Strategic Ways to Incorporate Security Agreements
Category: UCC | Posted on 05/01/2008
Taking a secured interest in your customers' collateral brings numerous benefits. Learn what considerations should be made to approach customers for them to extend these benefits to you.
Strategic Ways to Incorporate Security Agreements
When you are presenting Security Agreements to your customer, there are some issues that must be taken into consideration. Are you asking for security from a new customer or an existing one? They are 2 very different situations and must be addressed accordingly. If it is a new customer, how have you arrived at the decision to request security? Is it because the credit line exceeds an established threshold? Does your bank place a greater value on secured accounts versus unsecured accounts? Both are good reasons to request security with which your customer would have a difficult time arguing. If it’s an existing customer, are they past due or over their credit line? With existing customers requesting security is a little more difficult. You really need to think about how you can make it palatable for the customer to sign the security agreement. Can you trade an increase in their credit line for security? Do you use security as a tool to drive the debtor back to within terms?
Some of the other reasons creditors would request a security agreement:
- The debtor has requested a particularly large order which is out of their norm
- The debtor has a declining financial situation
- Liens have been filed on the debtor
- Judgements have been awarded against the debtor
- The debtor has had a change of ownership or structure
- The industry has had a downturn in business
- The creditor wishes to sell more and drive market share using a larger credit line, which requires security
- The debtor needs a favor!
Some important points to understand when presenting security agreements to your customer;
- The security interest will cost your customer nothing
- Your secured interest will rank behind the debtors bank, so you won’t impact their borrowing ability
- The security interest only will become an issue if your customer defaults. If they pay their bills it will be irrelevant.
Perhaps a way to present this would be to offer 2 options: Standard terms or extended terms. That way the customer can choose which way they want the account to be handled. Or, call it your Extended Terms Program, which they qualify for. Perhaps it includes a price freeze for a 12 month period. All they need to do is sign the Program Agreement (which contains the security verbiage.)
It’s interesting to see how the culture affects the behavior. When you purchase a car, you fully expect the parade of paperwork that you are required to sign, which includes a secured interest in the car. In the business world it’s a little different. The way that the security agreement is presented will influence how the customer views it. Presenting the security agreement in a manner that it’s just a generally accepted business practice will result in more agreements being signed than presenting it in an apologetic manner that insinuates you feel you are infringing on their business culture.
Taking a secured interest in your customers’ collateral brings numerous benefits. Consideration has to be given to how to approach customers for them to extend these benefits to you. The answer is always “no” if we don’t ask the question.
Written by Jerry Bailey,
NCS
Executive
Sales and Education Services Manager
To learn more about NCS or to place an account visit our website, www.ncscredit.com.