The sounds of market risk continue to be played through many channels of communication, and the credit professional needs to manage and mitigate these threats to protect the organization’s major asset – its accounts receivable. So, the question is: What are credit professionals doing about it?
The folks from NCS Credit, Jerry Bailey and Alec Papesch, shared their view of both the current economic landscape and the finer points of utilizing UCC filings and Mechanics Liens to secure your accounts receivable and reduce risk in your overall portfolio. They both shared an overview of Article 9 of the Uniform Commercial Code and the use of the same to better your position in the priority chain of being paid on your invoices. Simply put, secure transactions are paid before unsecured transactions. As illustrated by the NCS team, you can be on the first building block and be last in a distribution or you can be on the last building block (secured) and receive the first distribution. Whether filing a “Blanket/Basic” lien or “Purchase Money Security Instrument” (PMSI), the key to filing is accuracy by dotting the “I’s” and crossing the “T’s” – and remembering that first in is first paid.
As a credit professional there are several tips that can be used in developing best practices when executing a security instrument:
- CASA – Remember that when a customer begins a relationship with your business, the credit application should contain security agreement language to protect you… Credit Application Security Agreement. See CRF’s website for a free example of language that can be used (https://www.crfonline.org/resources/)
- Accuracy – All documents need to be executed to match all legal name and address details, which means no abbreviation, commas, spaces and decimals – just as filed with the state or local jurisdiction. Failure to do so will result in a lost claim.
- Opportunity – When an opportunity to take a security presents itself, take advantage and do so. Here are several points when to act: in the credit application; when extended terms have been requested; the customer is over the credit line; and/or when the account debt is restructured.
Lastly, Mechanics Liens – while a different type of instrument, follows many of the same principles of accuracy, timeliness and communication.
The process may seem daunting but there is support available. Guest speakers Jerry and Alec have offered to support CRF members with any questions. Also, the CRF Team is always available to connect with and support you . . . simply reach out to us HERE.