Magazine article Business Credit

Taking Chances on Restructuring Firms

Magazine article Business Credit

Taking Chances on Restructuring Firms

Article excerpt

"Chance favors the prepared mind" - Louis Pasteur

It's late Friday afternoon and you still haven't received a call back from a key customer whose recent payment activity is cause for concern. Their orders keep coming in but their payments are few and far between, accompanied by a variety of excuses. Suddenly, the phone rings and it's the customer who explains they're having financial difficulties. Their secured lender has demanded they hire a financial advisor and they're interviewing firms to start on Monday. What effect will your customer's choice of an advisor have on your receivables? Are you taking your chances by supporting your customer? What chance do you have of getting paid now? What does a restructuring firm do, anyway?

The right restructuring firm can mean the difference between retaining a customer and writing off bad debt. You're taking a chance by giving your customer enough time to develop a restructuring plan, but how do you know if they've bet on the right firm? Start by asking the right questions about expertise and results.

Research

Educate yourself about restructuring firms and their approach to troubled situations. Learn which firms focus on companies similar to your customer. The Turnaround Management Association ("TMA") is a professional community of turnaround practitioners, attorneys, accountants, investors, lenders, venture capitalists, appraisers, liquidators, executive recruiters and consultants. Members adhere to a Code of Ethics specifying high standards of professionalism, integrity and competence. Its Certified Turnaround Professional (CTP) program recognizes professional excellence and provides an objective measure of expertise and experience related to workouts, restructurings and corporate renewal.

Identify

Help your customer identify the right firm for the current situation. The wrong firm will leap to the conclusion that your customer needs to file Chapter 11, liquidate and/or make wholesale changes to management. The wrong firm leads through intimidation, arrogance and ignorance. Massive layoffs may be proposed without taking the time to understand which employees have the required expertise to keep the business running and turn the situation around.

The wrong firm's loyalty is to the secured lender who referred them, not your customer, and the discussions between the firm and the secured lender do not include your customer. Can you guess where this process is headed? Private equity firms and hedge funds are awash in cash and it's relatively easy to locate a buyer once expenses have been reduced to a breakeven level, even if there's no formal plan for business survival. This process rarely considers past trade creditor debt and assumes the suppliers will be willing to support the "new" customer. The survival of the business and continuation of your relationship becomes the responsibility of the new buyer and their professionals. They may offer you the potential for future sales but chances are good you'll need to dip into bad debt reserves first.

Evaluate

The right restructuring firm will ask and listen to management, production workers, administrative employees and key creditors. The interview process should include a thorough review of the firm's prior successes with all stakeholders and focus on how they have increased cash flow, minimized the risk to the company's assets and reduced the number of non-productive employees. …

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