Ullery Seminars

I.  Role of Credit Management

    A.  An Overview

    B.  The Receivable Portfolio

1. Case by case decision-making
2. Cost of capital considerations
3. Compatible with corporate objectives

    C.  Role of the Credit Manager

1. Relation to top management
2. Relation to subordinates
3. Increasingly professional

    D. Creating What You Always Wanted to as a Part of Your Everyday Life

1. Knowing your result
2. Making it up by forming pictures
3. Tension seeks resolution

    E. The Growth Life Cycle

  1. Develop and learn

a. Unconscious Incompetence
b. Conscious Incompetence
c. Conscious Competence
d. Unconscious Competence

            2.  Expose and Teach

            3.  Receiving

Place your pen or pencil on the paper once, and without lifting it, connect the 9 dots with 4 connected straight lines.

    F.  One Key Point That Makes The Difference

1.  Accuracy…First

2.  Then momentum

3.  It is not how much

4.  But what and how that makes the difference

II.  Credit Decision Making

    A.  The Credit Function

1.    Investigate
        a.    Determine the information needed
        b.    Get it
        c.    Analyze it
        d.    Keep it in fresh and usable form

2.    Decide
        a.    Will we be paid
        b.    When will we be paid
        c.    Will we extend credit
        d.    How much credit will we extend

3.    Collect
        a.    How
        b.    Who
        c.    When
        d.    Leverage
        e.    Service Charges

4.  Report
        a.    To management
        b.    To sales
        c.    To customer

    B.    Human Effectiveness System

    C.    The Ultimate Strategy

1.    Promise a lot

2.    Exceed expectations by delivering more

    D.    Sources of Information - Getting the True Picture

1.    Ratings
        a.    Who sets them?
        b.    How are they set?
        c.    Are they valuable?
        d.    How do we use them?

2.    Reports
        a.    Who writes them?
        b.    What do they cover?
        c.    Are they valuable?
        d.    How do we use them?

3.    Trade Clearances
        a.    What do they indicate?
        b.    What are the warning signs?
        c.    Do they replace report?

4.    Bank References - Directory of Credit Information Personnel
        a.    To who do we write?
        b.    What do we ask?
        c.    Do we accept whatever we get?
        d.    What does it cost?

5.    Financial Statements - Trading Cycle & Strategic Credit Objectives
        a.    Balance Sheet
                (1)    What is it?
                (2)    What do we do with it?
        b.    Income Statement
                (1)    What is it?
                (2)    What do we do with it?
        c.    Statement of Changes in Financial Position
                (1)    What is it?
                (2)    What do we do with it?
        d.    Auditor’s Opinion
                (1)    Unqualified
                (2)    Qualified
                (3)    Disclaimer
                (4)    Adverse

6.    RMA Statement Studies
        a.    What are they?
        b.    What do we do with them?

7.    Salesmen’s Reports

8.    Personal Visits

9.    Our Own Experience

    E.    Working Capital

1.    What is it?

2.    How is it measured?

3.    When is it adequate?

4.    Must it be positive?

5.    What does it suggest?

    F.    Inadequate Working Capital

1.    Causes
        a.    Under-capitalization
        b.    Losses
        c.    Purchase of non-current assets without long-term finance
        d.    Current maturity of long-term debt exceeds profits
        e.    A dramatic sales increase
        f.    Slow turnovers

2.    Remedies
        a.    Convert short-term debt to long-term
        b.    Borrow long-term
        c.    Sell non-current assets for cash
        d.    Reduce sales volume
        e.    Speed up turnovers
        f.    Negotiate longer payment terms
        g.    Sell new equity
        h.    Through profits - with the sufferance of creditors

    G.    Creative Credit and Financing

1.    What customers are asking

2.    Value added credit granting

3.    Cinderella and the wicked step-sisters

4.    Mining marginal accounts

    H.    Non Financial Factors

1.    Need for customer’s business

2.    Payment history

3.    Product profitability

4.    Character of management

5.    Competition

6.    Years in business

7.    Organizational structure - Useful questions
        a.    What is going on?
                (1)    What forces are in play?
                (2)    Where or what is the conflict?
                (3)    What are the built-in assumptions?
                (4)    Are they true?
        b.    What does the client want?
                (1)    Is it a result or a process/solution?
        c.    What changes in the structure can help the client create the result they want?
        d.    What changes would make the structure so the path of least resistance goes
                toward the result the client really wants?
        e.    What result are they after?
        f.    What result are you after?
        g.    What is current reality (forces at play) -- (see previous chart)
        h.    What primary choices need to be made
        i.    What secondary choices need to be made (to support primary choices?)?
        j.    What are the structures in play that would affect these choices (and vice versa?)
        k.    How should you work with these choices?
                (1)    Teaching
                (2)    Forced choice to clarify values
                (3)    Pointed out the structure
        l.    At what point is there a change in the structure (and how do you know?)

8.    One of the most beautiful human experiences is creating what is highest in you and helping others achieve their limitless potential. As you and your customers move forward from this moment your lives can take on the meaning you have mutually wished for.

9.    Empathy

    I.    Setting Credit Lines

1.    Traditional Methods
        a.    Set line to equal need
        b.    Set line as a percent of high credit reported
        c.    Set line as a percent of net worth
        d.    Advantages

2.    Non-Traditional methods
        a.    Set lines by formula-risk classes
        b.    Set lines by computer
        c.    Advantages

    J.    Understanding Business Life Cycles

1.    Four Phases
        a.    Start-up
        b.    High growth
        c.    Maturity
        d.    Renewal/Decline

2. Risk Analysis by Customer Classification

3. Implications of Working Capital

CREDIT LINE FORMULA

Company: Statement Date:

Ratio Parameters

Check Customer’s ratio rank on the line provided:

The lowest ratio ranking determines customer’s risk class.

