NAC M O r egon
Business Credit Journal
In This Issue Credit Enhancement p 1
Credit Enhancement— 2nd Installment Cash-In-Advance & Cash-On-Delivery by Johnny White, Esq., Blakeley & Blakeley, LLP
November
2011
President’s Message p 2 International Corner p 3 New Designee’s p 4 Member Profile p 6 Benchmark Report p 8 DSO Results—3rd Qtr. p 8 Healthiest Employer’s p 10 NOF Scholarship Funds p 11 Education Schedule p 10 BCLC Webinars p 10 Credit Techniques p 11 Contacts p 15
CIA is short for “cash-in-advance” terms (in the credit context, at least), and means that full payment is due before any merchandise will ship. COD is short for “cash on delivery” or “collects on delivery.” In a COD transaction, payment is made at the point of delivery, or the goods can be returned to the seller. Where an independent carrier is used to deliver the product, which will not collect payment on the vendor’s behalf, the expectation is that the payment will be immediately mailed or transferred. Both CIA and COD provide a more risk-free way of shipping goods to a troubled debtor for two reasons. First, it ensures payment for the goods you are shipping. While extending credit might boost sales, it comes with the obvious risk of non-payment when the debt falls due. CIA or COD terms require immediate payment. Payment can be made by a safe and secure method such as wire transfer (see more below) or cashier’s check; but, even if it is only made by personal check, and if, assuming the worst, that check bounces, you will know early enough to be able to exercise reclamation rights under the Uniform Commercial Code. Section 2702 of the Uniform Commercial Code provides for a seller to stop or refuse delivery upon discovery of a buyer’s insolvency. It also provides for a ten day window in which a seller can demand return of goods after supplying to a debtor on credit. Further, these reclamation rights are recognized and enforceable when a debtor files bankruptcy. In other words, short of criminal acts of fraud, in which your buyer gives you a bad check, and then absconds with your goods, CIA and COD terms are bullet proof ways of getting paid for what you supply. Second, payments made by a debtor on CIA or COD terms are not avoidable preferences. Under the bankruptcy code’s preference provisions, all of a debtor’s transfers of property in the 90 days preceding its bankruptcy filing are at risk of being clawed back by the debtor’s estate if deemed “preferential,” i.e. favorable treatment was given to one creditor over another. The preference provisions of the bankruptcy code can lead to some galling results where creditors, already stuck with substantial unpaid balances, are actually required to reimburse the debtor’s estate. However, there are certain defenses to preference actions; and one of those defenses is the “Contemporaneous Exchange of New Value” defense. Section 547(c)(1) of the bankruptcy code provides that “[t]he trustee may not avoid … a transfer … to the extent that such transfer was— ...continue on page 14
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