ALL RESPONSES IN DATE ORDER - MOST RECENT AT THE TOP
A Signed Credit Application???? January 2016
QUESTION:Could you provide any supporting info on why we would (or why we would not) require a signed credit app and instead accept a company's 1- page list of references and company info?
This is a constant battle between companies (and our sales people) and what has been drilled into us (the Credit Dept).
Why is our form not enough?
The company gave us their reference sheet, why do I have to ask them to fill out our credit app?
RESPONSE:Let me start by saying that a "list of credit references" only from a new customer or a customer who is asking to have their credit increased or renewed is not enough. Would a salesman whose looking for a job give a potential employer a list of "references" only and not their resume? Would the salesman applying for a job "think that was good enough, is that arrogant or are they simply lazy?" The point is a Credit Application is like a resume, I hope that helps put things into perspective.
There are numerous lines & questions on the credit application that are key to determining a client's credit worthiness and supports the customer's needs. Those include but are not limited to; Is the company a corporation?, How long has the company been in business?, How much credit does the customer need or are they applying for?, Is the company a publicly traded Corporation?, If a privately held corporation, who are the owners of the company?, Who is responsible for the finances of the company?, Where do they do their banking?, Do they have multiple locations? All of this information not only helps the Credit Department evaluate credit worthiness, this information can be invaluable to your company and especially an intuitive successful sales person. Sales should want to know this stuff, it helps them build strong relationships with the customer and helps further qualify the future sales potential of this client. If obtained, sales & finance benefits from this information.
Very important, there is typically specific language on a credit application that includes but is not limited to; acknowledgement of your companies standard terms and conditions, A responsible person attests to the accuracy and completeness of the information provided, legal language that gives permissible use or acknowledges that your company may or will investigate the company's credit worthiness using third party sources of information, enforceable language that defines interest, collection costs, attorney fees, venue and other things if for some reason your company needs to take action to enforce your legal rights if non-payment or default occurs.
These are major reasons why this type of document becomes the template for you and your new customers, current & future business relationship.
Lastly, the credit application should be signed by the owners or an authorized responsible agent of the company. This establishes a clear acknowledgement that the company wishes to do business with McNeilus Steel Inc defining the relationship. To put this into perspective; If a McNeilus Sales Manager created a quotation or extensive sales contract for a customer that included prices, sales quantities, special custom products, terms or other unique components of the sale, would this sales person want the quotes, order or sales contract signed by the customer to close the sale(s)? Would the salesman walk away from the sales call without getting a signed contract or confirmed purchase order? Probably not.
Perhaps using this information or examples I've given will cause a "light to go on" in those persons heads who may not necessarily be willing to look at or understand things beyond their own selfish needs or perspectives. To dismiss others valid needs so they can do their jobs properly is telling.
Prox Terms Definition January 2014
QUESTION: Are payment terms of Net Prox 25th and Prox 25th the same? Do they mean payment on the 25th of the following month of the invoice date?
RESPONSE: Net 25th Prox, 25th Prox, and Prox 25th are one in the same. In each case, the invoices from a given month are due on the 25th of the subsequent (following) month.
For example, invoices dated 1/01/14 thru 1/31/14 are due 2/25/14. Sometimes a customer may have a cut-off-date they publish or advise you of. For example, instead of invoices up to the 31st of January being paid on the 25th of February, the client may say we cutoff invoices on the 27th. So in that example invoices dated 12/28/13 to 1/27/14 are paid on February 25th, 2014. To further that example invoices from January 28th to February 27th will be scheduled for payment on March 25th, 2014.
Collecting OLD Judgments March 2010
QUESTION: My employer wants me to ask the Association if I am able to get old judgments executed or if that is something, a lawyer needs to do? Frankly, I wouldn't even know how to track the individuals down myself other than court records, white pages, etc. and wouldn't know how to find out where they work either? If I can do that myself, are there procedures on what needs to happen? (Note: This member has a practice of going to small claims court for amounts owed and to obtain a judgment, a default in most cases.
RESPONSE: We (The Association) appreciate the opportunity to try to collect on those old judgments that you have been successful in obtaining. If no action is taken on them then you have assembled impressive but otherwise uncollected wall paper.
