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Business Credit JournalJuly 2014

7931 NE Halsey, Suite 103 Portland, Oregon 97213 Tel 503.257.0802 Fax 503.257.0247 www.nacmoregon.org

In This Issue

Seeing the Forest and the Trees ....................... 1

International Corner ............... 2

President’s Message ............... 3

Key to Success ....................... 4

Questions from the Forum ...... 6

Reducing a Customer's Account Recievables in the Zone of Insolvency ................. 9

Award Of Excellence .............. 11

10 Ways to Help You Stay on Track & Manage Your Time Better ........................... 8

Years, Events that Defined NACM and the Credit Provession ....... 12

Tips & Tricks .......................... 13

U.S. Bankruptcy CourtDistrict of Oregon .................. 14

U.S. Bankruptcy CourtWestern District of Washington ........................... 15

Often in credit, we have a tendency to become lost in the trees, and miss the forest. We evaluate credit on an account-by-account basis, examining the risk associated with each individual customer, without stepping back to evaluate the risk of the portfolio as a whole. Credit scoring can be used as a tool to view the forest, and to better evaluate risk at a company level.

Do you know, for instance, the over-all credit health score of your company? Do you know what it was last quarter or last year? Have you evaluated whether you are carrying too much risk or too little? We are all familiar with the basic constructs of Credit 101. A company in a growth stage that wants to stimulate sales relaxes credit. A mature company that wants to increase profit restricts credit. But how do you gauge whether your company’s credit policy is too restrictive or too relaxed?

When we implemented credit scoring at EVRAZ North America, we had three primary objectives:

1. Better understand and quickly evaluate the amount of credit risk in our customer base. 2. Communicate to management. 3. Provide information to the sales team.

Understanding Risk in the Customer Base

Like many companies, our former policy was to evaluate each and every account once a year. We tried to coordinate the review with the release of the customer’s annual financial statements. The fatal flaw in this method is that a customer’s financial position can change quickly. We needed a process that would enable us to monitor any sudden changes in behavior.

We investigated several scoring systems, and ultimately selected Dun and Bradstreet (D & B). We combined our payment history with D & B’s proprietary information to arrive at a credit score ranked from 0 to 10. We score our portfolio quarterly, which enables us to monitor accounts more frequently than an annual review and allows us to quickly classify each customer as high, moderate, or low risk. We also monitor accounts that have had a sudden change in behavior.

Accounts with a score that dropped more than 1.5 points in a quarter are given priority treatment. This may or may not necessitate a change in credit limits depending on what is driving the change. For instance, a low-risk account may have a drop in score but still remain in the low-risk category. We need to know whether the drop was caused by an isolated change in payment behavior, or if the customer has adopted a terms pushback strategy. If the drop caused a change in risk from moderate to high, we would be justifiably concerned and react accordingly.

Seeing the Forest and the Trees(How to Use Credit Scoring to Monitor Risk in Your Receivables Portfolio)By Michele Friske, MFA, MBA, CCE, CICP; Sr. Credit Analyst, EVRAZ North America

continued on page 8

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International Corner by Alice Knight, RGCP

If you were not at NACM Oregon’s International Day May 9th, you missed a great learning experience. The program covered a wide range of subjects including an open forum discussion.

Courtney Sellinger, Senior Manager, Trade Compliance for Tektronix, gave an overview of the extensive overlapping web of export compliance regulations. These regulations, from different government agencies, have different and sometimes almost contradictory rules. Some regulations apply from the first contact through negotiations, contract signing, shipment, and payment. Any communication including faxes, emails, etc., can be studied for compliance with prohibited transactions, wordage, prohibited individuals, companies, and countries, transfer of information, and a variety of other prohibited actions. To make it even more confusing many other countries also have regulations that may vary from the U.S. regulations. Penalties include severe fines and even jail time. Ignorance of the law is not an acceptable defense. Credit is in a unique position to advise management of the potential challenges and to determine who, within the company, has prime responsibility for compliance.

Romelio Hernandez, President of HHH Legal, a professional corporation specializing in credit and collections in Mexico, presented a new form of security interest in Mexico called the nonpossessory pledge. After completion the pledge can be filed through a new electronic RUG system which is similar to the U.S. UCC article nine filiing. Romelio contrasted the old system with the new as follows:

Even though the new system is in place there is still cultural resistance from notaries and some court officials. Sellers doing business in Mexico need to be aware of this option and utilize it when appropriate.

