The first point to consider is front-end credit evaluation.  Take time and the opportunity to evaluate your current credit review policies and (if applicable) vendors.  Is the information you are receiving current and reliable?  Have you noticed any failures or loopholes in the process that have resulted in credit losses?  It goes without saying that taking the necessary steps up front to evaluate credit risk is a major factor in the long term health of receivables, aging, and profitability.

Next, we recommend evaluating and implementing procedures to structure debt obligations to assure payment to the greatest extent possible, with respect to each of guarantees, security, and lien rights.  Guarantees are necessary to insure payment from a credit-sound person or entity, when the primary obligor is either of questionable risk or is without a significant credit history.  Regardless of the credit-worthiness of the obligor, a guaranty from a company principal is a good idea.

Retaining security against personal property delivered on credit is, more than ever, a necessary device for our corporate clients.  Too often we have seen goods shipped without security, which severely limits the shipper’s ability to recover assets or damages on the back-end of a bad transaction.  A quality security agreement that protects the shipper’s rights to goods and proceeds does require a modest investment of time and capital on the front end.  However, the benefit is a significant increase to assurance of payment, and it should be a planned prerequisite of any manufacturer or distributor. 

Likewise, those companies involved in the construction trades need to preserve lien rights at each of the job evaluation, shipping, and payment stages of their transactions, so as to insure profitability.  Like security agreements against personal property, the lien laws invariably include a number of procedural and substantive requirements that must be followed in order for lien preservation and priority against real estate.  If missed, there are penalty-type provisions in the statutes that may hamper, if not cripple, the seller’s rights to payment.  Proper legal counsel involves outlining each step in the lien process and preparing the forms and documents necessary to secure the seller’s lien for goods and labor. 

Extension of credit is not the proper time or forum for trying to establish friendly and amicable relationships with new customers.  Too often we see sellers who have been burned by making sales on someone’s good nature or word.  Networking or advertising, as the case may be is, the time to drive in new business.  When it comes to credit, focus should remain on properly securing debt and protecting the corporate bottom line.

 Please contact Sean Donovan at 513-533-2705 or sdonovan@fssp-law.com to review your business’ credit extension policies.