Your top salesperson says that a buddy of his wants to make a large purchase from you. If you keep the reigns of credit too tight, your sales suffer. If you let the reigns too slack you risk deadbeatitis.
What should you do? Do you require the new potential customer to complete the equalizer – your credit application – or do you rely on your salesperson’s instincts.
Company A chose “sales, sales, sales” and relied on its salesperson without seeking a credit application. Had Company A obtained a credit application, it would not have sold anything to the deadbeat. The credit application could have shown that the deadbeat had recently filed bankruptcy and was in the process of “reorganizing.
A few months passed without getting any payment. Company A became very nervous – to the tune of $50,000.00.
Company A called our firm. Within a few days, we obtained an ex parte bank attachment, keeper attachment and bulky goods attachment.
Relying upon an obscure statute, the deadbeat’s bank, which had a security interest in the deadbeat’s assets, forced our client to dissolve its attachment. The bank then seized and sold the deadbeats assets. After the asset sale, the deadbeat again filed bankruptcy.
Company A became an unsecured creditor whose chances of collecting any of its $50,000.00 ordinarily would have been slim and none. You know the rest of that story.
However, due to our diligence and persistence in the Bankruptcy Court, our client recovered $12,500.00 in settlement of an adversary proceeding.
Company A’s actions show the pitfall of an unchecked sales policy. Company A might have avoided this substantial loss. First, it should have done a diligent examination of its potential customer’s creditworthiness and should have required a credit application.
Second, in light of the prior bankruptcy, it should have perfected a security interest in all of its future customer’s inventory, accounts receivable, etc. This would have made it a secured creditor in any later bankruptcy proceeding.
If Company A had done any homework prior to the sales, it might not have lost $37,500.00. Although there is no guaranteed or foolproof way to make sure that a customer will not beat you, at a minimum following these suggestions may help you avoid repeating Company A’s costly mistake.