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Apr 01 2017
Navagating Account Bankruptcies: Tips for New Credit Managers
Jeffrey Young, CBF, Adobe Systems

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.