Despite best efforts; papering the deal properly, securing an upfront deposit, investigating the customer, etc. not every commercial claim will be collectable There will be a percentage of commercial debt collection claims that will be deemed “uncollectable” and written off to bad debt.
Our client, a garment manufacturer in China, was asked to produce tailored shirts for a customer in New York. The customer, a wholesaler, shared their plan to sell the goods to retail department stores. The shirts were in addition to an existing line in the stores. For our client, this was to be the first of several orders.
Client had the business owner complete credit documents, personal guaranty, and secured a deposit on the order. Based upon the customer’s credit, client extended terms whereby the customer would pay for inventory within 48 hours of moving the inventory. Client had electronic access to the inventory at all times for the goods that had been manufactured and shipped to the customer’s warehouse in New Jersey.
Slow sales resulted in goods sitting in the customer’s warehouse rather than on the department stores virtual and actual shelves, the lender had acquired a lien on all inventory, accounts receivable, etc.
An offer of settlement followed by a thorough review by a forensic accountant resulted in client’s acceptance of an offer less than 10 cents on the dollar: $83,000.00 as against a million dollar balance,
Client’s unhappy acceptance of debtor’s offer was with a clear understanding of the customer’s financial situation. *Understanding that if the offer was unaccepted, eventually the customer would not doubt file for bankruptcy. Client, an unsecured creditor, would not receive the inventory or any distribution on their claim.
The true scenario above proves that a customer may have a business that appears successful. Debtor need not close their doors for a claim to be uncollectable. There are times when despite best efforts, in house and ours, claims will be deemed uncollectable. Client may or may not see payment on their claim.
Understanding why a claim is partially or wholly uncollectable is a must. A clear assessment based upon facts will alleviate fears that a commercial debt claim is erroneously rendered “uncollectable” and you may be missing out on getting paid.
If you have unpaid claim(s), we can help you assess collectability. Contact FFGN at 212-686-0100 or firstname.lastname@example.org for a free consultation.