A Short Series On Security Interests For Credit Managers
Part 5: Simple Steps To Better Security Interests
by Robert S. Bernstein, Esquire
In the past few issues, we have covered some of the basic rules of security interests, as well as some of the pitfalls. Here are some tips that will help your security interests succeed.
GET THE NAME RIGHT. There are so many ways available to make sure of the correct identity of your customer, that it is unforgivable to get it wrong. Start with the credit application. That should ask the right questions. Then it can be verified by several different resources that are available to you through your telephone or your computer. There are many services that can verify the registration status of fictitious or assumed names, corporation, partnerships and the like. Many are available through electronic services, usually for a nominal fee.
GET THE NAME RIGHT II. When typing the financing statements (UCC-1) forms, make sure you index the filing against the correct name. When in doubt, put the debtor’s “real” name and the trade name. Remember, the filing puts the world on notice that you may hold an interest in the debtor’s property. Check the filing fees. Is it worth spending an extra $50 to protect the credit?
CHECK FOR PRIOR FILINGS. Unless you are taking a purchase money security interest in something other than inventory , you should search to see if there are prior filed security interests. This, too, can be done by a number of means, ranging from walking into the filing office to calling any number of search firms to do the job for you. The cost is generally under $100 and will often also give you copies of the filing. Since many states are filing electronically, there are an increasing number of reliable electronic search services. Remember that there is a transition system that allows filing under Former Article 9 to be valid along with those under R9. For the time being, you need to search the proper filing officer(s) under both the former and revised law.
DETERMINE THE RIGHT PLACE FOR FILING. Is your customer a registered entity, like a corporation? If so, what is the state of incorporation and the registration number? If not, what is the proper location of the customer, which designates the proper place of filing?
ASK SOMEONE. Part of the benefit of reading things like this is to let you know that there are options out there. This is not a complete manual on the UCC, but it does tell you there are things that can be done. If you think there is a sale (or a credit) that you want to secure (even after the fact), this gives you some ideas. When in doubt, ask. Most collection agencies or lawyers will give you, without charge, an idea of what can be done. ASK!