Ed Colford, Homeland Security, gave a brief summary of the current makeup of Homeland Security and the various ports of entry into the United States including marine ports and airports.

Paul Beretz, Managing Director of Pacific Business Solutions and founding partner of Q2C (quote-to-cash) Solutions led us through a breakout session with small groups discussing cultural considerations for negotiating credit and payment terms in China. A general discussion followed with each group sharing their discussion and comments. It was noted that it is vital to be aware of the cultural norms when starting or continuing relationships in a new country.

The afternoon featured a panel, moderated by Paul, composed of Ernie Kangas, VP Trade Credit Insurance at Heffernen Insurance Brokers; Alice Knight,RGCP, VP Finance & Administration PPM; Scott Smithhisler, VP International Banking Group, U.S. Bank; and Jean Boudreau, Director of Cedit, Columbia Sportswear Company, fielding questions submitted by the attendees. Questions ranged from the meaning of a bank guarantee, to letters of credit in Mexico to doing business in Brazil, Argentina, India, Turkey, Malaysia, South Korea, Vietnam, Australia, China and Russia. There was lots of audience participation. Many attendees mentioned that this actual experience shared was extremely valuable.

NACM Oregon has a very active international education focus. All are invited to our monthly international industry group luncheon the third Friday of each month. We meet for food, networking, and have an educational presentation. Any current hot issues can be brought to the group for current updates. Contact the NACM Oregon office if you would like to attend.

OLD NEWCreditor has possession of the surety Possession by Creditor not requiredLocal written public registry Electronic filingUnpredictable enforcement Access to special proceeding, both tangible and non tangible assets, including after acquiredCost – average 2% of face Free

Alice Knight, RGCP, is Vice President of Finance & Administration for Paper Products Marketing, Inc. Ms. Knight has more than 48 year's of experience in International Finance and is an active member of ICTF and NACM. She has served as Co-chair, Panel Member, and Presenter at Annual Global Conferences, and as President of ICTF Forest Products Group.

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Member Events & Education! Although we’re just entering the vacation season, NACM Oregon is hard at work planning and organizing classes and events for Fall and 2015.

Getting your certification. What do you know about the national designation process? Marilyn Rea, CCE, will welcome you to a luncheon on August 14 at the NACM Oregon classroom. She will review the “roadmap” and the requirements for the different levels of designation (CBA, CBF, CCE).

Be sure to put the following on your calendar:

• Starting September 10 – Effective Use of Excel, series of seven classes, one per week, presented by Steve Amiel, Tektronix

• September 16 – Insolvency & Bankruptcy Update, presented by Howard Levine (Sussman Shank)

• October 7 – Effective Use of WORD, presented by Neil Otto

• October 10 – Best Practices in Managing Credit and A/R, David Osburn

• October 14 – Membership Breakfast, Where are we, how’d we get here, and where are we going! Presented by John Mitchell, economist

• October 28 – Credit Enhancements, presented by Jason Alexander and Merisol McAllister (Sussman Shank)

• November 4 – ECOA, FCRA and Credit, presented by Scott Blakeley (Blakeley & Blakeley)

• November 20 – Credit Boot Camp, presented by Rod Wheeland

• Watch for more information.

• Also, mark your calendar for the 2015 Northwest Credit Forum, March 25-27.

Much more detail to follow next month!

National designation classes. Already planning to earn a national designation? One of your 2015 resolutions? NACM Oregon will offer Basic Accounting this Fall, Business Credit Principles in early 2015, followed by Financial Analysis later in 2015. The actual scheduling will be driven by designation test dates and the availability of instructors. Watch for more information.

Rod Wheeland, CCE, CAE Direct: 971.230.1158 [email protected]

Summer has arrived and with that comes barbeques, family reunions and vacations. My summer started with the NACM Credit Congress which was held in Orlando this year. I have been lucky enough to have attended several Credit Congresses over the years and this one was one of the best. There really was something for everyone and I enjoyed the classes and networking activities that I attended.

