Did You Know UCCs Give You a Competitive Edge when Extending Credit?
UCC Filings Promote Commerce
In 1952, the Uniform Commercial Code (UCC) was created in an effort to promote commerce between states. Prior to the creation of the UCC, selling between states was similar to how we sell between countries today – there was a great deal of risk involved and little financial security available. Once the UCC was in place, it afforded creditors additional security, therefore enabling creditors to extend more credit aka more sales.
UCC Filing Program is a Team Effort
When implementing a UCC filing program, it’s important to understand the widespread benefits: minimize financial risk, reduce DSO, improve cash flow and increase sales. Wait, “increase sales” – I know you are wondering if you read that correctly – yes, increase sales. UCC filing is more than reducing risk; it’s about the opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines.
In order for a UCC filing program to be successful, there needs to be interdepartmental cooperation. Of course, the credit department will be involved, as UCCs are a means of mitigating your company’s financial risk, but a successful program needs to include involvement from your sales department. After all, it’s quite likely that your sales representatives will be acting as the conduit for signed documentation (i.e. Security Agreement), which means they should have a vested interest in the process.
How UCC Filings Will Benefit Sales
Because your sales team will be involved in the UCC process, it will help if they understand why you’re implementing UCC filings, and how it will benefit them.
What Your Sales Reps Should Know about UCCs
No cost to your customer: The core of properly perfect UCC filing is the security agreement. Your customer doesn’t have to pay to sign a security agreement – it’s like signing any credit agreement. The costs associated with the UCC filing will be paid for by your company (and those costs are minimal).
**UCC filings are NOT reported to credit bureaus**
In the unlikely event that your customer files for bankruptcy protection, a properly perfected UCC elevates your company to a secured creditor position.
If your customer never files bankruptcy and never defaults on payment, then it will seem as though the UCC doesn’t even exist – it’s like an invisible shield: it’s there to offer protection if you encounter harm, but completely unnoticeable in a world of fiscal harmony. If your customer does file bankruptcy and you have properly perfected a UCC filing, you may be able to recover goods and/or funds extended to your customer.
BONUS: If your customer defaults on payments, the Security Agreement can be used as leverage for breach of contract. In every Security Agreement, there are payment terms written into the agreement. Therefore if your customer defaults (i.e. doesn’t pay timely), they are breaching the terms of a signed agreement.
Your company is not the only company securing its accounts receivable through the UCC process. Financial institutions and your competitors are filing UCCs as well. Trust me – your company is not the only company mitigating risk through UCC filings. Hundreds of thousands of companies throughout the country (even in Canada, Mexico, Australia and New Zealand) are securing receivables through the UCC process. Did you know that mortgages, car loans and secured lines of credit often have security language written right into the document? And, when you sign that document, the security language allows those companies to file a UCC. UCCs are a simple part of everyday business.
Minimized Risk = Fewer Write-Offs (If customer write-offs are factored into your compensation/bonus, you may want to pay attention) It’s simple: fewer write-offs lower the costs associated with your product > lower costs mean you can sell at a lower price while maintaining profit margins > selling at a lower price makes your company more competitive, opening the doors to a larger market share > more sales with stable profit margins = a happy boss!
UCC filings create sales opportunities: Sounds counterintuitive – an extra step will result in more sales opportunities? The UCC offers additional security, which means you may be able to sell to marginal accounts that were previously out of reach. How many times have you had the sale lined up only to hear your credit rep tell you “Well, they are going to need to put more money down, based on their financials we can’t justify extending the credit.”? The UCC may substitute for monies down or compromised credit limits.
UCC Filings Create a Competitive Advantage
As you know, the business world is aggressively competitive. Many companies are securing their accounts receivable and those who aren’t are placing themselves at a competitive disadvantage. Take the opportunity to minimize losses and to create opportunities.
NCS Credit Is Your UCC Filing Expert
We are UCC experts and we can help you implement a full service UCC Filing Program. Need help with a single filing? We do that too! Contact us today.
Editor’s Note: This content was originally published in March 2015. It has since been updated and revised for 2023.