"Especially in this economic environment, it is critical that credit professionals know the steps to take shortly before a customer files bankruptcy. Although there are a number of considerations, two are of particular importance. First, if your company has a contract with a customer, assuming you have a basis for terminating the contract, you may want to consider doing so. If the contract is not terminated, unless you get permission from the bankruptcy court to terminate it, your company may be forced to sell to the customer or else be sued for breaching the contract. Also, if you do not terminate the contract, it will probably destroy any chance your company may otherwise have of being treated as a critical vendor.

Second, if your company owes the customer money (e.g., rebates), it may be advantageous to recoup such money against the money the customer owes your company. If your company does not do so before the customer files bankruptcy, the automatic stay may prevent your company from doing so after the bankruptcy filing.

You will not always know when a customer is going to file bankruptcy. When you do, however, you should be very proactive."

Robert Mercer, Esq., Powell Goldstein LLP, Atlanta, GA