If the judgment that you've obtained is not paid by the debtor (voluntarily or otherwise), after we've skip traced or identified their whereabouts, your/our only other alternative is to try to liquidate the judgment by filing for an execution. This is a process than occurs if it is known that the debtor has possession of real or personal property that can be seized and liquidated. The execution is an order of the court that directs the sheriff or a Court Marshal to go get the property (hopefully cash in bank accounts) to satisfy the judgment.
If the Sheriff or Marshal takes possession of assets, this is known as a levy. Each time the Sheriff or Marshall take possession of some asset in the debtor's possession, not only can these assets be auctioned or turned into cash, but unfortunately, these efforts get very expensive. Creditor has to pay for the Sheriff's trips, whether they bare fruit or not.
If it is unknown what assets or what kind of assets may be available, the next step in the liquidation/collection of a judgment is the ORAPS Procedure. That stands for Order of Appearance Procedure. The debtor is required to appear and testify under oath relating to any property or assets available that should be turned over to the Sheriff or Marshal for your benefit. There are more steps that can occur before or if payment of the judgment ever occurs. In many cases it never does, especially if action to collect on the judgment did not occur within a short period of time after it was obtained.
It is my recommendation that after reasonable collection attempts have occurred, after you obtained a judgment, that we again assess collectability by determining if there are any assets. If there are assets, we always recommend that you employ counsel to take the swift necessary legal steps to try to grab and liquidate assets we know about now. The fees associated with engaging counsel through our office are reasonable, collection still remains contingent, and creditors should know that any additional fees fronted are added to (capitalized) to your judgment and collectible if enough assets are seized to cover the amount owed to you.
This may be way more than you want to know about this. But it is a perfect example of "having a little bit of knowledge could be dangerous". For example, it is fine to do small claims court, but more and more complicated procedures need to occur in order to turn a judgment into cash. To put it in perspective; if you hurt your head, you can put a Band-Aid on it (small claims court). If nothing more is done and complications occur, I'm sure your boss and you would agree it would be best to see an expert about the head injury (Creditor Counsel).
Debtor "Threatens" to File Bankruptcy March 2010
QUESTION: My customer is "threatening" to file bankruptcy if we do not work out a payment arrangement with him, but we are interested in finding out if he is bluffing. What if he is in a position where he CANNOT file, but wants to make us think he will? He lives in a house assessed at $500K, so we have a hard time believing the courts will let him file.
RESPONSE: Let us start with the "threat to file". I have seen and heard this many times. Either they file or they don't. You cannot allow the debtor to string you along preventing you from structuring or taking the most prudent steps necessary to protect the value of your company's receivable from the debtor. So, I would recommend being very pragmatic. That is, set up a note that the debtor signs and attests to calling for specified payment amounts at a specified interval of time. Get the debtor to give or specify un-encumbered collateral if possible. If the debtor defaults, #1) Take possession of the collateral and auction or sell it off, #2) File suit.
At this stage, "bluffing" is not really an issue. It may be better off if he goes into bankruptcy, you may be able to recover money owed to you that is not protected within what is called the exempt property in bankruptcy. There are published values that include vehicles, personal property, and shelter that a debtor is allowed to protect. Anything beyond that is subject to liquidation. (The Wisconsin bankruptcy exemptions chart can be found at http://www.wisconsinbankruptcy.com/nondischarge.html).
A debtor can file a petition for bankruptcy at any stage. The court will review documents and a statement of Assets and Liabilities that the debtor files. If a debtor has more assets than liabilities, but the excess value of the assets is not in cash or near cash assets, bankruptcy can still occur. Bankruptcy courts will almost never tell a debtor they "can't file" for relief. A case may later be dismissed or thrown out if it has discovered the debtor has conveyed or hidden assets that could be used to pay debtors or liquidated to pay debtors.
With all that said, the value of his or a home is only relative if there is substantial equity to grab. For example, if the value is $500K and he owes $450K, the $50K in equity may or may not be exempt from creditors. Either way, if bankruptcy occurs they will still owe $450K in that example. Whether they can afford to make the payments after the fact would be a real test, but remember it's not like they have nearly a half million dollars'; worth of equity that creditors can go after. On the flip side. If it's worth $475 and he owes $150K for example, it is very likely the house would be sold. An exempt amount would be provided to the debtor and the balance would be distributed to creditors. Lastly, if the house is worth $500K and he owes $500K or more due to additional or second mortgages, chances are he will walk away from the property or the bank (secured lender) will foreclose on it, taking possession.
