Can the bank seize these goods, even though the creditor and supplier agreed they were on consignment?

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!

“We just heard you’re going to be selling off inventory from Claire’s Concrete, Inc.,” said Florence Sherman of FirstRate Concrete.

“That’s right,” replied Joe Kaplan of WestEnd Bank. “We had a security interest in all of Claire’s inventory.”

“Well, a lot of the raw materials Claire’s had belonged to us,” Sherman said. “We sent them materials on consignment. If they didn’t sell, we could take them back. Or, if we needed material manufactured into specific forms, we had Claire’s do the work, and we paid for it. So, we’ll be taking those materials back.”

“I see no indication that those materials belonged to you,” Kaplan replied.

“Look on the inventory sheets. Some of the materials have ‘FR’ in front of them. That means they belong to us.”

“But I can’t tell by looking in the warehouse which material is which,” Kaplan complained. “You didn’t post a sign. I didn’t find any UCC filing that identified your interest in any of these materials.”

“We didn’t have to file under the UCC,” Sherman snapped. “Claire’s knew which goods were which, and we had a firm understanding that our goods were to be kept separate from theirs.”

“Do you have this agreement in writing?” Kaplan inquired.

“No, it was an understanding,” Sherman stressed.

“Well, if you wanted to protect your interest in your raw materials, you should have identified them,” Kaplan repeated. “As a secured creditor, I must be able to come in and decide what goods belong to whom. The way things look, it appears everything belongs in Claire’s inventory. We’re going on with the sale.”

Can WestEnd Bank sell all the raw materials?

Yes they can.

Under the UCC, if goods are “delivered to a person for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other than the name of the person making the delivery, then with respect to claims of creditors of the person conducting the business the goods are deemed to be on sale or return.”

Therefore, when Sherman shipped raw materials to Claire’s, they became part of Claire’s inventory since Claire’s dealt in the same goods as the type Sherman shipped.

Had Sherman wanted to protect her company’s interest, she should have either posted a sign near those specific raw materials to evidence her company’s interest in the goods or she should have filed a security interest. Because she did not take either step, the court found the bank had priority, and ruled that all of the raw materials belonged to the bank.

This article originally appeared in Credit Today, the leading publication for the credit professional.
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Talking Points For Speaking to Sales

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!


Communicating With Sales Regularly – Formally or Informally – is Always Important

Do you speak to your sales reps about what you’re doing in credit?

If you don’t, you should.

One of the most important roles of a credit exec is to constantly communicate credit’s role in your organization and how it relates to sales.

In a recent Credit Today listserv discussion, a member asked for suggestions on what she might include in an upcoming presentation to her company’s sales team. A number of great responses were received.

Lisa Childress, Corporate Credit Manager at Bison Building Materials, recommended covering the following topics with sales:

  1. How company profits are diminished the longer an invoice remains unpaid.
  2. What the cost of money (borrowing) is for your company. Also, are bank covenants you must adhere to?
  3. What their commission structures are. For example, are they on a “paid-when-paid” commission structure or do their commissions diminish as the account ages?
  4. How they and credit can maintain customer relations.
  5. Why you in credit absolutely recognize the importance of continued sales.

Cheryl, Fischer, CCP, credit manager at Barber Glass Industries, advised that the way you make your presentation with sales can make a big difference. “You have to communicate to them on their level, she wrote. “And that is definitely not a slight!” she clarified.

Visuals are Key

She’s learned over the years that sales reps in general are visual people and suggested very brief overhead computer visuals. “Graphs are always very helpful. Keep it short, sweet, and to the point with pictures and I don’t think you will find their eyes glazing over.”

And Jeff Borgens, CBA, Corporate Credit & QMS Manager at Aiphone Corporation, offered up some great suggestions as well.

First, he suggested, emphasize the principals of business partnership and mutual expectations. “It’s a partnership and we look for quality partners (customers) we can count on.”

Sales should also understand that credit will do what it says it will do and that “ongoing payments equal ongoing shipments.”

