Developers and debt recovery

Developers and debt recovery

By Develop

August 5th 2008 at 10:31AM

Itâ??s vital that games developers pursue any late payments, but legal proceedings should be the last resort, says our legal expert, a partner at media law firm Sheridansâ?¦

Games developers tackle difficult problems – physics simulation, artificial intelligence, interactive storytelling. Yet for those who run games studios, securing money owed in a timely fashion can be the hardest job of all.

Most developers have felt vulnerable awaiting payment from a usually far-larger publisher. After months or years of chasing a deal, small developers frequently start projects in a financially precarious position, while a lack of contingency funds can see even larger outfits living from milestone to milestone. Late or disputed payments can send outwardly successful developers into dire financial straits.

Game developers do have some cards to play, however. The publisher will (at least initially) want its game completed on time and to budget, and since the track record of games started at one studio and finished elsewhere is not an illustrious one, it's in its interest to preserve a working relationship.

The law is on the side of creditors, too. Developers should certainly not rush to the courts; legal procedure requires other avenues be explored first, and besides, valuable business relationships deteriorate rapidly against a backdrop of escalating legal fees. But a mutual understanding of the mechanisms of debt recovery can help forestall problems.

PAYMENT PROTECTION
Closely monitor your cashflow and ensure invoices are being paid when they become due.

Payment terms and late fees should be agreed in advance of any work, in writing. The date by which payment must be made and the consequences of late payment should be expressly stated. Failing that, reach agreement in relation to fees before issuing an invoice.

In the absence of any other express written agreement, a supplier can also rely upon late payment legislation. This provides a default period of 30 days by which fees are to be paid, and allows you to claim interest on late payments, together with a modest charge to cover their collection.

BETTER LATE THAN NEVER
Any supplier owed money should consider the following steps before initiating costly legal proceedings:

1) The first step should be a conciliatory approach. Besides potentially saving the loss of a customer and keeping costs down, the law requires you to try alternative dispute resolution processes before litigation.

2) A third-party may be called in to broker a compromise between supplier and the purchaser.

3) A less costly alternative to legal proceedings is the service of a statutory demand on the purchaser. The latter gets 21 days to make its payment, after which time you can petition for bankruptcy or liquidation, as appropriate. To be entitled to serve a statutory demand, the fees must not be in dispute.

4) Before initiating legal proceedings, determine whether your debtor is sufficiently solvent to pay you. If it isn't then winning in court is of no commercial benefit.

A court Judgment against a non-paying party is a significant penalty. A County Court judgement remains on record for six years, and can hinder applications for credit, while continued non-payment allows you to seek redress through bailiffs, charges against property or earnings, or third-party orders (where the debtor is owed money by someone else).