I do not judge how it is the company has gotten into the position it is in with this customer/debtor. I do recommend that if these types of games or discussions are taking place that swift action needs to occur to have an outside chance of securing or collateralizing assets that may be available for liquidation. My experience is, the longer you wait the more likely it is you will experience a total bad debt write off.
"Do Not File Proof of Claim"--Really, I've Never Heard That One" March 2010
QUESTION: I just received bankruptcy papers yesterday, the notice states, "Please do not file a Proof of Claim unless you receive a notice to do so". Is this correct or should I move forward?
RESPONSE: It is typical in liquidation (Chapters 7 or 13) that a trustee or someone similar says "don't file a Proof of Claim". I recommend that creditors ALWAYS FILE A PROOF OF CLAIM, regardless what they say or recommend. The reason is, if by chance there is a liquidating distribution or dividend, it is calculated based on a pro-rata value of the amount owed to all creditors. So, if there is no record of the amount owed to you or the amount listed as owed to you is wrong, you will not get paid or you may get paid an incorrect amount. By going on record with a Proof of Claim, even in liquidation, it forces the bankruptcy court or trustee to reconcile your company's claim in bankruptcy liquidation. They may not like it, but I say, "Too Bad"!
UPS/Mailboxes Etc. March 2010
QUESTION: Recently the subject of shipping product to a UPS/Mailboxes Etc. type store came up again.
In the past, we discouraged this because of POD issues and claims that "they didn't receive the
product" (because someone else signs for it) were a problem. However, we have some dealers who work out of their homes rather than a retail store (doing custom installs) and they are not always home to receive shipments so they want us to ship the product to one of these type locations. What do you suggest, and what policies do other Credit Managers have about shipping to this type of location?
RESPONSE: I highly discourage shipping to blind locations that can easily be used as a front to
avoid paying for products. Your regional distribution network provides for multiple product pick
up locations, you have a dealer network that may be able to serve the smallest customers you serve
and the nature of the products you sell could lend themselves to lien rights.
If you are shipping parts or replacements to the smallest of your customers, why sell on open account?
See via credit cards for those transactions and simply ship it to the location requested by the consumer or small dealer. If you do not wish to do this, send those small installers to your dealers
locations and let them act as a distributor to the smaller custom install guys.
If you are shipping to a job site, take advantage of lien laws regularly. From what I have seen the
nature, size, and type of products you sell do not "typically" lend themselves to shipping to UPS stores,
Much of this you probably already do so I am not telling you anything new perhaps. It is my experience
that when this type of question comes to me it is because management or sales insist, "it's perfectly
acceptable to do that or what's wrong with doing that?" is a question that is asked. That is when
seeing or hearing something from a third, party is helpful. It allows you to do a sanity check with
others and or share others advice with those who may otherwise do something that might not be in your
company's best interests.
D&B Report February 2010
QUESTION: Do you know if I as a creditor can share a customer's D&B report with them?
RESPONSE: DnB does not like it or want subscribers to share reports with others. From what I
recall that language is displayed on the reports themselves.
With that said, there have been occasions when creditors have shown the reports to the subject
themselves. This has usually led to the subject/debtor disputed something which lead to them
contacting DnB asking something to be fixed, changed or corrected. DnB eventually asks how they
became aware of information on their file. You should know that your company might be disclosed as
the source sharing the info with the customer, for what its worth.
Now, here's the other side of the coin. DnB contacts the companies (subject/debtors) contained or has
a presence in their data base and says to them, " We want you to review the information on your report
so that your companies information, credit history & operations history is all accurately depicted.
I.e....they give the subject/debtor the chance to tweak what their report looks like or how it reads.
The subject debtor can't change third party contributed information, but it can ask DnB to add or edit
information. With that said, a debtor really has an opportunity on an annual basis to shape what its
report says or looks like.
