🧾 What options exist – and which actually work

Business contracts often include:

• 💸 Contractual penalty: A financial sanction for failing to meet specific obligations (e.g., delay or non-payment).

• 🧾 Advance payment: A partial payment in advance – reduces the risk of default.

• 🤝 Guarantee: A third party guarantees performance – common if the client’s solvency is unclear.

• 🔒 Retention clause: Part of the payment is held back until certain conditions are met (e.g., delivery accepted).

Each of these tools has legal rules – and combining them often creates a highly effective safety net.

⚠️ What to watch out for

• Penalties must be proportionate – or the court can reduce them.

• Guarantees must be specific – vague phrases like “penalty will be determined” aren’t enough.

• The guarantor must be clearly identified and agree in writing.

• Retention clauses without a deadline or condition may be unenforceable.

📚 Real-life example

A company delivered equipment, the client accepted it – but didn’t pay. The contract included a penalty of 0.1% of the debt per day – with no upper limit. After two months, the debtor contacted them. Why? The accumulated penalty exceeded the original debt.

✅ Lawyer’s recommendation:

Contractual penalties and similar tools are not a sign of mistrust – they are a sign of responsible risk management.
I recommend including them in every major deal, custom order, or new business relationship – especially when the stakes are high.