Octávio Aronis, Attorney
October 9, 2016
In my last newsletter, in the article titled, When a Loss from a Scam Can Make You Cry!, I talked about making an onsite visit with one of my creditor clients from Korea to a very small town in southern Brazil.
As I had explained, the creditor had sold about US $2 million worth of products on credit and unfortunately, through an elaborate scam, the debtor skipped out leaving the creditor high and dry. It was not only a very sad predicament financially, but the creditor also felt horribly deceived by the fraud, especially when we showed up to the location where the debtor apparently had his office. A run-down dilapidated shack that had a for sale sign on it was all that remained of our debtor.
I’m often asked to make an onsite visit, mostly after the products have been sold to the customer and payment has yet to be received by the creditor. In most cases, it’s usually a little too late. Even if the debtor hasn’t purposely pulled up his stakes and left the area, I’ve come across debtors whose companies amounted to no more than a “whole in the wall,” where any little mishap will send them into insolvency.
So what does it mean to do an onsite visit? Depending upon the amount that you intend to sell on credit, let me explain what’s involved so that you can increase your level of comfort towards your present or potential customer’s creditworthiness.
Preparing for the on-site visit
Before we can venture out to a company’s location, we need to do as much background work to determine the existence and viability of the company. In view of the amount of credit being requested, this includes some or even all of the following items:
• Taking out credit reports and obtaining “consistent” credit information – Obtaining one credit report in which the issuing company has a disclaimer of no responsibility towards all the information provided, does not lend itself to being very reliable. However, obtaining two or more credit reports from reputable information providers that show similar financial data will at least give you a sense that the company is operating financially within a given range.
• Verifying the existence of any law suits and other pending legal matters – Although every business that is doing a significant amount of business may have some law suit pending against it from time to time, the nature of the law suit can be very telling. For example, intellectual property right infringements can often result in a large amount of damages having to be paid and this could seriously hamper your customer.
• Performing background checks on the owners and executive team – There’s nothing more of a revelation than when we find out the owner or executive team has a felony record or other nefarious incidents in their history.
• Speaking with the trade and bank references provided on the credit application – Although most trade and bank reference will tell you positive things about your customer (which is why they’re references to begin with), you may find out that one of them is the “brother-in-law” of your customer. This lack of independence would certainly put the objectivity of the reference into serious question.
• Obtaining photos of the location and neighborhood of the target company, its other facilities, and if possible of the owner’s or president’s home – Google Earth does a great job and for free we can at least understand if the given address results in a specific location and neighborhood. I have found businesses built right next to areas rife with crime, which makes me wonder why a business would be there in the first place.
• Calling to other neighboring businesses – By nature, people are curious and when they don’t see much activity happening with a neighboring company, they being to wonder if there’s anything really going on there.
• Contacting the local chamber of commerce to see if the company is a member and in good standing – Companies that are really active and trying to network with other business will often be involved with their local chamber of commerce. It’s very reassuring when the chamber president or administrator can vouch for the customer’s involvement in their organization.
• Industry associations – Like the chamber of commerce, confirming that the customer is a member in good standing with their industry association is very reassuring.
• With the creditor’s introduction, contacting the customer by email and phone and requesting an on-site meeting – Being able to communicate by phone and then face to face is incredibly important. This basic level of communication by an objective third party is invaluable.
Onsite visit to do’s
• Confirming the customer’s address with that of what’s listed on the documents – Since there may sometimes be discrepancies between the physical and legal address, we want to make sure that the difference does not impact the buyer’s legal responsibility in any way.
• Taking photos of the exterior as required – As much as possible we circle around the entire facility and take as many photos as is appropriate, and which won’t cause any disturbances.
• Speaking with neighboring businesses – By softly asking the neighbors about the comings and goings, we may on occasion here about some strange incidences, a past fire, emergencies, or other issues.
• Searching for additional law suits and other legal matters at the local ward office or other juridical government bureau – Even when we are searching from our offices, making an additional search at the local ward office or government juridical bureau may yield additional information that hasn’t yet been forwarded to the main data base from where our initial search was taken.
• Meeting with the executive management team – When the onsite visit can evolve into a meeting with the company on behalf of the creditor, this no doubt will produce volumes of unwritten and undocumented information. Being able to view the inside of an office, factory, or other facility in which we can observe the condition, the employees, the activity, etc., can be extremely informative.
If at this point we are also able to reasonably obtain and verify the customer’s financial information, the onsite visit will have succeeded in giving you a very high level of comfort as to the financial and legal viability of the customer and that they will be able to pay you according to all the terms and conditions laid out in the contract accordingly.
One final thought: In addition to all the information gained through the on-site visit process, I would also strongly recommend drafting a separate and enforceable agreement outlining all the terms of the transaction and signed by all parties involved. Should your customer still end up not paying you, this agreement will greatly facility navigating the Brazilian legal system.