So, I always advised creditors to have a subject/debtor contact DnB direct is they have questions
about what is contained in or on their reports. That way, the information is between the
subject/debtor and the data base owner, in this case DnB. you can eliminate yourself and your company from being in the middle.
Credit Card Vendors February 2010
QUESTION: We are thinking about changing credit card vendors and wanted to know what your other
clients have been saying about the service, reliability, and cost savings they have received from using TSYS Merchant Solutions as their credit card processor
RESPONSE: We have been using TSYS Merchant Solutions for many many years. They do all the
Associations processing for credit cards and for EFT ach transactions. That is another great tool
that A/R managers use that is extremely important and helpful. We do have a number of members that use TSYS also. The main contact for the services is Ms. Dawn Doucette. She provides price quotes, service evaluation and is able to answer all the direct information you may need to transition from another credit card processor the TSYS. I would encourage you to ask Tamara for names of member company clients that would be willing to speak with you about their experience or overall satisfaction.
I endorse this credit card processing company and we hope they have solutions for you at Frabill
that will give you better service and save you money
1099 form June 2009
QUESTION: Can a creditor send a 1099 to a customer after they write that customer's account off?
If so, what is the procedure and applicable law?
RESPONSE: The option or practice of issuing an IRS form that cancels a debt (actually then income
to the debtor that the IRS is advised of) is one of those practices that allow creditors to get that
one last "jab" in at a dubious debtor.
A formal practice has to be followed. A 1099 form has to be issued and is supported by other reporting documents to the IRS. They have to be filed all at one time and by a certain date shortly after the first of the calendar year (like W2's for example).
You can download copies of forms and instructions from www.irs.gov. Here are examples from 2005.
Adverse Action June 2009
QUESTION: Our Corporate HQ is considering adding this statement to our credit application: If this
Application is not fully approved or if any other, adverse action is taken with respect to the Applicant's credit with BMUSA LLC. Applicant has the right to request within 60 days of BMUSA LLC
notification of such adverse action, a statement of specific reasons for such action, which statement will be provided within 30 days of said request. Is this stipulation now mandated by Federal Law?
I thought that this only pertained to consumer transactions, not business to business.
RESPONSE: All of this has to do with the Equal Credit Opportunity Act (ECOA), Regulation B, of which
pertains to business creditors.
If a company denies open account unsecured credit, applicants have rights in that they cannot be discriminated against. This law has been on the books for over 20 years. There are a number of
nuances related to the handling and management of the required procedures within the law that business creditors should be aware of.
The statement proposed is much more detailed than it needs to be. I should also add the approved
statement that I will give you in a moment does not have to be displayed on your credit application.
That is a logical place for it to be displayed but it can be printed on your company's terms and
conditions, order acknowledgements, invoices or any other regular routine document you produce and send to customers.
The proper, approved statement is: "The Equal Credit Opportunity Act (ECOA) prohibits credit grantors from discriminating against credit applicants based on race, color, religion, national origin, sex, marital status, or age. The Federal Trade Commission administers compliance with ECOA". There are steps or procedures that should be followed if credit is denied or removed from a customer.
The posting of this statement allows the denied applicant to contact the FTC with any questions they may have if they feel they have been denied credit wrongfully.
It can be a complicated law to understand. However, the bottom line is the verbiage given allows a company to comply with federal regulations that otherwise are a pain in the behind. Complying at the minimal level is what is recommended.
If your corporate headquarters purpose is to comply with ECOA Reg B, what I have indicated is all you need to state in writing. If their purpose is other than that, I am not sure of the value of the verbiage without knowing more about the matter.
Can liens can be placed on state? June 2009
QUESTION: I have been asked by the President of the company if liens can be placed on state, county
or city jobs in various states? Where would one go to locate this type of informational detail "if"
it is allowed?
RESPONSE: State, County, City, and even municipal jobs come under the regulations of the Miller Act.
As a result, the lien process does not apply to these public projects. If the project is large enough
(depends on each states regulations) is covered by a payment and or performance bond. That is what creditors give up in the lien rights area in order to potentially have access to bonds required by the public projects. Are or could there be exceptions, sure. However, the above covers nearly 99% of jobs associated with public money or projects. Research the Miller Act and the states (little Miller Acts) for more details.
