The concept of a ‘gentleman’s agreement’ is something of a myth in business. Technically speaking, a verbal understanding between two parties is enforceable under contract law, as long as certain criteria relating to contracts are met.

But there lies the rub. If nothing is ever written down, if everything is done on a nod and a handshake, how do you ever prove things like intention to enter a contract and due consideration by both parties?

Unfortunately, people still believe in the concept of a gentleman’s agreement to the extent that they are prepared to stump up cash on the basis of another party’s word alone.

We have lost count of the number of times we have been approached by people saying they are owed X amount of money by such-and-such, either because they paid for something that was not forthcoming, or because they haven’t been paid for goods or services rendered. When we ask for documentation to confirm the arrangement, there is none.

Of course, not having a piece of paper to hand doesn’t mean you aren’t owed the money, morally speaking. But the law is all about proof. It can become terribly frustrating when you know you are owed a sum, but you have no means of proving it.

Proof is in the paperwork

If you purchase something, the golden rule is always to get a receipt. If whatever you bought is not forthcoming for some reason, you then have proof that you are owed a refund. Similarly, if you sell goods or provide services to someone, get an agreement on the terms of sale in writing.

A classic problem for freelancers and contractors is making a verbal agreement over the phone, but never backing that up with written confirmation. When it comes to payment, it is surprising how often clients have a very different recollection of what was agreed on the phone, especially when it comes to price.

It isn’t just a lack of paperwork that causes problems, either. We dealt with a cosmetics manufacturer who was hit with a fake order scam, sending £25k worth of goods to a false address. A contract was drawn up, but the details on it for the purchaser were fake.

Simple background checks will expose fraudulent paperwork. Once goods and money are handed over in a scam, you will struggle to prove the identity of the fraudsters who have your money. In the above case of the cosmetics manufacturer, alarm bells should have started ringing when the purchaser’s address turned out to be a high rise flat in London.

To make sure you can always prove what you think you are owed, follow these common-sense steps:

• Always spell out the terms of a verbal agreement in writing. Even if you don’t go as far as a formal contract, write down what was agreed in a letter or email, indicate the date it was agreed, the names of the people who were involved in the conversation, and ask for confirmation by return that they are happy with what has been put down in writing.
• If you are dealing in cash, always get a receipt.
• Check the details. Make sure the contact information of any party you are dealing with matches to the people you think you are dealing with. Don’t be afraid to go with a gut instinct if something doesn’t feel right - would you expect to receive a £25k order from a business operating out of a residential address?

Overall, the more thorough and organised you can be with your paperwork, the more assistance it will give you if you ever need to chase a debt.

Image "Protect Key" by flickr user "Got Credit" used in accordance with CC by 2.0