Aug 14, 2024
Written By: NCS Credit
UCC FILINGS REDUCE FINANCIAL RISK FOR BUSINESSES
Every time you extend credit to your customer, you assume some calculated risk, right? And, as a diligent credit professional, you take steps to mitigate that risk.
You scrutinize credit applications, analyze and review credit history (the amount of outstanding debt, payment behaviors) and you contact credit references. To limit exposure, you negotiate lower credit lines, pay for credit insurance, or require cash in advance, but there’s a popular, simple, low-cost protection you may have overlooked: UCC filings.
WHAT IS ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE?
Article 9 of the Uniform Commercial Code (UCC) governs secured transactions in personal property and provides an opportunity for trade creditors, like you, to secure accounts receivable, inventory or equipment by leveraging the personal property assets of your customer.
Under UCC Article 9, a security interest is an interest in personal property or fixtures and secures payment or performance of an obligation. Before extending credit, many creditors require their customers to enter into a Security Agreement. The customer pledges specific personal property as collateral to grant a security interest to the creditor. Then, in the event of customer default, the creditor can use the collateral to recover payment.
What Is a UCC Filing? A UCC filing, also known as a UCC Financing Statement or UCC-1, is a document filed with the Secretary of the State which serves as public notice of a creditor’s security interest in certain collateral owned by their customer.
Who Should File UCCs? Any business (i.e., creditor) extending credit to its customers should file UCCs, including financial institutions, factoring companies, leasing companies, suppliers and distributors.
Why File UCCs? Protection. Yes, in an ideal business relationship, bills are paid in full and on time – every time. But in a credit-based economy there is little chance for ideals. In the event of customer default or bankruptcy, it is far better to be a secured creditor than an unsecured creditor.
Are UCC Filings a Guarantee? As with everything in life, there are no guarantees – except for death and taxes. No, you are not guaranteed to be paid in the event your customer files bankruptcy; however, a perfected UCC filing will give you secured status, which will put you in the best possible payment position.
TOP UCC FILING MYTHS DEBUNKED
Let’s put a few UCC filing myths to rest.
It Will Hurt My Sales. Becoming a secured creditor affords you the opportunity to extend greater credit limits, sell to marginal accounts and provide credit to accounts with limited credit history. A UCC filing is another tool that allows you to say “YES” to sales.
My Customer’s Bank Won’t Let Them Sign, and Even If They Do, I’ll Always Be Behind the Bank. I’ll Never Get Paid. The bank should not have a problem with your customer signing the agreement. You may find you need to subordinate to a bank, but you will remain ahead of other secured creditors.
The UCC Filing Will Hurt My Customer’s Credit Rating. UCC filings do not impair your customer’s credit rating. The filings will appear on the credit report, but simply to provide confirmation that another creditor has a secured position.
If I Ask My Customer to Sign a Security Agreement, They Are Going to Buy from a Competitor Who Won’t Ask Them to Sign. Credit and legal departments at companies throughout the country take advantage of the opportunity to incorporate security language within their contracts and credit applications; it’s a basic risk mitigation tool. Reassure your concerned customer, the UCC filing simply allows you (the creditor) to be a secured creditor in the unlikely event they default on payment terms or file bankruptcy.
COMPETITIVE ADVANTAGE OF UCCS
A UCC filing can do more than protect your inventory, equipment, and receivables. UCCs reduce your risk and afford an opportunity to expand your market share, by providing you with the security needed to sell to marginal accounts and increase existing customers’ credit lines.
Create Sales Opportunities. As you know, the business world is aggressively competitive. UCC filing is more than reducing risk; it’s an opportunity to expand your market, by providing you with the security needed to sell to marginal accounts and by providing the added security needed to increase existing clients’ credit lines.
No Cost to Your Customer. All your customer needs to do is sign a Security Agreement. The costs associated with the UCC filing will be paid for by your company (and those costs are minimal). Your customer doesn’t pay a dime!
Minimized Risk Means Fewer Write-Offs. Fewer write-offs lower the overall costs associated with your product. Lower costs mean you can sell at a lower price, maintain a stable profit margin, make your company more competitive, and open doors to a larger market share.
Everyone’s Doing It. Your company is not the only company filing UCCs. Hundreds of thousands of companies throughout the country are too. Did you know that mortgages, car loans, and lines of credit often have security language written right into the agreement? When you sign that document, the security language allows the lender to file a UCC.
Secured Creditor. In the event your customer defaults or files for bankruptcy protection, a properly perfected UCC positions you as a secured creditor. As a secured creditor, you are bumped to the front of the payment line and have the right to repossess your equipment or inventory. If your customer never files bankruptcy and never defaults on payment, then it will seem as though the UCC doesn’t even exist – it’s like an invisible shield: it’s there to offer protection if you encounter harm, but completely unnoticeable in a world of fiscal harmony.
With UCC Filings, You Can Compete with Confidence. UCCs are a simple part of everyday business. Smart, savvy businesses are securing their receivables, inventory and equipment. Businesses who don’t file UCCs are placing themselves at a competitive disadvantage. Take the opportunity to minimize loss and create opportunity.
NCS Credit Is Here for You
NCS manages the entire UCC filing process. We can assist in developing your collateral description, review your agreement to ensure it contains important aspects like the granting clause, pull articles to confirm your debtor’s name and jurisdiction, prepare and record the filing, monitor the filing for expiration and monitor your customer for changes with the Secretary of State.
Powered by our knowledgeable staff and fueled by technology, NCS will simplify your current process and deliver a best-in-class client experience.
With unparalleled industry expertise, we understand the complexities of commercial credit. We believe everyone deserves to get paid for the work they do!
Contact us today!
NCSsales@NCScredit.com or 800.826.5256