Changing PO's Status April 2009
QUESTION: What is your opinion if we have blanket PO's in place? The customer is refusing to "allow" me to put them on cash in advance and says we cannot change credit terms because we have accepted the PO's. They are threatening to take us to court if we do not continue to ship according to the PO's because they are paying us according to the PO's. We are not a critical supplier. My experience tells me that I can change the terms and I am okay doing so because I have just cause. Can I have your opinion on this?
RESPONSE: Blanket PO's are estimates based upon a general purchase agreement the two parties sign. There must be issues related to price, delivery, frequency etc....If the agreement is for more than a year, one would think there would be conditions favorable (or remedies) to both parties. This follows or occurs when there are "performance issues". I do not know your contracts so I am not able to comment on if they are voidable or not. If that goes to your comment of having just cause to change the terms below, you would know best.
It seems that their threat to take you to court means they have been advised or you have told them already about terms and credit limit changes. Based on their response it does not bode well for material continuing business. That may be moot if a bankruptcy is filed. However, that has not happened yet. If it becomes a reality that they do file a bankruptcy petition, the blanket PO's and other agreements put in place pre-petition are void and need to be re-negotiated or confirmed post-petition. I.e... issuance of DIP Blanket PO's. When that occurs, all bets are off. A company does not need to honor pre-petition agreements, especially if they were one-sided.
Lastly, if your not a critical supplier to the company and you take action to demand payments while reducing risk, my gut feel tells me they may not waste their time and resources trying to enforce vendor agreements and blanket PO's for credit terms. You never know but it certainly would not be a good way to make friends and influence relationships. I suspect with those comments being made already the relationship may already be pretty fractured and they will divert purchases to other suppliers unless they can only get the product you supply them from you.
I try to tell debtors that open account credit and payment terms are a privilege not an entitlement. To keep those privileges the debtor needs to perform. If the debtor does perform then the creditor must be careful and aware to not act arbitrarily without cause or because of rumors, take those privileges away either. That might otherwise be labeled discrimination, which can lead to issues connected to anti-trust laws. It is important to understand the many sides of issues.
Terms - Credit Limit Question April 2009
QUESTION: I have a question regarding changing of terms and credit limits. I want to change terms on one of my customers. They are a public company so I have solid facts that they maybe be filing bankruptcy. My question is: We have accepted PO's (Blanket) that are good for several years. Their PO's state their terms and conditions - which I was okay with before. Now I want to put a credit limit on them to reduce our exposure or put them at cash in advance. Does anyone know for sure what I can do? They are living up to their terms and paying us. However, their financial situation has changed. Any advice would be greatly appreciated.
RESPONSE: Each company individually determines what level of risk it wishes to take or be exposed to. The only solid fact we can rely upon when it comes to bankruptcy situations is have they filed or not. It is either or. With that said, speculation has made many a creditor look at the amount of credit it provides to its customers, how those customers pay and as a result if they deserve the level of credit provided.
With that said, if a creditor decides to lower it is exposure by holding orders as leverage for payments, and then shipping out lesser amounts on open account, this of course lowers exposure. Done over time, this aggressive management of a customer will reduce the amount a company owes you. Every creditor has the "right" to advise its customers it is reducing credit limits at any time. There are consequences; #1) the customer may go elsewhere for product, #2) the customer may stop paying you or really slow down it's payment frequency to you, or #3) Not comply with your requests pitting your sales & upper management executives against your finance department. When it reaches the point where the customers is barely paying you but demands shipments daily, extreme actions like requiring the customer to pay $2 of old debt to $1 of new or Cash In Advance may not be a surprise to the company. When a company is paying reasonably within terms extended, you will find it difficult to justify and explain the customer why you are taking the actions your taking. I.e... to indicate we think you are going to file bankruptcy is not going to put a company on the best of friends list with each other. That is especially true if the company actually does file bankruptcy and then has a successful re-organization.
Here is my advice. Management and you need to target or identify a value or amount you wish to expose yourself to in the event a particular or large customer should file bankruptcy. Work towards brings in that balance down to those amounts. Once at that level, aggressively manage that customer with a careful exchange of cash payments with a combination of new shipments. If payments stop, not allowing you're to ship new goods at the pre-determined level, shift to and require cash in advance payments.
