Service Area: Collection Services

What Should Vendor Do When Customer Files Bankruptcy

Posted on June 10, 2016 by - In Other Commercial Credit News

What Should a Vendor do When their Customer Files for Bankruptcy?

It’s an unfortunate part of doing business: customer bankruptcy. As you already know, we strongly encourage you to take steps to ensure you are a secured creditor. Properly executed UCC filings & mechanic’s liens permit you to secure your right to recovery by attaching to collateral – whether it’s consigned goods or the improved property.

So, if you’ve taken precautions to position yourself as a secured creditor and your customer files for bankruptcy, what should you, as the vendor, do? In an article from Jimerson & Cobb P.A., “Vendor’s Checklist When a Customer Files for Bankruptcy,” the author provides a thorough list of actions you should/could take.

In fact, the author provides 51 steps!

He recommends you “review the business relationship,” which would include reviewing contracts, credit applications, open invoices and statement of accounts. Reviewing the relationship will help you determine whether or not you will continue to do business with this customer and what payment terms you will apply to the future relationship.

Next, the author delves into the legal actions you should complete. These are all steps we’ve discussed before in previous posts, but this article provides a thorough examination of each step.

The author recommends you file a notice of appearance, attend the section 341 meeting, stop all collection efforts so as to not violate the automatic stay, proactively deal with potential preference actions, file a proof of claim by the bar date and possibly stop the delivery of goods. He also advises you to consider your reclamation rights, assert 503(b)(9) claims and, if you haven’t already, file a mechanic’s lien.

As an attorney, the author recommends and further explains a few actions we haven’t discussed:

  • Consider serving on the creditors’ committee
  • If appropriate, seek critical vendor treatment
  • Protect your rights under executory contracts
  • Confirm the debtor’s authority to use cash collateral

The author ties up his list with great advice: “Monitor the docket and exercise vigilance….” Let me emphasize “exercise vigilance.” If your customer files for bankruptcy protection, regardless of chapter, you must stay informed and be an active participant. Taking a passive role, even as a secured creditor, can be harmful.

Assessing and Reinforcing Litigation in Mexico Part 2

Posted on June 2, 2016 by - In Other Commercial Credit News

Assessing and Reinforcing Litigation in Mexico Part 2: Risks

Contribution by Mr. Romelio Hernández

Romelio Hernández is President at HMH Legal, a professional corporation specialized in credit and collection services in Mexico. He is based in Tijuana, Baja California, México, where he works extensively with foreign exporting companies and collection agencies assisting them with their out-of-court and legal collection efforts throughout Mexico. His litigation experience of sixteen years and exposure to international commercial law has allowed him to provide guidance to foreign companies in mitigating the various risks of selling international. Romelio graduated from Universidad Autónoma de Baja California, and was admitted to practice law in Mexico since 1997. Romelio holds a Masters’ Degree in Comparative Law (LL.M.) from the University of San Diego School of Law (2011).

This is part 2 in a 3 part series.

View part 1 on Costs & Rewards here.

Once you have confirmed that you have a case worth considering based on costs and rewards, you have to assess the risks associated with your action to determine the likelihood of success. The bottom line is whether you will be able to seize assets from your debtor, and whether you can win your case. These questions should be analyzed in detail.

A. Will you be able to execute if you win?

If you are to consider legal action, you have to make sure that the debtor has sufficient assets worth seizing to pay your debt, and you have to make sure that you will be able to execute against the debtor. These are two different things, for which you will have to assess the debtor’s legal, financial, and commercial situation to make sure that your action will not present major risks.  It is important to address the following issues:

  • Legal. A debtor that has changed its company name, or is conducting business under a different entity, presents a major challenge. While this may constitute fraud, prosecuting authorities are just not reliable enough to bet on them for legal redress. In addition, piercing the corporate veil in Mexico is extremely difficult, so it will be a risky case when your registered debtor is no longer there and you intend to pursue against a wealthy owner or parent company.
  • Financial. If the debtor is still there, you want to make sure that he has enough assets to seize and pay your debt. These not only include real estate, but inventory, bank accounts, and other movable assets that you can also seize. While a physical inspection at the debtor’s premises is a good way to start to uncover assets and confirm business operations, an investigation at the public registry of property and commerce is highly recommended to find out about possible liens, lawsuits, loans, etc. If the company is totally encumbered it may mean that you will be at the end of the line of creditors, with nothing left to pay your debt.
  • Commercial. The debtor may have assets now, as well as a sound business, but what will his situation be in a year or two when you win your case and are ready to execute? This is where you need to consider the debtor’s presence in the market, as well as its history. A debtor with no presence and no history will have no problem turning to fraudulent schemes to change its company name and conceal assets to avoid execution. A debtor with this possibility definitely presents more risk.
  • Lawsuits. A Google search might provide information about possible lawsuits against the debtor, but it is not  always reliable. There are specialized reports that provide reliable information from court systems throughout Mexico. These are highly recommended to uncover additional exposure from the debtor, something that will also add risk to your case.
  • Collateral. When the debtor’s situation is not good, you can always count on collateral to raise the likelihood of collection. If collateral was provided and your Mexican attorney can confirm that it is enforceable in Mexico, you are reducing unwanted risks. Thus, when all previous factors are unfavorable, collateral may be what saves your case. You will just want to make sure that the collateral has not depreciated to a point where it does not cover your debt.