Risk class is the basis for calculating a credit line.

Formula for Basic Credit Line:

Calculate both. Lesser result is BASIC CREDIT LINE.

Customer's Rank _______

Net Worth             x     Rank %     _____________     x     _______     =     _____________

Working Capital     x     Rank %     _____________     x     _______     =     _____________

MATRIX

                                                                                        BASIC CREDIT LINE             $            

Desirability Profile Score                                        Multiplier                                             X            

                                                                            SUGGESTED CREDIT LINE              $             

DESIRABILITY PROFILE                                                                 Date:                                    

Company:                                                                                             Score

2.    Payment History
        Mostly Prompt                                           2
        Prompt - Slow                                           4
        Mostly Slow                                              6                                                                                

4.    Character of Management
        Above average                                            2
        Average                                                      4
        Below average                                            6                                                                               

          A.    Measuring Performance
                1.    Receivable Measurement
                        a.    Percentage current
                        b.    Percentage over 90 days past due
                        c.    Days sales outstanding
                        d.    Best possible days sales outstanding
                        e.    Average days delinquent
                        f.     Risk classes-marginal accounts
                        g.    Cost of capital
                 2.    Department Measurement
                        a. Objective
                        b. Subjective
                3.    Personal Measurement
                        a. Objective
                        b. Subjective
         B.    Reporting
                1.    To whom
                2.    What
                3.    When
                4.    Why
                5.    How
        C.    The motivation to pay must always exceed the resistance.
                1.    Act with respect for the customer
                2.    Look for what is highest in your values
                3.    Draw the line
                4.    Understand the "Cracker-Jack Points"
                5.    Confessions of Judgment
                6.    Stipulated Payment Arrangements
                7.    Examinations of Judgment Debtors
                8.    Collecting is really selling
                        a.    Attention
                        b.    Interest
                        c.    Conviction
                        d.    Desire
                        e.    Close
        D.    Do you know what to expect when you turn an account over to an attorney for collection?
                1.    Demand letter: Issued by attorney followed by waiting period of approximately 10 to 30 days
                2.    Summons and complaint is properly issued
                3.    A 20 day waiting period is allowed in personal service and a 30 day waiting period if the summons and complaint is issued to the Secretary of State
                4.    In the event of no response within a reasonable period of time, a default judgment may be granted. This may be easily reopened and/or satisfied at a later date If grounds can be shown
                5.    An affirmative defense will be addressed. Example: no proper service or the wrong name was used in the instrument
                6.    If an affirmative defense is proposed, attorney may just ask to have it thrown out
                7.    This is unlikely, but will require time
                8.    Examination before trial
                9.    Wait for court date and go to court
              10.    Judgment is granted
              11.    Enforcement of the judgment
              12.    Are there assets? Issue a list of interrogatories and an examination of the judgment debtor. This will tell you what assets, if any, exist
              13.    In the event of no response, you may obtain a contempt order and the individual may go to jail
              14.    If you find assets, you can seize them

IV.    Look to the Future

        A. Status

            1. Within the company

            2. Outside the company

            3. How do our actions and attitudes determine our status?

                a. With whom do we deal?

                b. Do we emphasize credit or collection?

                c. Results only delusion

                d. Visibility

                e. Do all interested parties know why we approve or disapprove orders?

        B. Vision

        C. Innovations

            1. Credit scoring

            2. Setting lines by formula

            3. Electronic data transmission - Vendor express

            4. Other - Working and not working

        D. The Art of Strategy

            1. Get Smart -- know your business...establish clear definitive strategic objectives

            2. Get Excited -- know your customers...analyze your market and its buying behavior

            3. Get Serious -- know your competitors...analyze their strengths and vulnerabilities

            4. Get Thorough -- know your plan...define all critical elements influencing success

            5. Get organized -- know your priorities -- define accountability and your current status

            6. Get going -- initiate immediate action -- invest your resources for the greatest R.O.I.

        E. A Philosophy for Life

            Keep your THOUGHTS positive...
                    Because your thoughts become your WORDS

            Keep your WORDS positive...
                    Because your words become your ACTIONS

            Keep your ACTIONS positive...
                    Because your actions become your HABITS

            Keep your HABITS positive...
                    Because your habits become your VALUES

            Keep your VALUES positive...
                    Because your values become your DESTINY

What is a Mechanic’s Lien?

A Mechanic's Lien is a legal device which, when filed properly, gives the lienor (contractor, subcontractor or materialman) a legal claim against the real property upon which the project is located or against the public fund allocated for the payment of the project.

What is the purpose of a Lien?

If a car dealer sells a car to an owner and the owner subsequently fails to pay the installment, the car dealer (if he holds the loan) can repossess the auto.

If a painting contractor sells his services to an owner and after he completes his work, the owner fails to pay, the painting contractor would have considerable difficulty repossessing his paint and certainly could not repossess his effort or salaries paid for labor.

The purpose of the Lien then is to give the workingman, contractor, or supplier certain rights to the property upon which he has made improvements or the public fund set up to pay for the improvements. These rights extend to the amount of money for which he has not been paid.

Why is there a difference between a Public and Private Lien?

A Private Lien filed in the county Clerk’s office in the county where the project is located becomes an encumbrance on the real property upon which the project is located.

Other than initiating legal action to "foreclose" the Lien, the Lien becomes most effective when the property is sold or a mortgage is taken out on the property. In both instances, either the buyer or -the bank granting the mortgage would insist that the Lien be satisfied and removed so that "clear title" could be obtained.