I particularity enjoyed the CFDD Luncheon where both the CFDD Portland Chapter and the Salem Albany Chapter won several national awards. I was very pleased to see 2 of our members receive the Distinguished Member Achievement Award for CFDD - Carol Johnson CICP of the Portland for Class A and Kathy Hamilton, CCE of Salem Albany for Class C. Additionally, it was exciting to watch Charlene Gothard, CBA installed as Vice Chairman, Education/ Programs and Chair Elect for CFDD and Barbara Davis CCE installed as a director on the National CFDD Board. We are very well represented with both CFDD National and NACM National, - Rick Wiseman, CCE services as a director for NACM National.

I have said it before and I will say it again, if you haven’t attended the Credit Congress, you really need to get that on your bucket list. It is energizing to see so many credit professionals in one place. The class offerings are great with many national level speakers and there is great information to be had at the Expo Hall. Additionally, 2015 will see one of our own, Charlene Gothard, CBA installed as Chair of the National CFDD Board. You can’t miss that! The Credit Congress is in St. Louis in May 2015, so please watch for information.

There are several classes coming up over the next few months. Please take advantage of any offerings you can and please let us know what you would like to see offered. We are always interested in Member feedback. You can contact anyone at NACM Oregon, or please feel free to contact me as well. Thank you for having the opportunity to continue one more year as your Chair. I will once again make an effort to meet as many of you as possible and the Board and I will do our best to represent your interests.

Enjoy your summer and I look forward to visiting with many of you over the next few months.

Thank you,Marsha Johnson, CCETEC Equipment, [email protected]

Message from the Chairman Message from the President

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mailto:rwheeland%40nacmoregon.org%20?subject=NACM%20Oregon%20President

mailto:mjohnson%40tectrucks.com?subject=NACM%20Oregon%20Board



Diane Snyder, CCE, CICP, and Controller at Rodgers Instruments in Hillsboro, Oregon, entered the credit profession right out of high school and has never looked back. She was introduced through a high school work-study program at Georgia-Pacific.

Once she graduated from Cleveland High School in Portland, Oregon, Georgia-Pacific hired Snyder as a part-time temp. She found her natural curiosity and tenacity fit well in the credit department. Working around her college schedule, she received an offer of a full-time, permanent position in Georgia-Pacific’s corporate credit department.

Working through the credit management ranks, Snyder was eventually promoted to credit manager and rotated through different divisions of the company. In 1982, the company consolidated its headquarters in Atlanta, Georgia, and asked Diane to make the move with them. “During my time at Georgia-Pacific I acquired a lot of financial tools,” Snyder says. One of her specialties was analyzing financially challenged national accounts in order to help develop sound alternatives to minimize credit risk.

Snyder became acquainted with NACM and CFDD (Credit & Financial Development Division) while working at Georgia-Pacific in Portland. It didn’t take long for her to realize, in her words, that “NACM has the resources, experience, and network that are essential to the credit professional. That’s why NACM National and NACM Oregon are so vital.”

In fact, CFDD’s networking, mentoring and educational resources were important enough to Snyder that she sat as the Portland CFDD’s president (2008-2010) and has also served as a CFDD National Area Director.

By 1995, Diane was ready to head back to her home town. For a few months she worked remotely for Georgia-Pacific until she was hired by Rodgers Instruments. Rodgers, a long-time NACM member, manufactures organs and keyboards. They are a subsidiary of Roland, one of the “big three” Japanese electronic musical instrument manufacturers.

As the credit manager at Rodgers, Snyder reconnected with NACM Oregon and the Portland CFDD Chapter.

She had been thinking about going back to college and finishing her degree when a CFDD contact brought up NACM’s CCE certification.

While Diane knew about the certifications NACM offered, it had never been a priority. She now saw it as a perfect opportunity to both expand her knowledge and benefit her new company. She introduced the Rodger’s President at the time, Lloyd Robbins, to the idea of certification and potential benefits. He was a huge fan of continuing education and “saw the benefits to both the person and the company,” Snyder remembers.

For Snyder the primary motivation comes down to her driving, natural curiosity. “Was there other knowledge to be had? I wanted it!” Snyder says. “I wanted to ensure I had the knowledge to do my job well. I wanted to know I had access to the resources to accomplish what was needed [at Rodgers].”

Over the space of a year Diane Snyder went from no certifications to Certified Credit Executive.

Snyder’s blistering pace was fed by her experience and acuity and sustained by some serious support from everyone around her. “Rodgers was extremely supportive,” Snyder says. “The entire Portland CFDD Chapter was behind me, as well. And don’t forget my husband, Gary, who was incredibly patient and understanding.”