B. Will you be able to win?

Before you can execute, you have to get a judgment, and you have to get it fast. There are many factors that determine the likelihood of success of any case. To find out about it you have to ask yourself the following questions:

  • How strong is the case? In order to enforce a contract, you have to prove that you performed on your end of the bargain. In a case of sale of goods, it means proving that you delivered the ordered goods, and that the debtor received them. The Mexican legal system relies heavily on documentary evidence, and the documents that can get the job done are shipper imports from the Mexican customs’ office (“pedimentos de importación”), and bills of lading or signed delivery receipts. If you don’t have these documents, or a written acknowledgment of debt from your debtor, you are in for a tough case. On the other hand, there are certain documents that allow a privileged action that lowers risk, time, and cost. These are promissory notes (“pagarés”) and checks. If you have these you are turning the burden of proof to your debtor, which releases you from proving anything in regards to the sale of goods. In conclusion, with documents that prove performance, your case is strong. With a pagaré, your case is much stronger.
  • How good are the courts that will hear your case? Mexico has a state and a federal court system, and the performance level between courts vary greatly from state to state. Each jurisdiction has its own set of problems that will be different from the next. While in one you will find social problems that inhibits execution against companies, in another there will be corruption, and in another lack of infrastructure or sufficient staff at the courts, lack of qualified and trained officials, and on and on. There is a survey study from ITAM (Instituto Tecnológico Autónomo de México) and Moody’s Investors Service Mexico that rates the level of performance of courts in Mexico. This would be a reliable source to start by evaluating the performance level of the courts where you will bring suit against your debtor. The next good source will be your local attorney in that jurisdiction, who should be able to disclose other problems that influence the performance of the courts, such as violence. If you are stuck with a jurisdiction that rates poorly or presents other problems, you will have to and should consider it as increased risk.
  • What is the history of the debtor? A debtor with a history of lawsuits will definitely pose a major threat to the likelihood of collection. These debtors are the ones that will easily deny the debt before a judge (without any worries about perjuring themselves), and that will easily turn to fraudulent schemes to hide their company and protect their assets. These debtors usually have defense attorneys on their payroll, so they just don’t mind when the next lawsuit arrives. Here, the chances of settlement will be slim, so you have to have a strong case and litigate all the way. To avoid any surprises a specialized report on lawsuits is highly recommended.

DISCLAIMER: The information you obtain in this article is not, nor is intended to be legal advice. The law office of HMH Legal will only provide legal advice after having entered into an attorney-client relationship. It is imperative that any action you undertake be done on the advice of counsel, and not based solely upon this article.

Recovery Options for Secured and Unsecured Creditors 

Posted on May 24, 2016 by - Credit Risk Management

What to do When You Haven’t Been Paid: Recovery Options for Secured & Unsecured Creditors

You supplied materials or services per the contract or purchase order, now your customer needs to pay for those materials and services. Just because they need to pay you doesn’t mean they will pay you – it’s a tale as old as Mr. Jefferson himself (if he were still alive of course).

Whether you are a secured creditor or an unsecured creditor, slow-paying and non-paying customers are, at the very least, frustrating, time consuming and often costly burdens.

This article will provide you, the secured or unsecured creditor, with some recovery options in the event you are unpaid. These recovery options may not be “new and groundbreaking.” These options may even seem too simple to be effective. But don’t underestimate their power and success!

The True Cost of Write-Offs

Before delving into tips on collections and the remedies for secured & unsecured creditors, you must understand the true cost of a write-off and weigh that cost against the cost to proceed with collection efforts.

The cost of write-offs to a company can be crippling. A write-off of $50,000 at a 30% margin means you would have to generate $166,666 in additional sales to recover that lost profit. If you operate at a 15% margin the additional sales mushroom to $333,333.

It may not be an issue when one customer is slow paying, but it’s never just one customer; it is several customers and it can have a significant impact on cash flow. If you have 10 accounts paying an average of 20 days late and each is invoicing at $50,000 you could have $500,000 + outstanding.

How to Make the Collection of Unpaid Monies Easier

You have likely heard this dozens of times, if not more, but it’s critical to start the collection of unpaid monies the moment they become past due. Here are a few steps on how to make the general collection process easier.