When a Mechanic’s Lien is filed on a public project, it is not a lien on the real property but rather is a claim against the public fund set up for payment of the construction of the project. The most frequent effect is that the public agency simply withholds one and one-half times the amount of the Lien from the payment to the contractor. In other cases, many public agencies require that all liens be either satisfied or discharged and a certification to that affect be submitted by the contractor prior to issuing the final payment on the project.

For the purposes of this Bulletin, a Public Project is defined as a project constructed by any State Agency or political subdivision of the State of New York.

Property owned by the Federal Government is not subject to the New York State Mechanic’s Lien Law.

What are the guidelines for filing a Lien?

Lien Placement: To be effective, the Notice of Lien must be filed in the County Clerk’s office where the project is located at any time during the progress of work and furnishing of the materials, or within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials dating from the last item of work performed or materials furnished, except that for single family dwellings the lien must be filed within 4 months after final performance of work or furnishing of materials.

Lien Duration: A Private Lien will expire one (1) year after the day the Notice of Lien has been filed unless an action is commenced to foreclose the lien and an appropriate notice is filed or unless a court order is granted within one year extending the lien for up to one year.

Discharge of Lien: Private Liens may be discharged as follows:

By the certificate of the lien or that the lien has been satisfied or released;

By failure to begin an action to foreclose or order to continue within the one year period;

By order of the court vacating or canceling the lien for neglect to prosecute;

By the posting of security acceptable to the court such as a bond or cash and the issuance of a court order vacating the lien;

Where the lien has been determined to be invalid.

Lien Placement: At any time before the construction or demolition of a public improvement is completed and accepted by the State or by the public corporation and within thirty (30) days after such completion and acceptance, a person performing work for, or furnishing materials to a contractor, or his subcontractor may file a Notice of Lien with the head of the department having charge of the construction and the State Comptroller or the financial officer of the public corporation.

Lien Duration: A lien on a public improvement will expire six (6) months after the day of filing the Notice of Lien unless an action is undertaken to foreclose or unless a court order is issued continuing the lien for a period not exceeding one (l) year.

Discharge of Lien: A Public Improvement Lien may be discharged as follows:

By filing a certificate by the lienor stating that the lien is discharged;

By lapse of time as follows:

After expiration of six (6) months after the filing of the notice, unless a court order has been issued extending the lien.

When the period of time continuing the order has expired, unless an additional order has been issued.

By satisfaction of a judgment rendered in an action to enforce the lien;

By applying for the issuance of a court order discharging the lien after placement of security with an appropriate party;

By declaring the lien invalid;

By court order canceling the lien for failure to prosecute.

How does filing a claim against a Payment Bond differ from filing a Lien?

Many people confuse the filing of a Lien with filing a claim against a Payment Bond. As mentioned above, you may file a Lien against the property upon which the project is located and, within certain time restrictions, on all private and pubic work excluding Federal.

On many jobs, including all Federal projects over $25,000 in value, and including most public work, the prime contractor is required to file a bond with the owner guaranteeing that all legitimate bills will be paid. On bonded jobs, a subcontractor or supplier may file a claim against the bond.

Thus, on most public work, other than Federal, a subcontractor or supplier who is not paid for his work may both file a Lien and file a claim against the bond. Both procedures, however, have certain deadline dates that must be met or the right to file expires.

What are the guidelines for filing a claim against a Payment Bond?

On State projects (state agencies and some public authorities), where a Payment Bond has been posted by the general contractor:

A claim may be made for any amount not paid ninety (90) days after delivery of materials or furnishing of services, except second tier or lower tier subs or suppliers must have given written notice of filing the claim to the contractor within 120 days from the date when the last of the labor was performed or the last of the material was supplied.

A lawsuit on the Payment Bond must be commenced within one (1) year from the date on which final payment became due under the claimant’s contract.

Some subcontractors feel they can extend their filing periods by returning to a project to perform additional work; thus, the clock for filing a notice and initiating a suit for second tier subs and suppliers would begin again. This is not always true. This additional work must, to the satisfaction of the judge, be (1) required; (2) within the scope of work required by agreement; and (3) not done solely to extend these time periods.

The above are minimum provisions on State work as covered by the State Finance Law. These provisions will vary on other types of work depending on how the bond is written. To be safe, always obtain a copy of the Payment Bond. The best time to do this is prior to signing your contract.

RESUME FORMATTING HERE

NEGOTIATIONS IN COLLECTIONS

FINDING A COMMON INTEREST

This chart illustrates how the negotiation process can be translated into a common interest. Understanding how negotiation works will enable you to collect more accounts.

PAYMENT

Collection and Debtor agree,

both sides have come "Half Way". NON-PAYMENT

 

 

 

 

 

PAYMENT

Collector is compromising - willing to go

"Half Way". Debtor will not budge. NON-PAYMENT

 

 

 

 

 

PAYMENT

Collector wants payment in full. Debtor only

willing to slight compromise. NON-PAYMENT

 

 

 

 

 

PAYMENT

Collector and Debtor agree to payment in full. NON PAYMENT

Dating control lets you establish definite dates when bills will be paid. This is essential. In this way you will know in advance what your cash flow will be. You’ll be able to make better plans for the future and won’t have to pay interest on short-term loans to cover current expenses.

You should know how long it takes for your company to collect its accounts receivable. It is sometimes helpful to do a comparison between other businesses in the same industry. Start with this simple formula:

For example, let’s determine the average collection period for Zip Company, based on Accounts Receivable of $600,000 and net credit sales for the year of $3,000.000.

This comes out to 73 days. And that means it is taking Zip Company 73 days to turn over its accounts receivable.