Key to Success

continued on page 5

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Now a CCE holder, Snyder knows just how beneficial the certification process and continuing education can be. The study of Credit Law - which isn’t necessarily Business Law - is one area from where some of the specific day-to-day benefits come. “Having a solid understanding the legal implications of what we do is critical to working in the credit profession,” Snyder says.

Knowledge achieved through the certification process also allowed Snyder to help Rodgers expand the company’s reach to new markets.

For example, to sell an organ - which in many cases represent a serious capital investment - Rodgers had always relied on letters of credit or cash transactions for international sales. Snyder introduced the idea of getting Export Credit Insurance, which management approved.

The decision has allowed Rodgers to expand their business and help their dealers sell more product.

While often directly benefiting specific business operations, the certification has broader effects as well. “It gave me additional knowledge,” says Snyder, “and it also gave me additional confidence. Now I think ‘Hey, I’ve got these building blocks, and I can see how they can benefit my company. It lets me look at business with a broader perspective.”

There are broader personal effects as well. “Actually the certification process helped motivate me to finish college,” Snyder says. In 2007, three years after her certification, Snyder received a Bachelor of Science in Accounting from Linfield College.

Current Infinity Series

Key to Success, continued

Written by:

Jake Faris is a business technology consultant and sometimes-freelance writer who lives in the Portland area with his wife, Charity, and their two children, Harper and Xavier.

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Questions from the Forum

Welcome to a new section of the BCJ-Questions from the Forum. We will list questions and answers we think others can learn from or frequently asked questions. Have a question for other members or experts. Log on to the NACM Oregon Portal. Click here to go to the website.

A company files a UCC on a piece of equipment (in Oregon) and the owner of the equipment sells the equipment to someone who is unaware that there was a UCC filing. The original owner of the equipment doesn't pay back the company that he owed money to that filed the UCC. The original owner filed bankruptcy. Can the company that filed the UCC make the people who bought the equipment hand it over? If a broker helped sell the equipment, is the broker financially liable?

Assuming the security interest is valid and the UCC-1 was properly completed and filed and the filing had not lapsed, then the buyer purchased the equipment subject to the security interest and the secured party can look to that equipment to help satisfy the debt it is owed. Basically, the buyer's interest in the equipment is subject to your security interest. In theory, you could attempt to seize the equipment and non-judicially foreclose your security interest. If the buyer will not willingly give the equipment over, you would need to file a lawsuit to judicially foreclose the security interest and include the buyer as a defendant to have the court order that the equipment be turned over and its interest foreclosed.

Practically, the question is whether the equipment is worth the effort to go through that exercise. If your agreement with your debtor allows you to recover attorney fees, then your judgment could include amounts for attorney fees and costs, but if the debtor can not pay it, all you will have is a piece of paper saying the debtor owes you the money.

Absent unusual circumstances, I doubt the broker is liable.

Jason Alexander

JoDee K. Keegan, PartnerDunn Carney Allen Higgins & Tongue LLP

JoDee has extensive experience representing clients in a broad area of transactions, including mergers and acquisitions,

securities, commercial transactions, corporate governance, and corporate finance. JoDee represents clients in a variety of industries including wood products, manufacturing, real property development, ag/natural resources, automobile, and technology industries.

Jason Alexander, PartnerSussman Shank LLP

Jason has more than 13 years of continual commercial litigation experience and is Chair of the firm's Construction Group. He represents companies and individuals in a wide

array of business matters and disputes. Jason counsels clients in risk avoidance matters such as contract review and negotiation, as well as in dispute resolution matters. Jason's primary fields of representation include general business dealings with an emphasis in construction and commercial debtor/creditor relationships.

Question 1

Expert:

Uniform Commerical Code (UCC)

continued on page 7

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I am looking at filing a UCC on a reload location that is also a customer. In this situation the inventory may be consumed by the customer in a VMI situation or it may be sold by us to a different 3rd-party customer.

Given that there are two different possible outcomes for this inventory I am wondering if there are any changes we should include in the UCC filing that would be different from our usual filing for a VMI. Does it change the relationship?

The UCC filing would likely be the same (don't forget to include accounts, products, and proceeds in the collateral description in both the grant and the UCC-1). As you know, the security interest will depend on the grant language in the agreement. Given the brief facts you've noted below - it is likely that the company has a purchase money security interest in inventory. In order to perfect a PMSI in inventory you would need to provide notice of the PMSI to all other parties with a pre-existing security interest in the customer's inventory.