  • Monitor open invoices: Routinely review open invoices and as soon as an invoice is past due (e.g. If you bill on 30 day terms, day 31) contact your customer and inquire on the invoice.
  • Try multiple mediums: Use phone calls, emails, demand letters, etc. & make sure you keep track of your communications – good record keeping is important!
  • Pay attention to cues: Social cues & non-verbal cues are frequently early warning signs that an invoice (or customer) is going to be an issue. When people stop communicating they are sending a clear signal “I can’t/won’t pay the invoice, and maybe if I ignore you, you will go away.”
  • Check status: Note changes with your customer’s business, such as a disconnected phone number, undeliverable mail or email, and changes in their corporate status with the Secretary of State.
  • Review credit: Credit reports can provide a wealth of information, especially for payment history, DBT changes, recent collection placements or judgments.
  • Cut them off: If you have invoices that a customer isn’t paying, stop extending them additional credit. Debt is like a beast and if you continue to feed it, it will gobble up every last bit and give you nothing in return.
  • Know when to let it go: Don’t immediately toss the invoice into the bad-debt-write-off-pile. “Let it go” from your desk and move it to the desk of a specialized collection agency. Collection agencies are trained and experienced, not to mention, a third party is sometimes more effective simply because they are a third party – removed from the situation.

Get Paid as a Secured or Unsecured Creditor

Mechanic’s Liens and UCC filings are two of the greatest fiscal weapons available to the construction credit professional. Mechanic’s Liens and UCC filings, when properly executed and perfected, provide you with leverage. These remedies put you in the position of a secured creditor and without question, being a secured creditor is the only place to be.

The Power of the Demand

Whether you are a secured creditor or unsecured creditor, a well-crafted demand letter can expedite payment, allow you to maintain control of your collection process and save you money.

The demand letter is a strongly worded request for payment, most often served upon your customer, advising legal action may be taken if payment is not received within a specified time period.

In order for a demand letter to be successful, it should contain factual information and be succinct. The demand letter should include the date of the demand, your company’s name & contact information, your debtor’s name & contact information, a reference to the debt (i.e. provide the project name, the UCC filing number or purchase order number), the amount of the outstanding debt, the due date of the debt, how the debt should be paid and the consequence for not paying the debt.

The party(s) involved need to know there is a consequence for not paying you – this is where you can leverage the security of the UCC filing or mechanic’s lien. Be specific and provide a realistic ramification for not paying – a few examples:

  • If secured by a mechanic’s lien “…If payment is not received, we may pursue all available legal remedies against you, including, but not limited to, filing a mechanic’s lien”
  • If secured by a UCC filing “…if payment is not received, we may pursue all available legal remedies available under the Ohio Uniform Commercial Code.”
  • If unsecured “… if payment is not received, we may pursue all available legal remedies against you, including, but not limited to suit.”

The demand should be served upon your debtor, but it is recommended you also send a copy of the demand to any party that may contribute to you being paid.

  • “I supplied to a construction project” – If the debt is related to a construction project, the additional parties you may want to include are the project owner, project manager, prime contractor, subcontractor, lender and surety.
  • “I supplied inventory to my customer” – If you applied for or have filed a UCC as security, serve a copy of the demand solely upon your debtor.

Secured through the Mechanic’s Lien/Bond Claim Process

A successful mechanic’s lien/bond claim program begins with a successful preliminary notice. Solid project information and complete contractual chain information are the foundation of the preliminary notice – this information should be obtained on every project as standard business practice.

Once a mechanic’s lien process is in place, and preliminary notices are being served regularly, 96% of the time, properly serving a preliminary notice will get you paid, with no additional action needed. A 96% success rate is huge and the primary driver behind that success is that everyone within the contractual chain knows you are supplying to the project and taking steps to secure your rights as a creditor – there is transparency.

Typically, preliminary notices will result in timely payment 96% of the time, but that does leave 4% unpaid. It is likely that 4% of a company’s projects will require the filing of a mechanic’s lien, and less than 1% of projects will require a company to proceed with suit/foreclosure. If you find yourself unpaid and in the frustrating 4%:

  • Send a Demand Letter before proceeding with a mechanic’s lien. Often times, slow-paying clients will respond to the force and time constraint of a demand letter, without you having to spend additional funds on a mechanic’s lien.
  • File a Mechanics Lien: If the preliminary notice and subsequent demand letter do not prompt payment, then it is time to proceed with a mechanic’s lien. It is recommended to have copies of invoices, bills of lading, the statement of account and copies of various communications, to support your claim. (Some states actually require the invoices be attached to the mechanic’s lien when sent for recording.)
  • Proceed with Suit: In the event you remain unpaid, the final step is to proceed with suit (also referred to as foreclosure) in a court of law to enforce the mechanics lien. Suit is typically a slow (and costly) process, due to the various facets of litigation. It is best to utilize an attorney who is well versed in construction/mechanics lien laws and familiar with the project itself (including issues surrounding change orders, back charges, etc.).