Average collection period figures for your industry can be found in various business publications. These figures should be useful in helping you to determine when an account really becomes overdue and when it is necessary to make the first collection effort.

You don’t have to get tough to get paid. This method often builds resentment, which can be more permanent than the debt. And it can send a good customer right into the arms of your competition or prolong payments for an indefinite time period. Many companies today are finding it easier to collect from overdue accounts by adopting a firm yet fair credit policy and if your collection department is more effective with your Accounts Receivable you can afford to attract new business from the border segment of your market simply because improved collection techniques on your part can allow you to grant more favorable credit terms to potential customers.

Here's a sample collection procedure that can be used successfully to follow up accounts. There's no one right procedure. Your policy will dictate follow up times and cut-off amounts. When customers respond to payment demands and request documentation or promise payment, your correspondence and follow through is handled appropriately outside of this sample dunning cycle.

Few or no written policies.

Practices and procedures are experiential, highly subjective and erratic.

Little or no training of personnel.

Employees either do what they feel is best, or keep running to the boss.

Meet Competition.

Assume they are smarter than you and that you have to meet or beat every deal they offer.

Follow outmoded business practices.

Run the business like we used to -- with a handshake, shoebox card files and unrealistic interest charges on account balances.

React and respond late.

See new past-dues emerge or enlarge and wait just a bit to see if they self-correct.

Be generous.

"If I do what this guy wants he’ll appreciate it and give me the business.’

Casually investigate new customers.

Accept whatever information is already available, don’t pry and save time by not checking references.

Eliminate or ignore "unnecessary bean-counting".

Don't have all or most credit controls and measures, or if you do, leave them to the "credit people".

Wait 'till you need credit help

Contact credit companies, banks and others only after you have made a deal, then expect them to grab it.

Rely on absolutes.

Like never or always involve salesmen in collections. That way you won't have to adjust to different credit problems or changing economic conditions.

Begin by preparing a desk with a telephone, along with some standard stationery material.

Here's how to initiate it:

Have all of the necessary billing information and materials you will readily need available. You will want 26 5" x 8" divider cards with tabs marked from A to Z to group accounts by name. You will want 31 5" x 8" divider cards with tabs marked 1 - 31 to group accounts by date. You will want 1 5" x 8" file box to hold the index cards.

You'll need 5" x 8" cards, either printed or blank, with your credit record information. This for your credit file will be the heart of your collection operation. A collection record card is suggested for each customer.

The collection record card should include room at the top to indicate the following information:

Firm name, address and telephone number of the overdue account.

Contact: This should be the full name of the person who knows the reason for the overdue status of the account and can authorize payment.

Alternate: This should be the full name of the person who also knows the reason for the overdue status of the account, and can authorize payment. The alternate contact should be called in case your main contact is unavailable.

Past Payment Record: This should be a rating system of your own design to give a collector a history of the payment performance on the account.

Special Problems, Considerations: This is designed to give the collector an awareness of any circumstances which could affect the overdue account's ability t meet payments when due. (For example, seasonal variations in a customer's business, etc.)

These headings constitute the permanent record that will assist a collector in pre-call planning.

The rest of the card is set up as a record of the collection steps:

DATE: This should indicate the date of the contact.

STEP: This should indicate an initial:

"T" for telephone call

"N" for dunning notice, when used

"L" for letter, when used.

SPOKE TO: This should be the initials of the primary contact - or alternate.

RESULTS: A narrative of the contact. This should include the problem encountered, the payment plan agreed upon (dates and amounts), and follow-up date. (Follow-up a few days after payment is due. Allow for mail delays and posting of payments.)

EMPLOYEE: The collector's initials are entered here after the contact.

The next step is to go through your Aging Report or list of overdue accounts and fill out the headings of a collection record for each one.

You are now ready to call the overdue accounts. (The outline of a successful call is included in the packet.) Immediately after completing each call, you should record the results of the conversation, noting the customer's reason for being overdue, the agreement that was reached (dates and amounts) and the next follow-up date.

The collection record card is now filed in the appropriate follow-up date marked form 1 - 31. On the first follow-up date the collector should pull the card and first check posting to determine if payment was received. If payment was received, the card should be filed into the space of the next follow-up date. If payment was not received, the collector should then call the customer to determine the reason for lack of payment.

Once all payments have been received and an account is current, the collection record card is put into the alphabetical section of your file box for immediate reference should that account become overdue again. The collection record card is now a permanent record of collection efforts on that account.

 

HOW TO GET CREDIT INFORMATION FROM BANKS

Sometimes checking credit ratings can be tricky, but our own bank can help us by providing useful information. It is a good idea to work through your own bank and have them get information from the customer’s bank. The nature of the information tends to be a little more confidential and detailed. It is good only to do this with your key relationships that have larger balances.

Do it yourself inquiries are fine, but you should know what to ask and what kinds of answers to expect.

Some of the best questions are:

1. How long has the customer had an account?

2. Average balance?

Customers’ credit rating with the bank?

4. Does the customer have any loans?

5. If so, how much?

6. If they are secured.

7. What kind of security?

8. When is the loan due?

You should always start by telling the bank why you need the information. Stick to the facts and do not comment on the customers themselves.

Banks will respond using the Robert Morris Associates Standards and usually describe accounts for example as "upper four figures," "lower five figures," etc. You can generally figure the vaguer the answer; the more likely the answer is not good.

CHECKING A CUSTOMER’S CREDIT WITH SUPPLIERS

The basic procedure for checking information with suppliers is similar to that of banks.

Either send a personal letter telling why the information is being requested or pre-prepared credit references form. The one we have adopted at YOUR COMPANY NAME seems to give us incredible responses by virtue of the fact that we have added an element of humor and humanity to what is normally considered a very boring task in credit departments. You should enclose a stamped reply envelope.

