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Apr 01 2017 Navagating Account Bankruptcies: Tips for New Credit Managers |
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There is something that even the most seasoned credit
managers dread. For a green credit manager, heart palpitations and cold
sweats go in to instant overdrive. It's something that'll ruin your day more than
a speeding ticket on your way to work, more than scheduling a routine duct
cleaning only to have the HVAC guy break the news that your furnace is
shot. No, it's not the time to review the credit limits of your top 50 accounts,
nor is it your boss informing you that the organization's credit policy is in
need of a complete overhaul. It's the overwhelming feeling a credit professional
gets when going to their mailbox and pulling out an envelope with a return
address from a Federal Bankruptcy court. You fight every instinct to toss it
back in to the bin and come back later. Maybe if it is left over the weekend
it'll somehow be gone on Monday. In reality, you'll think of nothing else for the
next 48 hours so you grab the envelope, disguising it if you can,
and walk expeditiously back to your office praying that you'll not run into
anyone of importance along the way. Once back in the safety of your office
space you'll shut the door, place the envelope on the desk, and stare blankly at it
while thoughts of despair race through your brain. Who could be? Who has been on
your radar as of late? Who did I ship to recently that went against my better
judgement? What do I tell my boss? Finally, you work up the courage to open the
letter and bingo it's as bad as you thought. I am not saying this is how every
credit manager might react whether seasoned, or brand new, but what I am
describing are the range of emotions that I went through as a new credit
manager my first few times after finding those letters in my mailbox. Looking back on the first few bankruptcies,
the first piece of advice I'd give to new credit managers is not to panic. Pick
up the phone and call someone you can trust. Hopefully that person has some
credit experience. A former mentor, a local NACM member, your credit law
teacher, a member of your industry trade credit group assuming you belong to
one. And if you don't, join one immediately. More often than not, one of these
individuals will be there to talk you down off the ledge. I reached out to my
former boss who I started under in the credit field and it was the best thing
I could have done. Before I continue on let's first explore a couple of quick
facts about bankruptcy and businesses in general. According to the American
Bankruptcy Institute there were 30,018 commercial bankruptcy filings in 2015.
The silver lining in that number, however small it may be, is that 5,309 of
those filings were Chapter 11. So if you're lucky, maybe this time around your
customer will fall into that 17% filing for reorganization and it won't be a
total loss. You've probably heard the saying that 9 out of 10 businesses will
fail in the first year. Well according to experts, that figure is probably a little high. The more likely statistic is that about 1/3 of business will fail within
two years. What is my point in bringing this up? As my former boss so
eloquently put it, "It's not a question of if it will happen to you, its a matter
of when." "We are all in this to lose some money and every supplier who's been
around long enough knows it's inevitable." "The best you can hope for is to limit
the damage."
Some other advice I'd give is the following:
Don't procrastinate and don't be intimidated. Pick up the
phone and contact the filer's attorneys to be sure you are on their list of
creditors. This may sound intimating at first, but in my experience, they are
more than willing to help. File the proof of claim ASAP. Even if you're given a
deadline that is far off which might be the case in a Chapter 11 filing, or it
could be 90 days in a Chapter 7 case, don't wait. You are probably already
feeling enough stress by this point, no need to pile on by procrastinating. If
you have any questions about your proof of claim or want to be sure it was
filed correctly the court clerks are a valuable resource and more than willing
to help. (Bankruptcy court clerks do not give legal advice.) Be prepared when you go to your superiors to discuss the
notice. Hopefully you documented every little thing you can to back up your
decision for shipping. Chances are that the company had been on your radar
already and if you meet with your boss weekly or bi-weekly your concerns had
previously come up. Be sure to remind him or her about those discussions.
Gather all your notes, bring a credit report and whatever other data you can
think of no matter how trivial in to that discussion. Be prepared to talk about
possible preference payments. Remember you are not only on the hook for the
balance currently owing but may also be on the hook for preferential
payments. It is important your superiors know this.
Lastly, but no less important, is to simply get involved.
The more knowledge you have on the subject matter the more confident you will
feel throughout the process. Do this by taking education classes at a local
community college or through the NACM. As I mentioned earlier, if you don't
belong to an industry trade credit group you should considering joining one
right away. They are an invaluable source of information and a great networking
tool. There will always be seasoned credit managers at meetings or willing to
field phone calls about best practices on anything from how to get security
agreements to questions on credit applications/policies and everything in
between. Talk with sales reps. They are on the "front lines" and generally have
the best perspective on how a business is functioning. Take an active role in
the credit groups, volunteer to join a creditors committee when available, and
attend a meeting of creditors if the bankruptcy happens to be local. The bottom
line is that there are numerous resources available and you should always take
advantage of them. This is certainly not an all-inclusive list of how to
handle bankruptcies - just some helpful advice from a new(ish) credit
manager who has gone through those dreadful feelings first hand, but no longer
fears stopping by the mail bin.
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