Don’t be afraid! Too often, companies are led to believe that by protecting their rights to get paid, they will jeopardize projects and relationships. Companies fear that sending preliminary/prelien notices and securing mechanic’s liens, will somehow align stars so that the world implodes.

OK, an exaggeration, but the fear is real and it shouldn’t be. Mechanic’s Lien and Bond Claim laws are there to protect parties supplying to construction projects. If you take the steps to secure rights and get paid without having to enforce those steps, then no harm no foul, but if you don’t take steps and don’t get paid, well…

Additional Tips

  • Give yourself a fair chance: Negotiate a fair contract.  No-lien clauses, pay-if-paid and pay-when-paid clauses all can limit your ability to collect your money.
  • Make sure you are providing the exact documentation required for payment.  Public projects in particular can have very specific requirements for payment.  Waivers of lien, certified payroll reports, and current certificates of insurance all can be required in your invoice package.  Make sure you know what documentation is required and provide it.  Also know when your payment request must be submitted, and what all can be included.  Can you include stored materials?  Are you forecasting for a few days?  Make sure the weather is going to hold up!
  • Contact other parties on the ladder of supply: Make sure the story you are hearing is the true story.  Every project has different subcontractors, general contractors, and owners.  They all can affect your payment.  If your customer is a subcontractor and they tell you they have not been paid by the general contractor, verify this with the general contractor.
  • Know the prompt pay statutes for the particular state, and use them to your advantage:  Nearly all states have prompt pay statutes for public as well as private projects.  They outline how quickly parties on the ladder of supply must remit payments to their customers once they have received payments.  They also limit the amount of retainage that can be withheld.  Does the statute limit retainage to 5% but your customer is holding 10%?  Make sure the playing field is level.
  • Use exact lien deadlines in collection calls: Using the exact deadline sends a message to the debtor that you have that particular project on your radar and are serious about filing a lien if you are not paid.

All parties supplying materials or labor to a construction project should take the appropriate steps to secure their mechanic’s lien and bond claim rights – all parties, all projects, all the time, no exceptions.

Secured through a UCC Filing

Just like the mechanic’s lien process, serving a demand letter is a great starting point for recovering funds. In the event the demand letter does not prompt payment, you may need to proceed with further legal action and the next action is dictated by the type of UCC you filed.

Did you file a PMSI UCC: If your customer has defaulted on payment(s) and you have filed a Purchase-Money-Security-Interest (PMSI) UCC, you need to determine whether or not you would like your equipment/inventory (aka goods) back.

  • If you do not want your goods back, you can place your claim with an attorney to file suit. By filing suit, you may receive Judgment, which allows you to garnish accounts and/or attach to assets.
  • If you do want your goods back, and your customer has the goods, you have the right to repossess without disturbing the peace.

If you are unable to peacefully repossess the inventory/equipment, you could take legal action by filing a temporary restraining order or by filing suit against your debtor.

Did you file a Blanket UCC: If your customer has defaulted on payment(s) and you have filed a Blanket UCC, you could place the outstanding debt with a collection agency or file suit against your debtor.

Secured or Unsecured – Seek Assistance from Collections Agency

Managing the overall collections process starts with securing your receivables, so this “last step” may seem a little out of place. As mentioned at the beginning of this article, partnering with a collections agency can save you time & money, not to mention the likely increase in recovery of unpaid funds.

If you have security, like a mechanic’s lien in place, choose an agency that knows how to leverage that security in the collection process.

Make sure to provide the collections agency with any and all documentation regarding the past due account. This may include: copies of the Mechanic’s Lien or UCC filing (plus a copy of the Security Agreement), the Contract or Agreement, the Credit Application, invoices and Statement of Account, the Proof of Delivery, the Personal Guarantee, Correspondence & Notes (emails, letters/demand letters, phone conversations), Corporate Certificate (this should include your debtor’s legal identity, including whether it is a corporation, partnership or proprietorship) Credit Report(s), and your customer’s Trade References, including bank name and account number (include copies of the Returned/NSF Check(s)).

Don’t Wait

Whatever steps you take, make sure you don’t let that receivable age for too long. It is a well-known fact, and long studied trend, that the longer an account remains past due the harder it becomes to collect.

Per the results from a survey hosted by the Commercial Law League of America “…the probability of full collection on a delinquent account drops dramatically with the length of delinquency… even after only three months, the probability of collecting a delinquent account drops to 68.6%. After six months, collectability drops to 52.1%. And after one year, the probability of ever collecting a delinquent account drops to 9.3%.”

