Scott Blakeley, Esq. Partner Blakeley, LLP SEB@BlakeleyLLP.com Setting Up The New Account:  Best Practices and Legal Considerations for the Credit Team Scott Blakeley, Esq. Partner Blakeley, LLP SEB@BlakeleyLLP.com Susan Archibeque Director of Credit, Nicholas & Company, Inc Sussan.Archibeque@nicholasandco.com Amber Tallmadge Corporate Credit Manager Central States Manufacturing atallmadge@centralstatesmfg.com

Setting Up The New Account

Six “P’s” of Credit People (who’s running the business) Setting Up The New Account Six “P’s” of Credit People (who’s running the business) Profit (your margins) Payment (track record, new financials) Protection (security obtained) Politics (country conditions) Perspective (assessment of earlier “P’s” taken together, cost-benefit analysis)

Credit Policy Set the appropriate risk and exposure for a customer Setting Up The New Account Credit Policy Set the appropriate risk and exposure for a customer Protect company assets Limit write-off exposure Reduce likelihood of aged invoices Assist the sale’s team in growing profitable accounts

Traditional Information Sources

Social Media Sites for The Credit Team

What to look for when credit team does not have financial information? Setting Up The New Account Key Ratios Types of Financials: Audit: Unqualified Audit Qualified Audit Adverse Disclaimer Other: Reviewed Compiled Company prepared Liquidity Activity Leverage Operating Performance Cash Flow Accounting Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows What to look for when credit team does not have financial information? Sales volume Company size

Credit Scoring Setting Up The New Account Payment predictability/collectability Ultimate solvency/insolvency Training and guiding new customers Identify traits of desirable customers Identify traits of undesirable customers Creates a database for flexible reporting Automated versions save the time Allows comparison of customers with similar traits Manage risk by segment or characteristics Ability to adjust risk by adjusting model components Internal vs. external data inputs

THE CONTRACTUAL DOCUMENTS THAT GOVERN THE TRADE RELATIONSHIP Setting Up The New Account THE CONTRACTUAL DOCUMENTS THAT GOVERN THE TRADE RELATIONSHIP Sales team Information Credit team pref Credit team Credit Application Information & T’s and C’s Who has the Trade Leverage? Indispensable customers or key supplier? Sales team/customer pref Offer to buy An acceptance of an offer to sell Confirmation of a verbal agreement New Account Set up P.O.’s and Invoices Customer pref Customer-Supplied Vendor Contract

Setting Up The New Account

Setting Up The New Account Credit Enhancements

Tax Exemption Certificates Setting Up The New Account Tax Exemption Certificates Collection of certificates as part of the new account set-up process Validation of certificate Maintaining the certificates for easy retrieval Monitoring expiration dates MATT The sales tax exemption certificate process becomes part of a cycle. In most companies an exemption certificate if collected from the buyer at the time the account is set up. It is normally filed, with little or no review. Best practices show that collected exemption certificates should not be just filed away. After collection they should be reviewed by a team trained in looking for a complete/valid form. If they are truly valid, then they should be archived for later review. Companies should periodically review accounts for expiration of exemption certificates or set up a regular schedule to collect all new forms from the customer base. Older forms should be maintained on file in case of an audit of prior periods.

THE ANTITRUST LAWS AND THE NEW ACCOUNT SET UP Setting Up The New Account THE ANTITRUST LAWS AND THE NEW ACCOUNT SET UP

Setting Up The New Account Legal Considerations The Electronic Signature in Global and National Commerce Act (E-SIGN) The Equal Credit Opportunity Act (ECOA) The Fair Credit Reporting Act (FCRA) Sarbanes-Oxley Act (SOX)