Archer Daniels Midland Company Orange County| Los Angeles| New York DEALING WITH THE HIGH MAINTENANCE CUSTOMER: CREDIT, FINANCIAL AND LEGAL ISSUES FOR THE CREDIT TEAM Mark H. Speiser, CCE Director of Credit, N.A. Archer Daniels Midland Company Mark.Speiser@adm.com Scott Blakeley, Esq. seb@blakeleyllp.com Orange County| Los Angeles| New York www.BlakeleyLLP.com

What Makes an HMC (Experience from Credit Peers) Invoicing and Account Maintenance Unauthorized discounts Unearned deductions Withholding full payment on disputed invoice. Out-of-date IT requirements Cumbersome claim procedures to discourage resolution Overly stringent supply chain requirements that appear to be profit centers Always asking for copies of invoices and POD’s EDI invoice receipt issues or a lack of compatibility Manual entry of invoices into vendor A/P portal Insists on order changes outside of normal operating processes Failure to comply leads to deductions

What Makes An HMC Credit Terms and Payments Consistently slow pay, requiring countless phone calls and emails Indispensable customer creates obstacles to payment, resulting in holding orders, impacting inventory, DSO and cash flow Terms pushback: unilaterally changing terms Demands continued shipment/service with no payment Short pay invoices “Lost” payments with checks Regularly bounce checks Repeatedly makes false payment commitments with multiple excuses

Incremental Sales Required Cost of Write-offs Profit 5% 10% 15% 20% 25% 30% Loss Incremental Sales Required 500 10,000 5,000 3,333 2,500 2,000 1,667 1,000 20,000 6,667 4,000 100,000 50,000 33,333 25,000 16,667 200,000 66,667 40,000 500,000 250,000 166,667 125,000 83,333 1,000,000 333,333 75,000 1,500,000 750,000 375,000 300,000 2,000,000 6666,667 400,000 Due 1 2 3 6 9 12 24

Is Customer an HMC? Credit policy: Tolerance limit Percentage of the invoice that is acceptable to stay current Minimum amount to avoid credit hold Dispute resolution practice Key supplier metrics DSO Collection Effectiveness Index Days Inventory Outstanding Cash Conversion Cycle Cash flow and working capital management

Credit Team Objectives Payment predictability/collectability Solvency/insolvency Training and guiding team members Identify traits of preferred customers Create a database for flexible reporting Automate to save time of credit team members

The Credit Team: Gatekeeper or Relationship Preserver Who has the leverage in the relationship? Punitive or accommodate response: reconciling the account under traditional and modern credit approaches Leadership objectives and the voice of the sale's team Net Income (after operating costs)? Policy and procedures for reconciling to account, managing A/R and collection strategy Robinson Patman antitrust considerations

Traditional Information Sources Traditional/Criticism Static and backward looking (customer financials) Inconsistent especially with small and mid-sized Lack of transparency

Traditional Information Sources

Social Media Sites for The Credit Team Modern Better transparency Data analytics Better able to capture risk flags in real time of small and mid-sized customers

Industry Information Regarding HMC's Warning signs of delinquencies A/R aging Financial review High credit risk score Timing for what is considered delinquent Collections Judgments Liens Bankruptcy Likelihood of small business to become severely delinquent Monitoring accounts Tighter lending practices Vendors as lenders Monitoring of bank lending, term dates and covenants

Revisiting A/R Portfolio and Credit Policies Examine traditional signs of customer defaults and adjust policy accordingly Point person for change in terms, credit hold or credit enhancement Is credit policy too restrictive or too liberal? Too loose or too restrictive must be formulated within the context of company goals and profit margins Adjusting policy to signs of customer defaults Using past insolvencies for predictive data points - data points are then run against current profile to further refine portfolio risk

Protocol for Risk Flags Validating the credit risk flags Consider aggregating multiple data sources to confirm original source before taking action Responding to credit risk flags Holding orders and meeting with customers Attempt an in person meeting Converting credit sales to cash Demand written assurance of payment Refuse delivery and demand cash under Article 2 of UCC Stopping goods in transit Reclaiming goods Written demand for the return of the goods Customer divorce and filing suit If customer remains silent and account is not profitable Credit team should consider collectability of and judgment against customer or guarantors before filing suit

Preserving the HMC Through Contract and Credit Enhancements

Dealing with Past Due Invoices yet Maintaining Sales Ways to determine type of HMC (Is the relationship salvageable?) Request for financial information and confidentiality agreement Third party comment Salesperson and credit pro customer visit Contact customer’s bank Talk to industry group members and other suppliers Landlord Repayment agreements: fixing indebtedness and waiving claims Credit enhancements Dealing with insolvency

Complaining About A Customer’s Non Responsiveness: Disparagement Continuous silence from customer Credit team may exert some industry peer pressure to receive response Avoid: Complaining via email suggesting customer is untrustworthy or fraudulent and suggestion others should hold orders Customer will end silence by claiming that the supplier has made a false statement and claim that they have been defamed

Delinquent Account Decision Tree Credit Hold Report to Industry Group Late Penalty Payment Termination of Contract UCC Protections Setoff/ Recoupment Customer Divorce

HMC Divorce Divorce or preserve the trade relationship? Indispensable customer? Collaboration with leadership, sales and credit Dropping the HMC may raise revenue and reduce expense Economic conditions may force some credit teams to preserve HMC Timing for assigning account to third party for collection Document preservation with delinquent account

Insolvency and Preference Risk with HMC Is customer an HMC because it can or because it must Red flags that HMC may be insolvent A/R risk Preference risk Email communications