NCS Collection Specialists can handle your secured and unsecured collections – contact us today!

Assessing and Reinforcing Litigation in Mexico Part 1

Posted on May 5, 2016 by - In Other Commercial Credit News

Assessing and Reinforcing Litigation in Mexico Part 1: Costs & Rewards

Contribution by Mr. Romelio Hernández

Romelio Hernández is President at HMH Legal, a professional corporation specialized in credit and collection services in Mexico. He is based in Tijuana, Baja California, México, where he works extensively with foreign exporting companies and collection agencies assisting them with their out-of-court and legal collection efforts throughout Mexico. His litigation experience of sixteen years and exposure to international commercial law has allowed him to provide guidance to foreign companies in mitigating the various risks of selling international. Romelio graduated from Universidad Autónoma de Baja California, and was admitted to practice law in Mexico since 1997. Romelio holds a Masters’ Degree in Comparative Law (LL.M.) from the University of San Diego School of Law (2011).

This is part 1 in a 3 part series.

“We want to file suit. Please provide your suit fee immediately.”

I get these inquiries regularly. Many times, this is the first contact I have with the client. More often than not, the client has not even provided any information regarding the claim, or regarding the debtor. Sometimes I feel that these clients think that there is a pre-packaged one-size-fits-all complaint pleading that we have ready for sale, and once purchased and filed at the courts, the judicial system will unleash its mighty power upon the debtor, make him tremble, and subdue him to our will. Clients expecting this are up for a rude awakening.

The fact is that not all claims are candidates for litigation. A plaintiff (especially foreigners), under many situations may find that the Mexican legal system, with all its problems and nuisances, create many challenges that makes the legal process debtor-friendly. This is usually the case where creditors didn’t document the loan or sale properly (anticipating the challenges of the Mexican legal system), or didn’t do a due diligence on their debtors. Whatever the cause may be, the bottom line is that creditors should choose only the best claims for litigation, and should put a game plan in place to reduce costs and risks.

In order to filter the good candidates from the bad and put a game plan in place, I believe there are three issues that creditors should address before making a decision to sue: 1) costs and rewards; 2) risks; and 3) legal strategy. The following article will try to point out the factors that weigh into these issues, and will try to provide some guidance and recommendations for reaching the best decisions.

1. Costs and rewards

First and foremost, you have to keep in mind that going into litigation has to make business sense. You are not going to spend $4,000 dollars in legal costs for a $5,000 claim. Despite the logic, a number of clients insist on suing the debtor all while neglecting the possible costs of doing so. Thus, the first thing you need to do is determine the costs of litigation, which your local attorney should quote after reviewing the supporting documents for your claim, and after assessing the risks explained here and determining the legal strategy. These costs include the actual costs and expenses of litigation, as well as attorneys’ fees, and they vary greatly depending on a number of factors.

While it is hard to put an estimate of these costs generally, you have to keep in mind that litigation in Mexico does not come cheap. This is due to a legal system that is not efficient. Every time you have an inefficient system, transaction costs are going to be high. Each year the World Bank produces and updates guides for doing business in different countries, with information ranging from business environment to enforcing contracts. According to the 2013 world guide, Mexico ranks 76 out of 185 countries for ease of enforcing contracts. In addition, according to data from the guide, enforcing a contract in Mexico takes 415 days and costs 31.0% of the value of the claim. While these numbers may not reflect the reality in all jurisdictions or apply to every case, they are a good place to start.

The legal process in Mexico is generally lengthy, and the cost will absorb a good part of the claimed amount, but there are exceptions. The first that comes to mind are very small and very large claims. It is hard to imagine paying 30% in costs and fees out of a $10 million dollar claim. Similarly, 30% out of a $5,000 claim will not cover the costs and fees of good legal representation. Another exception is claims with good supporting documents, including collateral or security. These claims may find their way through a privileged action, which will definitely reduce costs and time. Another scenario would be complex cases (trademarks, distribution, contract disputes with counter claims, etc.), or claims subject to arbitration. These just change the rules of the game and merit different treatment.

Having said this, if I wanted to save time and discard claims from the start, those would be the small claims that have no collateral or security. These claims may not justify the costs of good legal representation, and would probably just give us headaches and further losses. If I had to put a number, I would say that the threshold would be $25,000 US  dollars. A claim worth less than this would require a lot of justification to litigate. Anything above this is worth considering under evaluation against the factors explained below.

An important lesson here is that there are no shortcuts or deals to be discovered. Because litigation is tough, you will need professional and reliable legal representation to be successful, and this has a cost that does not come cheap. If you shop around long enough you will eventually find the attorney that will accept your case at the price you are asking. But is it worth it? Should you retain him? This is a question that only experience and knowledge about the legal landscape can help answer. Common sense always helps as well.