I would suggest reviewing the agreement with the client with counsel to confirm that issues related to title transfer and the grant of the security interest are properly documented given that the inventory will be VMI or sold to third parties.

All my best,

JoDee

Kendall: I have a member of NACM, that is filing her UCC online. She thought she would need a signature from her customer but the e-filing option did not ask her for that at any point. Does she have to have her customers signature? If so, how does she proceed with the online filing?

UCC-1 financing statements do not require a signature to be filed electronically or otherwise with the Oregon Secretary of State. One of the elements for attachment for an attachment of a security interest to occur and for a security interest in the collateral to be effective the security agreement must be authenticated by the debtor.

Authentication means the debtor executes, or processes a record inscribed in a tangible medium which is stored and retrievable, with the present intention of being bound. This does not require written or formal signature (though I still recommend getting one as it is the easiest way to prove an intention to be bound). Electronic signatures may be used to authenticate a security agreement.

All my best,

JoDee

Question 2

Expert:

Question 3

Expert:

Questions from the Forum, continued

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Accounts that score in our high-risk category are given priority attention. If they have been inactive for more than six months, we ensure new orders cannot be entered without a thorough credit review. If they are active, we consider changing their terms and/or lowering their credit limit. We might change their terms to cash-in-advance, or require a security agreement. We frequently utilize cross-corporate guarantees, letters of credit, or Uniform Commercial Code filings on high-risk accounts.

Next, moderate-risk accounts are reviewed to ensure the appropriate credit. We may monitor shipments closely and hold them to a very conservative credit line to decrease the likelihood of overexposure.

Low-risk accounts receive the least amount of attention. We review on the top twenty percent of accounts annually but the remainder of the accounts are not reviewed unless we see a drop in their score. Drops in score can be caused by a change in payment behavior, credit rating, or financial stress score. While there is always a risk that an account may cloak a financial slide with prompt payments, that risk also existed with our old annual review process. We prefer to concentrate our efforts on the riskiest accounts.

Communicate to Management

To keep management better informed, we created a Credit Dashboard which is published quarterly. This dashboard includes user-friendly graphs and pie charts illustrating a quick overview of the state of our receivables. Some of the areas we cover are:

• Health Score• Open Accounts Receivable (AR) by Risk • Number of Accounts by Risk • Potential Exposure and Current Exposure by Category• Risk Changes from Quarter to Quarter

The health score is an important facet of our process. The formula uses logic similar to a weighted-average formula. (Risk Score * Open AR)/Total AR = Account Score. Summing all the account scores gives you the overall health score. Monitoring the health score can quickly tell you if you have increased or decreased risk. We have found ours to remain fairly stable, moving up or down within one-half of a point. The health score correlates to our risk levels, its primary value is that it gives us a quick reference point and reassures us that we are moving in the right direction. We are pleased

to note that our overall risk score is low. We would react immediately if it ever dropped.

Open AR by risk and number of accounts by risk are important metrics depicted in a pie. We place a lot of day-to-day emphasis on the high-and moderate-risk accounts, but they are always the smallest pieces of the pie. It is helpful to visually compare it to the big slice of pie that is our low-risk category.

The value in comparing potential exposure and current exposure is to make sure your credit limits align with risk. It is normal to see large unused credit limits in low-risk accounts. You want your best customers’ orders to move through your credit process with no restrictions. Moderate-and high-risk accounts need to have their credit limits aligned more closely with open AR. This ensures that any increase in activity flags the account for review.

Measuring risk changes from quarter to quarter are best displayed in a bar graph. We have developed a two-year chart that measures the ups and downs in our portfolio and gives us greater perspective in our credit discussions.

Communicate to Sales

One of the benefits of credit scoring is that it gives us a means of communicating credit issues to our sales force. While we are ethically bound to treat client financials as privileged information, we are not restricted from sharing customers’ risk categories with our sales force allowing us to proactively handle potential credit issues with high-and moderate-risk accounts.

In the two years since we implemented credit scoring, we have developed a greater understanding of our customer base and portfolio risk. The Credit Dashboard has been very well received by management and they appreciate our efforts to enhance their understanding of risk in our receivables at a high-level. Indeed, we can now see both the forest and the trees.

