Setting Up The New Account: Best Practices and Legal Considerations for the Credit Team

1. 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

2. Setting Up The New Account

3. 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)

4. Setting Up The New Account Credit Policy Set the appropriate risk and exposure for acustomer Protect companyassets Limit write-offexposure Reduce likelihood of agedinvoices Assist the sale’s team in growing profitableaccounts

5. Traditional Information Sources

6. Social Media Sites for The Credit Team

7. Setting Up The New Account Key Ratios • Types ofFinancials: • Audit: • UnqualifiedAudit • QualifiedAudit • Adverse • Disclaimer • Other: • Reviewed • Compiled • Companyprepared Liquidity Activity Leverage OperatingPerformance CashFlow 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? Salesvolume Companysize

8. Setting Up The New Account Credit Scoring • 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

9. 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

10. Setting Up The New Account

11. Setting Up The New Account Credit Enhancements

12. 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

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

14. 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)