DISCLAIMER: The information you obtain in this article is not, nor is intended to be legal advice. The law office of HMH Legal will only provide legal advice after having entered into an attorney-client relationship. It is imperative that any action you undertake be done on the advice of counsel, and not based solely upon this article.

Best Practice Credit Reports

Posted on April 12, 2016 by - Credit Risk Management

Best Practice Credit Reports: How to Obtain a Credit Report for the Correct Entity

You likely review a potential customer’s existing credit references and history before making a credit decision. Pulling and reviewing a credit report is simple. The first and arguably the most important step, when reviewing credit viability, is to know your customer. Unfortunately, obtaining a credit report on the correct entity can be trickier than you’d expect. Here are a few tips on obtaining the correct credit history/information for your customer.

Important Company Information to Obtain

1. Corporate Legal Name

First, you should have your customer’s corporate legal name. Easy, right? It’s not always that simple. In fact, you may be surprised to know how many folks don’t actually know their company’s corporate legal name.

When your customer provides you with their company’s name, you should also ask for any dba names (assumed names) as well as previous names. If a company changes its name and does not alert the various credit bureaus, their credit information may be listed under the previous name.

Once you have the company name, you should confirm the name and the entity type (sole proprietor, corporation, partnership, LLC) by running a corporate search. Typically, you can confirm the entity’s name by locating the Articles of Incorporation through the Secretary of State’s website.

You may also encounter situations where your customer has multiple operating units. If this is the case, you should ask which entity is associated with their trade credit – if it is not the same entity you will be doing business with, you should ask for more information from your customer (i.e. is this a parent entity?).

2. Officer/Owner/Partner Information

You also need to have primary contact information for the officer(s) and/or owner(s) of the company. Having this information may help you identify the correct entity, because you can match the names of primary contacts to those that may be listed in the Articles of Incorporation or in the credit reports.

Be sure to get the addresses of these individuals as well. Sometimes the individual’s address is the address used at the time a company becomes a company – meaning, when a business is first starting out, the owner or principals may use their personal address or other address when registering the company and applying for credit. Once a business is up and running, they may move to a more permanent location, but if they don’t notify the credit bureaus, the new address may not be reflected in the credit query.

3. The Entity’s Address

The address of the principal is important, but for obvious reasons, the address of the entity is imperative. Not only should you request the current address, but you should also ask about previous addresses. Some credit applications request the address information for a specific time period “Please provide your current address as well as any previous addresses from the last 10 years.” This should include physical addresses and P.O. Boxes.

4. Web Address

In the age of the digital footprint, a company’s webpage can provide additional information and even history. Review your customer’s website; compare contact information, including phone/fax/email and physical/mailing addresses. Sometimes a company will list primary contacts on their site – this can be useful before extending credit, but it can be just as useful in the event you need to collect past due/unpaid monies.

Best Practice ~ Example

Here’s an example of the importance of the information mentioned above and how it all works together to ensure you obtain credit history for the correct entity.

At the time of the credit application, the customer advised their company name was “Blattner Energy” and that they are located at 392 County Road 50, Avon, Minnesota.

A query in NCS Business Credit Reporting, with just the entity name, city & state, provided us with two search results, neither of which matched Blattner Energy 100%.

The credit report query tells me that D.H. Blattner & Sons, Inc. is likely the entity I’m looking for, because there are 22 current trades for that entity & 0 for Blattner Holding Co. and the addresses are similar (not identical).

But I still need more information before I grant credit based on the D.H. Blattner & Sons, Inc. report.

Because I don’t know if either of these entities is related to “Blattner Energy”, I need to do additional homework.

First I ran a corporate search through Minnesota’s Secretary of State and see the following entities are incorporated:

  • Blattner Energy, Inc.
  • Blattner Holding Company
  • D.H. Blattner & Sons, Inc. (This entity appears to be the initial or original entity, based on its formation date of 1957)

Through the corporate search, I discovered all three of these entities list the same principal and address of 392 County Road 50, Avon, MN 56310. These similarities indicate there is a relationship between these companies, but I still need confirmation.

Next I go to the company’s website and under their “About Us” section, I find that these entities are related:

“The Blattner Family of Companies includes Blattner Holding Company and its several subsidiaries. Including, but not limited to, Blattner Energy, Inc. and D.H. Blattner & Sons, Inc.”

and that one of the original entities was D.H. Blattner & Sons, Inc.

“D.H. Blattner & Sons was founded in 1907 by David Henry (D.H.) Blattner…”

I feel fairly confident that if I review the credit for D.H. Blattner & Sons, Inc., that I will be reviewing the correct credit information, but before I do that, I’m going to confirm with my customer. Ultimately, I need my customer to tell me that they open credit under that entity name and not under the entity name, Blattner Energy.