If you're able to manage the accounts in this manner not only will you drive down your exposure, but in the event bankruptcy is filed and there are possible preference demands made, your selling to the customer up to the end and then on a cash in advance basis are two of the three defenses creditors have to avoid having to pay back preference payments.
All of this is predicated on top management and sales being on board with this plan. If this is Finance's plan only because of their opinion a company may file bankruptcy, chances are support is going to be difficult to obtain. So, a word to the wise, all disciplines in the company should know the plan and what it will take to execute it.
Service Charges April 2009
QUESTION: Regarding "service charges", are we legally able to call them "late charges"? Also, we have "service charge" statements come out one time per month, and charges are based on how much is past due at the time (mid-month). Are there other ways of doing this?
RESPONSE: The only thing a person needs to be concerned about is usury interest rates. This
can get one into more trouble than anything else. TX is the biggest problem. It is recommended
that charges or interests for TX Accounts not exceed 12%. The rest of the US 18% is a safe value.
Usury rates in some cases actually exceed these values.
As far as what you call them, everyone pretty much understands they are late charges or fees.
People have tried to call them different things. When legally challenged, it boils down to late
So the key is this: Does a Creditor have an agreement (terms of conditions or credit applications
where the debtor or customer has accepted, agreed to or knows about the terms of sale and
resulting extra charges). That is the acid test I have seen and have been confronted with a number
of times. We have tried to make a case out of implied fees we charge everyone, etc. It comes down
to the facts. If there is, something in writing that is agreed to or attested to, that's what is legal or proper. Without that, your ability to make such charges stick is significantly diminished.
Bankruptcy Reclamation Rules Apply in a Foreclosure Situation March 2009
QUESTION: Do bankruptcy reclamation rules apply in a foreclosure situation. In this example, a letter was received indicating the company is undergoing forced liquidation but there does not appear to be a bankruptcy filing.
RESPONSE: Foreclosures, forced liquidations, seizure of Assets by a bank or a WI Chapter 128
liquidation are all situations where a federal bankruptcy case hasn't been filed and a company
is being liquidated. The company or its former owner's interest has ceased to exist. A company
or entity may re-emerge, but it will be as a new company. Reclamation (demand to reclaim or
repossess goods or products shipped to a debtor) can take place at any time. For example, a
reclamation demand can be delivered to a debtor that is not in bankruptcy or when it has filed
for bankruptcy relief. The letters or communications delivered to the debtor are similar.
Reclamation while a firm is in bankruptcy, allows creditors to formally demand that their products
be set aside and that those products be returned or paid for. This demand does not guarantee that
a creditor will get its goods back or that they will get paid for those pre-petition sales within
45-60 days of the commencement of the bankruptcy case. It forces the debtor to co-operate because
of its status as a bankrupt company coming under the review of the bankruptcy court and or a US
Trustee. However, it does put everyone (debtor, bankruptcy court and others) on notice that a
specific creditor has certain rights in the case related to shipments made near the filing date.
That may or may not provide some negotiation leverage for the creditor at some point within the
administration of the case. Reclamation when a firm is not in bankruptcy, allows creditors to
formally demand their customer set aside products that the creditor will pick up or repossess
because of the debtors unwillingness or inability to pay for those products. A creditor can make
or formally send this reclamation demand at any time. The debtor however, does not have to, nor
is the debtor required to segregate creditor's products, paving the way for a return of goods.
