As part of our general counsel responsibilities, we monitored our client’s business relationship with a major customer, and noted that the customer’s receivable balances were outpacing acceptable limits. This set off an alarm bell. We investigated the financial viability of the customer, and concluded that the customer’s ability to satisfy the receivable was at risk. This created a difficult conundrum for our client: the customer was an important part of the client’s business plan in both the short and long terms, and the client was extremely reluctant to limit, let alone stop future sales to the customer.
The client authorized us to work with the customer, who depended upon our client’s shipments to stay in business. The principals of the customer offered personal guarantees, but we insisted on financial statements and concluded that the guarantees would not provide appropriate security. Ultimately, we worked out a plan in which a portion of the receivables were collateralized, and the remainder was secured through a refinancing the customer was able to successfully consummate with its bank, with our assistance. The receivable was ultimately satisfied and by working with the customer in as non-confrontational way as we could, the customer remained a valuable and long term source of revenue for our client.