there was a genuine customer order & payment then a genuine cancellation.

It may prove to have been unwise of the company to have spent the money & it may be that you have to consider whether the company is a going concern.

Do you believe that if the order had not been cancelled the company could have completed the order & continued trading (so there was no dishonesty in the company taking the order & this is not a case of fraudulent trading)?

If so it seems there is no dishonesty there.

Also if there is a genuine dispute re cancellation there seems to be no dishonesty there - even if the supplier is dragging his feet over the refund.

If there is no dishonesty I suggest there is nothing to report under MLR.

David

Thanks (1)
Replying to lionofludesch:
avatar
By taxwizard
01st Aug 2015 17:02

Thanks

davidwinch wrote:

It seems that you believe there was a genuine customer order & payment then a genuine cancellation.

It may prove to have been unwise of the company to have spent the money & it may be that you have to consider whether the company is a going concern.

Do you believe that if the order had not been cancelled the company could have completed the order & continued trading (so there was no dishonesty in the company taking the order & this is not a case of fraudulent trading)?

If so it seems there is no dishonesty there.

Also if there is a genuine dispute re cancellation there seems to be no dishonesty there - even if the supplier is dragging his feet over the refund.

If there is no dishonesty I suggest there is nothing to report under MLR.

David

Many Thanks for everyone taking the time to reply. You all have offered some interesting insights and calmed me which I am grateful for. 

However, I do think the client has behaved unethically and had no right to hold the money.  Yes, without the £125,000 the client would have have serious cashflow issues

 

It is perilously close to insolvency but not quite and anyway I cannot see the company surviving but that is a different story and one for another day

 

 

Thanks (1)
By JCresswellTax
31st Jul 2015 15:21

@Taxwizard

Having looked at your previous questions, you don't half have a lot of very difficult clients!

Thanks (0)
Replying to GW:
avatar
By taxwizard
01st Aug 2015 17:05

makes life interesting

JCresswellTax wrote:

Having looked at your previous questions, you don't half have a lot of very difficult clients!

I am sure everyone as a few difficult clients though some of you experienced accountants probably have got rid of them long ago

One day I will get in a position to pick and choose clients but not yet.

Thanks (1)
avatar
By [email protected]
01st Aug 2015 11:14

Can a customer cancel a contract?

When a willing buyer and a willing seller enter into a binding contract, is there any general right in law for the buyer to cancel the contract unilaterally at any time before the actual supply of the contracted goods or services?  (There was apparently no provision in this contract for such cancellation)  

Doesn't this oblige the seller to provide the contracted goods and services and entitle him to keep all the money UNLESS he and the buyer subsequently negotiate and agree to set aside the original contract?  A new contract might release the seller from the obligation to supply and might require him to refund a substantial part of the payment he received under the original contract.

Thanks (1)
avatar
By andy.partridge
01st Aug 2015 12:00

Interesting point above

If there is no provision in the contract for cancellation then the client might have a claim to the money, but equally there is surely an obligation to supply the goods.

Thanks (0)
avatar
By qad999
01st Aug 2015 19:20

its not your job to talk about client "ethics"

you are making value judgements about client ethics.. thats not your job...you are not a solicitor or a county court judge .. you need to stop it.... you are making things difficult for yourself.. and you will probably  end up enmeshed in all sorts of client disputes.. do your job , (the thing you are being paid for ), comply with any responsibilities you have - MLR rules, professional regulations ,  etc , then formally  record any client representations to cover yourself  .. then just bill the client and hopefully get paid...

 

Thanks (1)
By The Minion
11th Aug 2015 16:35

maybe it is theft, and a conspiracy...

I realise this may seem paranoid but...

 

Have you considered that the "ex employee" presumably of the paying company may have sent the money across "by mistake" to the UK company on the basis that the UK company would "cut him a deal" and pay him a commission (or cancellation fee) for his trouble. The overseas guy has been caught, sacked and now wants his side the bargain. Hence the agitation...

 

Just a thought :)

 

I have had dealings in the past with African companies and at one time someone abused their trust and was found asleep in a packing case at an airport, but don't let that worry you :) :)

Thanks (0)