Make your questions specific:

How long has the supplier been doing business with the customer?

Terms?

Line of credit?

Promptness of payment?

Current situation?

If you had it to do again, would you extend credit?

If behind, how much?

For how long?

What kind of credit risk is the account?

 

MOST IMPORTANT: Ask the supplier for names of businesses that deal with the customer in case the customer has handpicked their references. Remember when creditors are asked for references, they provide their best references. You would like to hear the whole story by talking with some people in that industry that might not have been supplied as references. So, develop a little cross-reference list for yourself of who else in the industry might supply this type of customer and call those people. Develop a rep with those credit managers through associations in credit interchange groups, etc.

BEFORE GIVING CREDIT TO A CUSTOMER JUST STARTING OUT

Ask Yourselves These Questions:

Is it a corporation, a partnership, a sole-proprietorship?

Who are the principles?

What is the business experience of the company’s principles?

What was their initial investment?

How experienced is the management?

What are the company’s total assets?

How much is secured by loans on equipment?

Which equipment or other fixed assets are secured?

How much initial inventory will the company have to order?

What are projected sales in the next year?

What does the balance sheet look like?

A FORMULA FOR ACCESSING CREDIT RISK

Our central theme in decision-making is a trade off between accepting risk and the opportunity to generate profits through increased sales. Credit sales can be increased infinitely in most business simply by liberalizing credit arrangements but the increased sales become unprofitable when the cost in collection exceed the profit margin on the swollen sale. Therefore, a balance must be sought.

In general, a credit program should be based on the typical terms in the industry, for ours -- Net 30. In businesses you would expect to meet the terms provided by others in the industry. Customers who are poor credit risks require stricter terms. Here is a formula to assist you based on the five C’s of credit: Character, Capacity, Capital, Collateral, and Conditions.

Character: The probability that a customer will try to honor their obligations as measured by their payment history.

Capacity: This is the length of time the concern has been continuously in the black.

Capital: Measured by the financial position of the firm as indicated by total assets, total net worth or the debt to equity ratio.

Collateral: Represented by-assets the customer may offer as security.

Conditions: The state of the economy and the industry in which the customer operates.

As an example of a credit scoring method, you could take each of these items and assign points to each rating within a category on a scale of say zero to five, then decide the cut-off points you want to establish, some of the points provides your customer score. As long as you develop a consistent method of evaluating all customers, you will be able to weight your customers in the industry this way.

Of course the aging of accounts is your most useful technique because it directs attention to the most troublesome areas. Also, useful would be an analysis of payment history by customer class or category. I use a pink analysis sheet to break down the date of a credit response, high credit, the amount now owing, the amount past due, the selling terms, how the payments are, how long you have sold -since, and any remarks respondents might give you. I include our information of this on a regular basis also, giving you a brief profile of the customer.

EXTENDING CREDIT CUSTOMER SUBSIDIARIES:

Whenever you extend credit to a solid company, but find yourself lending to a lot of subsidiaries, it is good to keep track of the overall lending to the operation. It is also important to determine the strength of the subsidiary itself, if it collapses probably the parent company is not legally required to make good on the payment of the subsidiaries' bills.

If proof of good financial condition of the subsidiary is not possible to get, ask the Parent Corporation for a guarantee.

HOW TO SPOT CUSTOMERS ON THEIR WAY TO FINANCIAL TROUBLE:

A common sense tactic is to keep an eye on the industry trends and use them as a guide to develop credit procedures. For example: The manufacturer supplying the building trade might want to tighten credit when housing starts decline.

Some things you could watch for would include a dramatic or unexplained increase in the number and size of orders. The possible significance of this is that other suppliers have cut the customer off and are wary of their future, and the customer is laying in stock from you to get through.

Post-dated checks or delayed payments begin. Should especially be way of delays that are caused my trivial questions.

DRAMATIC AND ABRUPT CHANGES IN BANKING RELATIONSHIPS:

I highly recommend that you keep a copy of all checks and track what banks customers deal with. When you see a major change in a banking relationship, it represents a problem at the lending level in many cases. You will also want this account information in the event you have to go to judgment and do an asset search or go to enforcement.

MAKE DEBTORS PAY COLLECTION AND ATTORNEY'S FEES

Your company's credit application should contain agreements, as your contracts do, whereby the debtor must pay reasonable collection and attorney fees in the case of default.

Pro-Forma Billing on a Rental Buy Out. If your business is primarily rental, it is reasonable from time to time to sell rental equipment that has been out on rental. You need to preserve your rights to additional rental charges in the event the customer does not pay for the purchase of the equipment in a timely fashion. You are entitled to rental income until such time a buy out is made for cash. My recent thinking has me believing that buyouts on items in rental should be cash deals and rendered on invoices net due on receipt. It is proper to give the normal 30-day terms; however, enforcing very strictly the 45 days from date of invoice cut off before the item is put back on rental. This gives the customer incentive to come in and pay the bill as soon as they receive the first bill.

EFFECTIVE COLLECTION METHODS

By making calls earlier in the week. Generally, customers who promise on Friday to pay on Monday often forget over the weekend.

Speak to the person who actually signs the check; do not waste time with other employees.

Be persistent if customers are out. Leave name and number and request a return call. Ask again when they are expected, and call again and again. When writing a letter for payment, tell customers these messages have gone unanswered.

Make the call as personal as possible; always address the customer by name.