Evaluating credit cannot be taken lightly. It can be time consuming and you may find it helpful to have a company, like NCS, to pull and review Articles of Incorporation.

Bankruptcies in the Oil and Gas Industry

Posted on March 18, 2016 by - In Other Commercial Credit News

Bankruptcies in the Oil and Gas Industry and What it Means for You as a Supplier

Do you know it only cost me $20 to fill my tank last weekend? It was awesome! Although low oil prices are great for me at the pump, they are lousy for the oil and gas industry. Oil companies are filing bankruptcy and suppliers, secured & unsecured, are feeling the pain.

This week we shared an article from Fox Rothschild LLP, Rights of Suppliers: An Oil and Gas Industry Primer, which addressed some supplier concerns, in particular what remedies are available.

First on their list: “Adequate Assurance of Future Performance.” Did you know that you, as a supplier, can suspend performance? You can’t just arbitrarily back out of a supply contract, but according to the authors

“UCC § 2-609 provides a supplier who has reasonable grounds for insecurity with respect to the performance of its counterparty the ability to demand request in writing adequate assurance of due performance. The supplier may, if commercially reasonable, suspend any performance for which he has not already received the agreed return until he receives that assurance.”

Suppliers also have the right to recall goods. The article indicates that if your goods are in transit at the time of your customer’s insolvency (i.e. not in your customer’s hands at the time of the bankruptcy filing), you may be able to recall the shipment without violating the automatic stay. “Recall under UCC § 2-705 is generally not a violation of the automatic stay for the simple reason that the goods have not yet become the property of the debtor/buyer.”

Third on their list is good old reclamation! What happens if your customer already has your goods and then they file for bankruptcy protection? As the supplier, you may have the option to reclaim those goods – but be careful; the window of time is short and it’s not without its share of obstacles.

 “…court decisions highlight a number of very substantial hurdles confronting a supplier seeking to assert the right to reclaim goods already received. First, in order to recover, the supplier must make a detailed written demand within the required time frame, which is 10 days after receipt outside of bankruptcy and 20 days if the buyer has filed bankruptcy. Second, the supplier must be able to establish that he did not become aware of the insolvency until after receipt of the goods. This would apply to each particular shipment at issue. Third, the supplier must also prove that the goods sought to be reclaimed are still in fact possessed by the counter party in their original form (and not incorporated into another product) in order for reclamation to be effective. This requirement suggests that a supplier act as quickly as feasible in enforcing their reclamation rights. Finally, and most significant are a number of cases recently decided that tend to establish that the right of reclamation is subject to the rights of other creditors who have obtained liens on the buyer’s inventory and that extend to the supplier’s goods upon receipt by the debtor. Essentially, where the supplier has an inventory finance arrangement by a bank or other financial source, the right to reclamation has proven to be essentially illusory.”

If you have been notified of your customer’s insolvency, seek legal guidance as soon as possible

Here’s What Wikipedia Can’t Tell You About Collections

Posted on March 15, 2016 by - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

Here’s What Wikipedia Can’t Tell You About the Collection of Past Due Accounts

It seems people recognize that Wikipedia isn’t the most reliable resource for information (not like the ol’ “trusty”, 50 lb, Encyclopedia Britannica – don’t laugh, I have an entire set collecting dust on my bookshelf).

Unfortunately, credit professionals still use Wikipedia to determine mechanic’s lien/bond claim deadlines, the steps for filing UCCs and even for best practices on collecting past due receivables.

“Collection”: A Thoroughbred Racehorse?

I searched the term “collections” in Wikipedia and quickly found various results which included cash collection, artwork, abstract data, horses (including an “Irish bred, Hong Kong based Thoroughbred racehorse”) and various books/novels.

I narrowed my search and the results provided definitions for “past due”, “outstanding”, “overdue” invoices, and “see also: accounts receivable”.

The Wikipedia search of “accounts receivable” explains what accounts receivable is, what payment terms are and bookkeeping information.

It’s an endless click-trail of key terms. Shew! There is a lot of info, such as debt collection began in the summer of 3000 BC (really?!). Unfortunately, I’m not seeing the one thing I was here to find: a how-to for collections.

And Then It Hits Me, Like a Bookshelf Full of Encyclopedias

Wikipedia can tell me the “what”, meaning it can provide me general definitions and the origins of words/topics, but it can’t tell me “how”. Wikipedia can’t tell me how to collect past due receivables.

Wiki-Can’t-How. Fortunately, I work with B2B collections experts, so I don’t have to go far to learn more about HOW to manage the collection process and collect past due receivables.