Second, make sure you “talk their language” when communicating with sales people. This means emphasizing customer needs and how you strive to meet those within the policies you’ve established. Talk to them about how you will help make the sale, rather than stop a sale if at all possible. And cover some of the tools you have to make that happen, such as guarantees, credit cards, letters of credit, or other security agreements. Make sure they know you’re not “sales prevention,” but are there to facilitate the sale, he wrote.

Finally, he suggested reminding sales that we need to be aware of the role our customers play with our product.

If you sell to someone else who is depending on delivery of “your” product, and that customer ends up on credit hold and hence can’t get the goods down thru the channel, it potentially puts your firm a bad light. “We need to be conscientious of those that buy thru the channel by making sure our business partners are reliable,” he wrote.
This article originally appeared in Credit Today, the leading publication for the credit professional.

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Why Are There No Pictures of Credit Managers, by Larry Convoy

As I travel around making visits at member companies, I am constantly amazed how many of the lobbies are shrines to the Salesperson of the Month or Regional or District Team of the Quarter, or some like group. Being in sales, I know how difficult it is to achieve and maintain some of these goals, so I certainly do not harbor any ill feelings for this recognition.

My question is, where are the pictures and accolades for those who open, investigate, monitor and routinely babysit the account so that the customer continues reordering and the sales team earns their plaques on the wall? Is management aware of the contribution you are making to this effort?

Do they know that information from CMA’s Group alerts prompted you to put the account on COD months before the BK, thus saving the company major dollars? Are they aware that knowledge picked up at a CMA Lien webinar or protection you gained by placing a lien through CMA’s lien services department showed you how to protect your rights and receive payment when others did not? Do they know that by analyzing credit reports, you were able to raise the credit limit and therefore assist the sales team in making their numbers?

It is not a violation of group confidentiality to inform senior management that their investment in CMA and the group has resulted in major savings or increased revenue. By informing them routinely how THEIR decision has benefitted the organization, you will have an easier sell at renewal time or when you wish to attend an educational event or possibly at your annual review. If you are not going to tell them, who will?

I look forward to seeing your picture prominently displayed as a valued member of the team.

Survey Says: Sales Can’t Override Credit, Both Work Best as a Team

According to a recent survey, “In your company, can a sales team overrule a decision by the credit department?” the
majority of respondents noted that sales cannot overrule their department’s credit decisions, with 60.7% of participants answering “No.” However, while a still sizeable 39.3% answered “Yes” to the survey question, many of these respondents noted that the occurrence of a sales override over credit is exceedingly rare and happens when a member of a sales team or upper management has a relationship with the customer in question.

The type of account upon which sales tends to override credit is also similar among participants, with many of them noting that, in many instances, sales will override a credit department’s decision regarding marginal accounts. Many “yes” respondents also noted that sales overrides cannot be done whenever sales finds it necessary; most of them require the approval of a vice president or officer of the organization and some also require that the customer meet certain previously agreed-on creditworthiness criteria.

There were some participants, however, who noted that, in their opinion, sales can often function and overrule a credit department decision without any prior approval whatsoever. “The local sales managers or the general sales manager can and do override credit decisions with no impunity or consequences,” said one respondent. “Creditworthiness is not a concern, only the sale.” When asked to characterize their credit department’s
relationship with sales, the aforementioned respondent noted that the relationship is “good, as long as sales gets their way.” This sentiment was echoed by a number of other respondents whose credit decisions can
be overridden by a sales team, with many noting that their relationship with sales is “combative” and “adversarial.” In one instance, a participant simply responded by asking, “What relationship?” Another respondent, who answered the question positively, noted that sales’ decisions to override have taken their toll: “After 20 years of dealing with marginal credit and tons of collection problems, I am rundown and about ready to give up and retire.”

A large portion of respondents noted that, while sales does have the ability to override a credit decision and make a sale, for the most part, the sales and credit teams work together to come up with an agreeable solution to the problem. “The main objective is to find that unique balance between sales and credit,” said one respondent, who also noted that, at their company, “There is mutual respect between credit and sales. I am very fortunate to have the support of sales, as well as upper management, especially in this economic climate we are currently working in.” The economic climate was also cited as a reason for why, in the last several months, many sales people have stopped overriding to make sales and taking greater heed of what the credit department has to say. “It is not happening as much as it used to happen,” said one respondent. “Economic times are curbing their recklessness.”