Give the customer a chance to explain; it may be a valid excuse for being late. The best procedure is to call, introduce yourself, where you are from, and simply say, "Will you be mailing your check in full today? (Pause)…. The first person who talks loses! Listen for reasons or excuses; there are some very typical responses you will get. Learn what they are and how to conquer each of these objections. It is at this point that I truly believe you are involved in telemarketing. You are selling the customer on paying you bill in a timely fashion. Encourage the debtors to commit for a partial payment or a payment program if they are not able to pay in full today. Make use of a local courier to pick checks up within an hour or two hour's time. If a customer is past due beyond terms, stress the immediacy of the situation.

Do not hang up without specifying details of the payment arrangement. Determine what the next step is going to be, whether it is to pick up the check on a particular day, call back, etc. Once a person gives you a commitment, thank them for the commitment, by saying, "thank you for your commitment to pay ‘x’ dollars."

When a customer agrees to pay, immediately send a letter formalizing the agreement, if the dollar amount is substantial enough.

If a letter threatening the use of a collection agency or legal action is sent, do not follow up immediately. Silence makes customers edgy. They will call you, but do not wait too long because you should not establish a pattern of saying you will do things that you do not ultimately do. When you establish deadline dates, keep them.

USING THE PHONE TO BOOST BILL COLLECTION:

Hard core telephone collections are never pleasant, but can be more effective than letters if they are handled properly.

Try making a person—to—person call to the individual responsible for paying the bills. Give your own name, not your companies. Many times you will get through to the right person, where an ordinary call you would not have. Insist on finalizing terms of payment during the phone call and follow up immediately with a letter confirming the arrangement. This approach needs to be limited to cases where the cost of the call does not exceed one percent of the overdue amount. In some cases I have even made collect calls to the individual.

If the debtor keeps ducking the call, you keep leaving a full message, the reason for the call, amount owed, and how long, and all the other facts, no matter who is on the other end of the line. The message usually is embarrassing the debtor into paying, calling back, or accepting future calls to work out terms.

This is a high-pressure tactic, if you misuse it, you could raise some legal problems if the caller is not careful. The caller should be briefed in advance to avoid personal slurs on the debtor and any statements that could lead to legal liability.

WHEN THE CHECK IS "IN THE MAIL."

Follow up with a telegram saying ‘thorough search shows no record of payment. Stop payment on previous check and send a new check for ‘x’ dollars at once." A variation might be "thorough search shows no record of payment, stop payment of previous check and wire ‘x’ dollars at once." It would be good to get wiring instructions as soon as you establish a banking relationship, and talk with the bank’s wiring department so that you have a written set of instructions on how to receive wires. Usually banks can wire funds bank to bank within a matter of hours and give you confirmation of the receipt of that. Another strategy is to have a courier service drop by to pick up a check. These services are usually bonded representatives, and in many cases your customer has an established account. The courier can be there within a matter of hours.

CHECKS MARKED "PAYMENT IN FULL":

You have been given a rubber stamp that I recommend using stating that the check is accepted without prejudice and will full reservations of all rights under Section 1-207 of the Uniform Commercial Code. The effectiveness of this technique has recently been tested in the Court of Appeals of New York in an October ruling and found that the creditor who received a partial payment on the account was entitled to receive those funds toward the full payment.

LENIENCY CAN COST A CREDITOR THEIR RIGHTS PROBLEM:

If an agreement provides that the entire amount of a loan is going to come due if a single payment is late; and the payments are constantly late and a creditor accepts them without complaint, the courts have held that the creditor, by its leniency, gives up rights to strict enforcement of the terms of the contract.

How to change the pattern and get compliance with the payment schedule: Send a buyer a written notice that lateness will no longer be allowed. By giving notice that the contract will be strictly enforced in the future, the creditor can regain rights it may have given up. Further information with regard is available in 24 UCC Reporter 144.

WHAT TO DO WHEN A CUSTOMER GOES INTO BANKRUPTCY:

Unsecured creditors should not give up hope of collecting something. It will take time and effort to collect.

The theory of bankruptcy is to let the debtor start over. Once the bankruptcy petition is filed, unsecured creditors most file their claims with the trustee or referee and wait.

The assets, if there are any, will eventually be sold and the proceeds distributed to the creditors. The claims are then discharged. The bankrupt later gets back on his feet; creditors have no legal right to press those claims.

There are exceptions, however. Certain claims are not affected by filing Bankruptcy B. They can still be pressed and maybe even during the proceedings. These are:

Secured debts. Creditors with secured debts can immediately liquidate collateral and keep the proceeds up -to the amount they are owed. If the proceeds are not enough, they have an unsecured claim for the balance. That claim then becomes part of the bankruptcy proceeding and you participate in the distribution. There is still a chance of getting something along with the other unsecured creditors.

Claims of creditors who relied on inaccurate financial information submitted by the debtor in order to get credit including information supplied by the debtor through a false statement-made to a credit agency such as Dun and Bradstreet. However, these fraudulent claims are not dischargeable only if you can prove that you relied upon those false statements.

When a vendor extends credit to a corporation because a Dun and Bradstreet report shows a six figure net worth and in fact is very small and the corporation goes under, a recent ruling shows that owners/officers of the corporation had to make good on the claims from their personal assets.

Key points were that the creditor showed it had relied on false information. And the owner had knowingly given false information to Dun and Bradstreet with the intention of deceiving the creditors. Further information with regard to this is found in Case Citation 13OSE2D 830.

Unsecured debts not listed by the debtor in their bankruptcy may also mean that you won’t share in what the creditors get, but after discharge from bankruptcy, your claim is not discharged. You can still collect it or try to. The fine line is that if the debtor can show that you had knowledge of the bankruptcy during the period between the filing and the discharge, you won’t get very far.

Court judgments if they arose out of intentional injuries will not be set aside.