A creditor can assert itself and can show up at a debtor's location to repossess or retrieve
its product. If however, the debtor objects or refuses to let the creditor repossess its goods,
the creditor must keep the peace and leave. If the creditor does not or breaks the peace, the
creditor may be subject to civil complaints against it by the debtor. If a creditor is able to get
back its product prior to a foreclosure, Chapter 128 liquidation, asset seizure, etc., a creditor
will be much better off. Once a foreclosure, seizure, or forced liquidation begins, the assets are
typically locked up by the bank or the liquidating attorney or trustee for the sole purpose of
auctioning them off, selling them for cash or selling them in bulk. A creditor can demand
reclamation but is unable to get its hands on their products. Legal action is typically ineffective
because while you're trying to get approval to get your hands on the goods the bank or trustee is
selling them to cover secured debt. When a company is being liquidated but no bankruptcy has been
filed, either a WI Chapter 128 liquidation is in process or a trustee has been hired or appointed
to liquidate the assets of an entity. Both situations are supervised by an authority that is hired
to sell all assets in order to pay debtors (secured, unsecured or otherwise). It's rare, if any
creditors other than secured creditors get any money. In the situation where a bank (secured
creditor) seizes assets of the company via foreclosure, an asset auction typically occurs and
proceeds typically are paid to the secured lender or bank. Your reclamation claim or demand outside
of bankruptcy can be ignored without any consequences. It is up to the creditor in this case, to be
aggressive in reclaiming your product within the law and while keeping the peace when getting your
goods back from the debtor on its property or location. These are the basics related to your
question. If a creditor has inside knowledge or feels, a customer may be going out of business at
any time, the use of reclamation is a tool that can help a creditor if they are willing to take
back goods to avoid losing them in liquidation or a foreclosure. It's rare that creditors use
the tool or guess correctly on timing. Management or sales will hardly ever want to take goods
back or reverse a sale, until it's too late. It can be effective nonetheless.
Property Management Firm Buys For Their Properties January 2009
QUESTION: We have a property management firm with an open account with us. They buy for their
properties, but we bill and
ship to the management firm. We also get paid from the management firm. We just received
notice that one of the properties they manage filed Chapter 11 and thus the management firm does not want to pay the invoices owed to us. Do we have any recourse on this? I think the management firm should be responsible for paying us since they are the ones with the open account with us. We have nothing that has the name of the Chapter 11 company anywhere on our invoices, pick tickets, etc.
RESPONSE: I would want to review the purchase orders (if any from the management firm) for any or
all of the properties. This is a very intriguing question. The management firm can't simply separate
itself from a property it manages when it's convenient for the management firm. If the management
firm has been responsible for making its own purchases of materials, maintaining the properties it
manages and then they probably charge the property for their maintenance services plus a markup on
the materials you provide. If the relationship is structured that way, they cannot/should not be able
to hide behind the Chapter 11 filing. Now, if they were buying on behalf of the property all along and
acting as an agent, again I'd like to see any PO's confirming that.
Rental Equipment Not Paid For & Customer Sells To Another Business January 2009
PREMISE: Our business sells or rents equipment to a customer that hasn't paid for it or paid the monthly rent, then
sells the business to someone new. What recourse do we have? Lien? Go Get It?
RESPONSE: I'll start with the question about placing a lien on the equipment. If the product or equipment is already in the customer's hands prior to obtaining or requesting a secured position on that product, it's too late. A creditor can request a UCC on the equipment (secured position) after the sale or rental, but there is no advantage to the debtor to provide the seller (creditor)with that after they are already using or have possession of the product.
Can you go get the equipment? Yes you can! This is reclamation or repossession. However, it's important that when you show up at your customer's location, that you "keep the peace." For example, if the customer allows you to go about your business and reclaim your product and take it back, no problem. If they object, ask what you're doing, or prevent you from the taking the product, you should leave immediately. Otherwise, you may be subject to breaking and entering or trespassing.
Not all previous owners sell a business and skip town. A business is sold and new business buys it, which requires dissolution of the old business. Depending upon the terms of the sale of the business, the new owner buying the business as a going concern may have no obligation to pay you for any unpaid invoices for sale of a product or rental of products to the new purchaser. Lastly, if a business is sold in a "bulk sale", the new buyer is only purchasing the assets of the business and assuming none of the liabilities. In this situation, there has to be notice (in Wisconsin) prior to the sale.
What can you do in the future? If the sale of product or equipment is significant or a material amount, you can sell the
equipment in conjunction with a UCC filing that gives you a secured position on the product. This is useful for leases, rentals, and large equipment purchases. There are services available to assist creditors in being a secured creditor.
In the case of the former business owner-skipping town, if they owe you money and you file suit against them and pursue these people by using skip tracing etc., there is a chance you could recover your unpaid receivable.
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