CHAPTER 6: COLLECTIONS
In a Chapter 7 filing, a trustee is appointed by the court to help maximize the value of the business and redistribute that money to all the creditors. The trustee will liquidate the assets and pursue any litigation the company has, like preference payments, or fraudulent conveyances (transfer of assets with little consideration, for example, if the company president owned the building and transferred it to a relative or friend before the bankruptcy). Also, in a Chapter 7 case, you will have to file your own proof of claim for the debt by the bar date and wait to see if the court trustee liquidated enough assets to pay the debt due your company. The creditor does not have many rights, but they can make sure that the trustee in bankruptcy is properly administering the estate. Companies facing a customer in bankruptcy can contact the American Bankruptcy Institute ( www.abiworld.org ) which provides resources online and lists professionals who can help. AR professionals who have many years of experience can comply with an uncomplicated bankruptcy. However, if the debt owed is more than 25 percent of your company’s receivables, it may be worthwhile to at least talk to a bankruptcy lawyer to see how you can navigate through the court and recover more money. In that case, your local bar association ( https://www.americanbar.org/ groups/legal_services/flh-home/flh-bar-directories-and-lawyer-finders/ ) can help. BANKRUPTCY CODE SECTION 503(B)(9): ADMINISTRATIVE CLAIM If you have just supplied goods to a customer that suddenly files for bankruptcy, here’s something you should know. If you delivered goods within 20 days of the customer’s bankruptcy filing, you can get a “20-day goods” administrative claim on the value of that delivery. What does that mean? An administrative claim means that you can recover 100 cents on the dollar for those goods. Essentially your pre-petition claim is treated like a post-petition administrative expense, which means you get the full dollar value, rather than pennies on the dollar like an unsecured creditor. HOW TO PROTECT YOURSELF AGAINST CUSTOMER BANKRUPTCY There are several actions you can take to mitigate, though not eliminate, the risk of customer bankruptcy: 1. Make frequent collection contact with your larger customers. Be attuned to warning signs: broken promises to pay, many requests for invoice copies, an increase in short payments, disputing large invoices while paying small ones, etc. 2. Take decisive action to hold shipments or service to customers exhibiting the signs noted above. Limit your exposure. 3. Increase your vigilance on customers in distressed industries. 4. Update your credit scoring of larger customers (noting that available credit information may not reflect very recent developments). 5. Maintain focus on those customers with large receivables balances. This is where the exposure is.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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