In addition, the following claims are also not dischargeable:

Penalties and fines levied by courts and government agencies. This may relate to the theft of rental equipment if it can be construed that the equipment was taken out and not returned. Many police departments will try to make this issue a civil matter. However, if you press the issue and retain a good private investigation agency to substantiate that the debtor has converted or sold your assets, you will have a stronger position to recovering your equipment.

 

 

 

WHICH CUSTOMERS SHOULD GET COLLECTION CALLS

WHEN SHOULD CUSTOMERS BE CALLED?

THE STRUCTURED COLLECTION CALL

SCRIPTED/PLANNED OPENING

Trained Response Sequential Progress To

To Variables Close of Call

CHECKLIST BASED CLOSING

INSERT

FORM 211

Pg. 1

INSERT

FORM 211

Pg. 2

INSERT

FORM 2848-D

Pg. 1

INSERT

FORM 2848-D

(Pg. 2)

DATE

POSTMASTER

Albany, NY 12205

Dear Madam or Sir:

RE: POST OFFICE BOX #

CITY, STATE, ZIP

In accordance with the United States Postal Regulation, ASM-352-RRd, "Freedom of Information Act Regulation, " Section.44D, as shown below, it is requested that you provide this office without charge the following information: name, address and telephone number, if available, of the above business we are attempting to locate.

Thank you for your cooperation in this matter.

Sincerely yours,

YOUR COMPANY NAME

Name

Title

C File No. 7260

Section .44D - D. The business name, telephone number, and address of the holder of a post office box being used for the purpose of doing or soliciting business with the public, and any person applying for a box in behalf of a holder, will be furnished to any person without charge. The postmaster may furnish this information when he satisfied from the entries appearing on Form 1093, Application for Post Office Box or Caller Number, or from evidence furnished by the requester, such as an advertising circular, that a box is being used for such a business purpose. When the postmaster is unable to determine whether a business use is involved, he shall refer the request to Regional Counsel for advice.

STATE OF NEW YORK

SUPREME COURT

Index No.

YOUR COMPANY NAME

Plaintiff(s),

d/b/a

Individually,

Defendant(s),

STATE OF NEW YORK)

COUNTY OF ) ss.:

Being duly sworn, deposes and says: that deponent is the ( of a corporation) and is duly authorized to make this affidavit on behalf of the corporate defendant herein.

The defendant hereby confesses judgment herein and authorizes entry thereof against
Defendant in the sum of .

Defendant resides at in the County of , State of . Defendant authorizes entry of judgment in County, New York, if said residence address is not in New York State.

This confession of judgment is for a debt justly due to the plaintiff arising from the following
Facts: Goods leased, rented and delivered from the plaintiff,
, to the defendant, d/b/a
and , Individually, and
for legal fees in the sum of .

(TYPED NAME HERE)

Sworn to before me this

Day of

Notary Public

STATE OF NEW YORK

SUPREME COURT COUNTY OF ALBANY

YOUR COMPANY NAME

Plaintiff

COUNTY OF Index No.

Plaintiff

APPEARANCES: judgment creditor, by

Attorney(s) for judgment creditor

Attorney(s) for judgment debtor, or

Judgment debtor in person

STATE OF NEW YORK, COUNTY OF as:

Direct examination of judgment debtor by counsel for judgment creditor, held the day of

20

having been duly sworn testifies as follows:

1. Q. What is your full name? A.
2. Q. Have you ever been known by any other name? A.
3. Q. What is your occupation or profession? A.
4. Q. Where do you live and with whom? A.

5. Q. Do you occupy an apartment or house? A.
6. Q. What is the landlord's name and address? A.

7. Q. Have you a written lease? A.
8. Q. Who pays the rent? A.
9. Q. How is the rent paid, by check or cash? A.
10. Q. When is the rent payable? A.
11. Q. Do you get receipts for the rent front your landlord? A.
12. Q. How much is the rent? A.
13. Q. For how long a time have you lived in the premises you occupy? A.
14. Q. How much security do you have on deposit with your landlord? A.
15. Q. Are you married? A.
16. Q. What is your spouse's full name? A.
17. Q. Are you the owner of the household furnishings in your home? A.
18. Q. Did you buy said furnishings on the installment plant? A.
19. Q. Are said furnishings covered by a security agreement such as a chattel mortgage or sale contract?

A.
20. Q. Are said furnishings insured? A.
21. Q. If so, in whose name, and what company? A.

See original book…

NEED TO DISCUSS LEGAL FORMS

YOUR COMPANY NAME

Address

City, State Zip

Phone - Fax

TO: DATE:

Credit Manager:

In order to complete our credit files, we will appreciate your answering the following concerning the account listed below. All information will be treated confidentially and is received without responsibility attaching to the Company or individuals furnishing same. We would be happy to share the same information at any time.

RE: Requested by: _______________________________

TRADE REFERENCES (that they listed for you):

FURNISHED BY TITLE PHONE

A business reply envelope is enclosed for your convenience. We appreciate the time and commitment you spent completing this form. Call us anytime for the same courtesy. Thanks!

ORIGINAL - PLEASE RETURN TO US.

I [hereinafter called the "Purchasing Party (Customer)"] hereby authorize YOUR COMPANY NAME (legal name) [hereinafter called "YOUR COMPANY NAME"], and its Designated Bank, to originate Debit items to my account at the Depository Institution named below, and further direct said Depository Institution to accept and to charge (debit) the amount of such Debit Items to my account.

Such Debit Items will be initiated by YOUR COMPANY NAME through its Designated Bank and will be for Credit to the Account of the:

YOUR COMPANY NAME (legal)

This authorization is to remain in effect until written notification of Termination has been received by me from YOUR COMPANY NAME. Any Termination will take effect only after all Debit Items originated by YOUR COMPANY NAME have been honored by my Depository Institution.