Are You Viewed As a Leader?

Company executives are fully aware of the impact sales has on their company’s future, but many of them might not be so aware of how close accounts receivable (A/R) relates to the organization’s sustainability and potential for growth. “It’s really important to show them how credit can affect them,” said Susan Archibeque in a recent CMA-sponsored webinar entitled “Credit Leadership.”

Archibeque noted that while sales may have the most obvious tie to a company’s position, it’s important for the business’ decision makers to understand how important credit is to help the company make more sound strategic
decisions and also to increase the profile and clout of the credit department within the organization. Archibeque noted that the relationship between credit and sales should be an equal and mutually-beneficial one. “The only way that we can change perception of credit is to have a positive experience with sales,” she said. “It’s important that sales and credit are on the same committee.” Archibeque even noted that, in some instances, sales should be tied to credit and suffer the consequences when one of their customers fails to pay.

Before any of these options are put into place, however, Archibeque noted that a credit department needs to take stock both of how they’re performing and how they relate to the rest of their company. “We need to look at your company internally,” she said. “Look at the impact A/R is having. You need to know where improvements need to be made… to change the philosophy of credit in [your] organization.” Archibeque also added that it’s important for credit staff to be involved in the company’s future as much as its present situation. “You need to be on the strategic planning committee so you can be in on your company’s growth,” she said. “You need to know where your company’s going in terms of expansion.”


The Illusion of a Good Deal

There’s no question that a lot people have a hard time wading through the confusing and overwhelming maze of data present on statements that they receive from their credit card processors. There’s a popular mental image that processors are merely robbing their customers, hitting them with a never-ending string of charges like convenience fees, access fees, risk fees, assessment fees, downgrades and the heavy-handed interchange.

“They do take advantage,” said Robert Day, assistant vice president, Commercial Interchange, Third Fifth Processing Solutions at the recent CMA webinar, “The Illusion of a Good Deal.” “Interchange is where your focus needs to be. The issuing side of the house is where the money is made…they’re the ones that are driving the interchange.”

Day warned that interchange, the fee collected by the acquirer from the merchant for every Visa and MasterCard transaction, can represent as much as 92% of a transaction’s costs. On commercial cards, the rate of interchange can be affected by the amount of detail a business can collect on the purchaser, such as zip code, location and tax ID as well as line item detail of the purchase, to lower the risk of the transaction being disputed. With lower risk comes a lower interchange rate, which can save anywhere from tens to hundreds of dollars on large ticket sales.

“Really, the key is getting the correct information and putting the information in correctly,” said Day.

But even if a merchant does this, it could be moot.

Beyond the tangled mesh of fees upon fees, the problem for most businesses is that the account with their processor or gateway does not match their business’ needs or practices. Having an account that is set up incorrectly, which typically happens because of lack of experience or knowledge from the merchant or an Independent Sales Organization (ISO), like a local bank that re-sells the credit card processing, translates into wasted money and time. ISOs outnumber processors over 100-to-1 and are very common partners for business accounts, but their limited knowledge could mean that it would be nearly impossible for businesses to achieve lower interchange rates.

Day also warned that processors will simply try to take advantage of businesses. A common practice is that a processor will offer an attractive base rate, which will appear boldly on page one of a merchant’s statement, if the merchant will agree that the processor doesn’t have to disclose the rate they charge for downgrades. In this type of agreement, the processor will deliberately leave out the column for transaction volume on the statement so that the percentage charged on downgrades can’t be figured out. Day explained that if credit professionals see that this one column is absent, it might be time to take another look at the relationship with that processor.

“It doesn’t matter what discount rate is shown on page one,” said Day. “Page one is there to humor you. Throw it away unless it aligns itself with page two. Otherwise, it just doesn’t matter.”