Michele Friske is a Sr. Credit Analyst at EVRAZ NA. She has more than twenty-years experience in credit and collections.

Seeing the Forest and the Trees, continued from cover

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Reuters, Bloomberg, and Debtwire are all reporting negative financial information about your customer:

Bond ratings are down-graded, bond prices are falling, a likely “restructuring” to address the bond debt, bondholders form an “ad hoc” committee to negotiate with the customer, the bondholders retain financial advisors and counsel … as does the customer.

You know what’s coming, a Chapter 11 filing, but the customer will not confirm that. In fact, the customer denies the “rumors”, fearful of triggering defaults and losing credit terms provided by suppliers.

Your accounts receivable balance is $500,000, which will become a pre-petition general unsecured claim in Chapter 11. You know all too well that such claims rarely are paid in a Chapter 11 proceeding, so the $500,000 accounts receivable is looking like a write-off.

You’re in the twilight zone – the zone of insolvency, which often lasts weeks if not months depending on the negotiations among the customer and its lenders and bondholders on DIP financing and on a bond restructuring (often a debt-equity swap). It will likely be a “prepackaged” or “pre-arranged” Chapter 11 filing.

The good news is you don’t have to sit back and watch the painful slide into bankruptcy. You can be proactive and reduce your accounts receivable balance, even absent a material payment default.

Vendors have two powerful tools in Article 2 of the Uniform Commercial Code governing the sale of goods:

Section 2-609 Anticipatory Breach

When reasonable grounds for insecurity arise with respect to the performance of either party, the other may in writing demand adequate assurances of due performance and if commercially reasonable, suspend any performance.

Section 2-702(1) Cash Before Delivery Upon Buyer’s Insolvency

Where the seller discovers the buyer to be insolvent, the seller may refuse delivery except for cash.

Section 2-609 and 2-702(1) work well together. The

seller’s performance obligations, which it may suspend under 2-609, are shipping goods and providing any credit terms agreed on between the parties. If reasonable grounds for insecurity exist, the seller may suspend its obligation to ship or to provide credit terms, or both. Section 2-702(1) likewise allows the seller to sell goods on a cash basis.

Frequently Asked Questions

1. What are reasonable grounds for insecurity?

Although not defined by Article 2, courts have found that reasonable grounds for insecurity exist when a party fails to make required payments pursuant to a contract, such as when a buyer fails to pay outstanding invoices under a supply contract or when the accumulated debt of a buyer making purchases on credit substantially exceeds the buyer’s credit limit.

Additionally, courts have held that a report from an apparently trustworthy source that a party is in financial distress can be enough to give the other party reasonable grounds for insecurity, even if those reports ultimately turn out to be untrue.

2. When does a buyer become insolvent?

Insolvency is normally defined on a balance sheet basis: liabilities exceed assets. Also, a company may be insolvent if generally it is unable to pay debts as they come due.

In many instances, the customer may be current with respect to its working capital facility, and mostly current on its trade payables. However, if the customer has insufficient resources to pay its bond debt in accordance with its terms, the customer is unable to meet its financial obligations as they come due. Also, the amount of bond debt, working capital, and term debt, along with all other debt obligations may cause the customer to be balance sheet insolvent.

3. What if the customer is not in material default?

Neither Section 2-609 nor 2-702(1) hinge on the buyer’s default. In fact, Article 2 provides a seller clear remedies when a buyer fails to pay. Section 2-609 addresses the

Reducing a Customer’s Accounts Receivable in the Zone of InsolvencyBy: David H. Conaway, Shumaker, Loop & Kendrick, LLP

continued on page 10

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situation where there is no current default, but the seller can reasonably anticipate a default.

Likewise, Section 2-702(1) hinges on the buyer’s insolvency, not the buyer’s default.

Nevertheless, sellers exercising these remedies can anticipate push-back from buyers because they are current.

Also, well-written “terms of sale” provide that the failure to pay any invoice when due accelerates payment of all open invoices in which case a non-material breach may trigger a breach of the entire open accounts receivable balance.

4. What if there is a supply contract with the customer?

In this context, there is little difference between doing business on a purchase order and invoice basis and under a supply contract. In both cases, a seller has an obligation to deliver goods and extend terms and the buyer has the obligation to pay for the goods within terms. However, buyers tend to assert that a supply contract heightens the seller’s obligation to perform, even regardless of reasonable grounds for insecurity or insolvency.