 

I understand that all Debit Items [Be they Electronic Funds Transfers (EFT's) or Pre-Authorized Checks (PAC's)] will only be honored ["Paid"] if sufficient funds are available in my account.

NOTE: If you have any questions regarding the YOUR COMPANY NAME Service, please contact the:

Credit Manager

YOUR COMPANY NAME

Address

City, State, Zip

Phone

Fax

White - To YOUR COMPANY NAME Credit Department (for Bank)

Yellow - To YOUR COMPANY NAME Credit Department (for files)

Pink - Purchasing Department (Customer) may retain for their files.

I, _____________________________________________________________________________________________________ residing at

(Your Personal Name)

_____________________________________________________________________________________________________________, in

(Your Home Address)

consideration of an in exchange for the granting and extension of credit by YOUR COMPANY NAME to
__________________________________________________________________________________________("Debtor") which I hereby

(Your firm's full legal name)

acknowledge as having been received, do hereby guaranty and promise to pay to YOUR COMPANY NAME, upon due demand therefore, any obligation or indebtedness of Debtor , which (Your firm's full legal name)

may become due and owing to YOUR COMPANY NAME, and I further agree as follows:

1. YOUR COMPANY NAME may grant or extend credit to the Debtor from time to time, and may alter, compromise, extend or otherwise change the time or manner for payment by Debtor, may increase or reduce the interest rate upon any indebtedness by Debtor, may accept additional or substituted security, or may release or subordinate any existing security, without notice to or authorization by me.

2. This guaranty shall be in addition to, and subordinate to, any other security which YOUR COMPANY NAME may have for indebtedness or obligation of Debtor.

3. This guaranty shall apply and extend to the full amount of any indebtedness or obligation of Debtor, including any interest thereon, together with any and all costs and expenses, including reasonable attorneys' fees, incurred by YOUR COMPANY NAME inc collecting or compromising any indebtedness or obligation of Debtor hereby guaranteed, or in enforcing this guaranty against me.

4. YOUR COMPANY NAME need not take any action against Debtor or against any other person, firm or entity or resort to any security which it may hold, at any time before proceeding against me pursuant to this guaranty.

5. YOUR COMPANY NAME shall have a general lien on, and a right to setoff against, all of my property, of any nature whatsoever, now or hereafter in the possession of, or on deposit with, YOUR COMPANY NAME, and may exercise such lien or setoff without demand upon or notice to me.

6. All existing and future indebtedness due and owing by Debtor to me is hereby subordinated to all debts and obligations hereby guaranteed by me, and shall not be paid to me by Debtor, in whole or in part, without written consent of YOUR COMPANY NAME. In addition, YOUR COMPANY NAME shall have a lien on, and shall have a right to receive upon the liquidation of Debtor, all such indebtedness, and the amount of capital contribution, if any, in Debtor. Any payment by Debtor to me in violation of this provision, other than a reasonable wage and salary, shall be held by me as trustee for YOUR COMPANY NAME, and paid over to it upon demand.

7. I will not assert any right or subrogation or other claim which I may have against Debtor unless all indebtedness of Debtor to YOUR COMPANY NAME has been paid in full.

8. YOUR COMPANY NAME, at its sole discretion, may apply all payments from Debtor or from me, or which are realized from any security, in such manner, order or priority as it sees fit, to any indebtedness or obligation of Debtor.

9. This guaranty shall be a continuing one, and shall remain in full force unless and until I deliver to YOUR COMPANY NAME written notice revoking this guaranty as to any indebtedness or obligation incurred subsequent to such delivery. Such revocation shall in no way affect my obligations hereunder with respect to indebtedness incurred prior to delivery of such revocation.

10. This guaranty agreement shall inure to the benefit of YOUR COMPANY NAME, its successors and assigns, and shall bind my heirs, executor, administrators, successors and assigns.

11. If any provision hereof shall be determined to be illegal or unenforceable, such provision shall be inapplicable and shall not be deemed omitted, but the remaining provisions shall be given full force and effect in accordance with the manifest intent hereof.

12. The law governing this guaranty shall be that of the State of ______________ in force on the date of this agreement. I hereby agree that all claims, actions and litigations concerning or arising out of this guarantee or its terms and provisions shall be venued within the County of ____________________, State of ___________________.

 

 

 

Insert YOUR COMPANY NAME (Logo)

Name

Address Signature (No Title

City, State, Zip

Phone)

Fax Social Security Number Birthday

On this date, , 20 , before me personally appeared

, known to me and identifying herself/herself to be the above-named

signatory of this document.

Notary Public/Witness

Referred to as Secured Party agree as follows:

1. Debtor hereby grants to Secured Party a continuing security interest in all merchandise purchased by Debtor from Secured Party (collateral) to secure the performance of payment of the obligations of Debtor to Secured Party under the Uniform Commercial Code of State.

2. The collateral of the security agreement is Debtors equipment distributed by the Secured Party and sold to the Debtor on or after
said merchandise being more particularly described in the various invoices of the Secured Party which are
Date
incorporated herein by reference, and shall include all replacements, substitutions returned, repossessed goods and proceeds of each of the foregoing.

3. It is agreed that the Secured Party herein is also the seller of the collateral and it is the intent of the parties that a purchase money security interest be created hereby.

 

IN WITNESS WHEREOF, the parties have respectfully signed this agreement this __________________ day of ______________________

Insert YOUR COMPANY NAME (Logo) DEBTOR NAME

Name (Firm printed)

Address BY

City, State, Zip (Signature)

Phone)

Fax (Address)

SECURED PARTY List Counties in which you have offices:

By