Here’s Some “Hows”

  • Monitor open invoices | Routinely review open invoices and as soon as an invoice is past due (e.g. If you bill on 30 day terms, day 31) contact your customer and inquire on the invoice.
  • Try multiple mediums | Phone calls, emails, demand letters etc. & make sure you keep track of your communications – good record keeping is important!
  • Pay attention to cues | Social cues & non-verbal cues are frequently early warning signs that an invoice (or customer) is going to be an issue. When people stop communicating they are sending a clear signal “I can’t/won’t pay the invoice, and maybe if I ignore you, you will go away”.
  • Check status | Note changes with your customer’s business such as a disconnected phone number, undeliverable mail & email, and changes in their corporate status with the Secretary of State.
  • Review credit | Credit reports can provide a wealth of information, especially for payment history, DBT changes, recent collection placements or judgments.
  • Cut them off | If you have invoices that a customer isn’t paying, stop extending them additional credit. Debt is like a beast and if you continue to feed it, it will gobble up every last bit and give you nothing in return.
  • Know when to let it go | And by “let it go” I don’t mean toss the invoice into the bad-debt-write-off-pile. “Let it go” from your desk and move it to the desk of a specialized collection agency. Collection agencies are trained and experienced, not to mention, a third party is sometimes more effective simply because they are a third party – removed from the situation.
  • Don’t wait | Whatever steps you take, make sure you don’t let that receivable age for too long. It is a well-known fact, and long studied trend, that the longer an account remains past due the harder it becomes to collect.

Per the results from a survey hosted by the Commercial Law League of America “…the probability of full collection on a delinquent account drops dramatically with the length of delinquency… even after only three months, the probability of collecting a delinquent account drops to 68.6%. After six months, collectability drops to 52.1%. And after one year, the probability of ever collecting a delinquent account drops to 9.3%.”

What Did We Learn?

Wikipedia may tell you “what” a collection is, but it can’t tell you “how” to manage the collection of past due accounts. Need the “hows” of credit management, you should let NCS know! Million-dollar idea: we could change our name to NCS-opedia…

Can Supporting Documentation Make or Break Your Claim?

Posted on November 10, 2015 by - Credit Risk Management

Can Supporting Documentation Make or Break Your Claim? Short Answer: Yes!

The words rumbled like daunting thunder from the mouth of a tall, lanky and otherwise nondescript bank branch manager. Although he was referring to fraudulent charges on an account, the same adage applies to those who secure credit through UCCs, mechanic’s liens or pursue collections.

I can’t say it with quite the same Armageddon-like-bellow, but I’ll strain to be tip-toes-tall and use the lowest voice I can muster, to repeat “supporting documents can make or break a claim”. Because it’s worth repeating, if for nothing more than a bit of a giggle while I try not to lose my balance.

Which documents should be included?

Regardless of whether you are pursuing a UCC, mechanic’s lien or collection, these are documents you should always have handy:

  • A copy of the Contract or Agreement (including Security Agreement)
  • A copy of the Purchase Order(s)

Short list huh? Well, hang tight, we’re not done. Let’s delve a bit deeper, and uncover the important documentation based on service type.

Filing a Mechanic’s Lien?

If you are securing rights through the mechanic’s lien process, the list of necessary documentation can fluctuate – meaning, you tend to need more supporting documentation and information for a mechanic’s lien than you would for a preliminary notice. In an ideal credit-management-world, you would want to have ALL of this documentation (remember, ideal, not required):

  • Proof(s) of Delivery
  • Itemized Statement
  • Invoices
  • Payment Bond
  • Notice of Commencement
  • Notice of Completion
  • Joint Check Agreement
  • Personal Guarantee
  • Lien Waivers

Generally, when serving a preliminary notice, you would want to include the information that will ensure the proper parties are served with a copy of the notice. This would include knowing who is in the contractual chain (owner, GC, debtor, surety, lender etc.) and can often be found on job information sheets, contracts and Notices of Commencement.

Once you are at the point where you are unpaid and disputes arise forcing you to pursue a mechanic’s lien or even collections, that’s when you will want to refer to open invoices, statement of account, joint check agreements, personal guarantees etc.  Which leads to a great segue...

Pursuing Collections?

We have covered this before, so I won’t rehash it too much. The best advice is to provide as much information as you can. When it comes to pursuing collections or suit, it’s almost always better to have more documentation than not enough documentation (kind of like cake, more cake is better than less cake).  Aside from the “usual suspects” spelled out above, be sure to include copies of correspondence, copies of returned/NSF checks and copies of credit reports.

Filing a UCC?

If you are filing a UCC, it’s a bit less about the backup documentation, and more about ensuring all necessary information is incorporated into your Security Agreement. In the event you are pursuing collections and intend to use your UCC filing as leverage, you will want to ensure you provide the collections agency with a recorded copy of the UCC filing, results from a recent UCC search, a description of the collateral and the amount you are owed.

Supporting Documentation

Maintaining documentation is important – not only for proceeding with secured transactions, but simply as a good business practice.