5. Can the supplier refuse to ship goods altogether?

Arguably, yes, but if the seller delivers goods on a cash before delivery basis, the seller fulfills its business mission with no risk of payment.

Section 2-609 allows a seller to suspend all performance “if commercially reasonable”. Moreover, the Uniform Commercial Code imposes a standard good faith, which weighs in favor of continuing to ship, particularly if the buyer’s business operations would be damaged without a consistent flow of goods.

6. How do Sections 2-609 and 2-702(1) benefit the seller?

If the accounts receivable balance is $500,000 and the credit terms are net 30 days, the $500,000 accounts receivable balance should be zero in 30 days, or $250,000 in 2 weeks. Depending on how long the zone of insolvency lasts, the seller will likely reduce, if not eliminate, its accounts receivable balance before the customer files. These are 100% dollars compared to pennies on the dollar

if the accounts receivable balance exists at the time of Chapter 11 filing.

Given this extreme range of outcomes, sellers should always pursue remedies under Section 2-609 and 2-702(1).

Buyers often use the threat of future business to avert being put on a “cash before delivery” basis. Experience suggests that buyers need quality suppliers, and suppliers need quality customers. They will likely do business again despite the pre-Chapter 11 rhetoric. Perhaps a supplier increases the price discount a point or two for cash before delivery payments, for good customer relations.

7. What about preference risk?

Accelerated pay-downs of accounts receivable balances during the zone of insolvency normally imply an increased preference risk. This is because accelerated pay-downs are not considered in the “ordinary course of business.”

However, if the existing accounts receivable balance is paid in accordance with terms during the zone of insolvency, those payments should be protected by the ordinary course of business defense. Future shipments will be on a cash before delivery basis, so the payments by the customer are not “on account of an antecedent (existing) debt” since a debt does not arise until after delivery has occurred.

Given the normal Chapter 11 outcome for unsecured claims, minimizing such claims before filing is highly recommended.

Reducing a Customer’s Accounts Receivable in the Zone of Insolvencycontinued

David H. Conaway, PartnerShumaker, Loop & Kendrick, LLPslk-law.com [email protected]

David H. Conaway's principal areas of practice are bankruptcy (primarily Chapter 11 proceedings),

nonbankruptcy insolvencies or restructurings, workouts, commercial transactions, and international transactions, disputes, and insolvencies.

David has over 25 years of lead counsel experience representing both secured and unsecured creditors, including lenders, unsecured creditors (including trade creditors, bondholders, or other unsecured creditor interests), and unsecured creditors' committees.

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http://slk-law.com

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Award of Excellence

Please submit nominations for NACM Oregon Award!

The NACM Oregon Honors & Awards Committee is accepting nominations NOW for local members of our affiliate to be recognized in the following five categories:

1. CBA Designation of Excellence 2. CBF Designation of Excellence 3. CCE Designation of Excellence 4. Credit Executive of the Year 5. Mentor of the Year

Award recipients will be recognized at the annual NACM membership breakfast meeting in October and will become our affiliate nominees for recognition of the NACM National Awards presented at the Annual NACM Credit Congress.

Who has had a positive impact on your personal and professional career through mentoring, education, and networking? Who is an active participant in the NACM Oregon membership and an advocate for the credit profession? If you know someone who should be nominated in one of these categories, please complete and submit a nomination form with a brief letter of recommendation by July 31, 2014.

I encourage you to submit a Designation of Excellence Award Nomination Form with a brief Letter of Recommendation.

Thank you for taking the time to nominate fellow NACM Oregon members for well-deserved recognition.

Brett Hanft, CBA Committee Chairman

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On June 23, 2014, the National Association of Credit Management celebrates its 118th birthday. Though the industry has changed dramatically in some ways, NACM’s mission has stood the test of time and continues to guide its activities today. Here is a sampling of highlights over the years.

In 1898, NACM first showed its mettle by helping to construct and lobby for the passage of the National Bankruptcy Act, the first bankruptcy law effort to survive repeal attempts and provide protection from dishonest insolvency efforts on the part of debtors. That year also marked the formation of an NACM cornerstone service: the industry credit group. The first group meeting was held at NACM’s convention in Detroit and would be followed by more to provide credit professionals with a venue to discuss specific customer payment behavior and best practices within their industry. Additionally, 1898 saw the first in a series of revered publications released by the association, The Monthly Bulletin, better known today as Business Credit magazine.

In 1917, 22 classes were conducted at NACM’s convention in Kansas City, representing the first steps toward a nationwide standard for credit education. In 1918, NACM launched the National Institute of Credit and, in 1919, the Foreign Credit Interchange Bureau, which grew into NACM’s international

division, FCIB. FCIB has become a force in the business world with more than 1,100 members and offers its own unique

international credit designations and a number of executive-level education programs around the globe annually. Education for NACM and FCIB members continues in earnest, with thousands taking part in various offerings each year and with more than 10,000 professionals holding an NACM or FCIB designation today.

Showing the power of “strength in numbers,” in 1926, NACM led the efforts to amend the National Bankruptcy Act. The sweeping changes included important mandates addressing collusion, fraudulent composition, discharge of dishonest debtors, ineffective criminal provisions, and procedural red tape. The year also marked the formation of three National Credit Women’s Executive Committees for each division of the association, just one year after women in the industry received their first recognition by NACM at its annual convention.

A decade later in 1936, NACM established its first set of monthly collections and sales surveys in conjunction with the U.S. Department of Commerce. For the first time, the association also established in writing what would serve as the commercial credit profession’s guiding principles, known today as the Canons of Business Credit Ethics.

In 1948, representing the highest level of education in the

profession, the Executive’s School of Credit and Financial Management was launched in conjunction with the University

Years, Events That Defined NACM and the Credit Profession

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of Wisconsin’s School of Commerce. Renamed the Graduate School of Credit and Financial Management (GSCFM), it convenes every summer on the campus of Dartmouth College in New Hampshire.

In 1975, NACM continued to flex its advocacy strength by testifying in the U.S. Senate against proposals within the Equal Credit Opportunity Act (ECOA). NACM stressed how important it was, and continues to be, for regulators to respect the difference between business credit and consumer credit in regulatory and policymaking actions. Also, in 1975, credit data reporting took a historic leap forward with the establishment of the first nationwide computerized business credit reporting system (National Credit Information Service). The credit report is now a key item for many professionals in determining the creditworthiness of existing or potential customers. In 2011, NACM launched the NACM National Trade Credit Report, which is becoming the preferred choice of NACM members because of its extensive and timely trade line data.

In 2007, NACM launched the Mechanic’s Lien and Bond Services (MLBS) business to provide relevant services throughout the country. The division’s name was changed to NACM Secured Transaction Services (STS) in 2012 to reflect

the division between MBLS and the UCC filing services. The same year, the association also fought publicly against the government’s 3% withholding tax on many government contracts for goods and services to go into effect a few years later. NACM was publicly recognized for its efforts by elected officials who opposed the withholding tax. Even though the financial crisis started showing itself late that year and still rattles the U.S. economic system, the credit profession rose to its biggest challenge in 2007: stepping out of the shadows and into boardrooms to successfully guide their companies through the storm.

In 2013, a dogged NACM effort successfully defeated a Virginia bill that would have required commercial credit reporting providers to disclose to the subject of a commercial credit report the source of any “negative” information. Success of such a bill would have chilled the vitally important free and open exchange of trade credit information and set a dangerous template for other states inadvisably considering similar regulations and treating consumer and business credit as if they are the same.

For more than a century, NACM has led the way—expanding, adapting, and creating anew—always on behalf of its members, and will continue to do so in the future.

Years, Events That Defined NACM and the Credit Profession continued

Fun Excel Tricks to Make Work FasterMake your workflow faster and easier with these little tips and shortcuts when using Excel 2010

Shift-F11 = Creates a new blank worksheet within your workbook

F2 = opens the cell for editing in the formula bar

Control-Home = Navigates to cell A1

Control-End = Navigates to the last cell that contains data

Alt + =This Sums Automatically

Ctrl ~ =Toggles Formulas and results

Or go to formula > Show Formulas but shortcuts are always faster

Alt enter = Creates a new line of text in the same cell

Control-Down/Up Arrow = Moves to the top or bottom cell of the current column

Control-Left/Right Arrow = Moves to the cell furthest left or right in the current row

Control-Shift-Down/Up Arrow = Selects all the cells above or below the current cell

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