Is this a rhetorical question? Perhaps. Creditors may assume that taking one or other form of security from a debtor will ensure that they will incur no bad debt or that it could enforce better payment terms. It creates a soft and fluffy pillow to land on when the economical whirl wind hits, but how secure is your security?
A creditor could obtain a security for many reasons; a credit score not being sufficient, credit limits that may not suffice, or their company/credit policy which indicates that it is mandatory. Whatever the reason may be, a security is taken with a purpose and should, at the end of it all, be able to fulfill that purpose.
We can elaborate on the many different types of securities, but whatever form you ask for, you must be able to add a value to it, at any given point in time.
You might be thinking, “of course my security is secure, I have a bank guarantee”. Yes, this could be true, BUT is your bank guarantee a demand guarantee or a performance guarantee? Do you accept the terms and conditions stipulated in the bank guarantee? Are you content with the fact that you have one chance to perfect it, and that you will not be able to obtain the funds should just one word or phrase, on the demand letter, be faulty or incorrect?
Perhaps you have a Cession of debtors in place, which, you believe, means that every sale your debtor makes, you would be able to collect. But how often is a due diligence done on these debtors? Do your debtors deal with the private or public sector, and do they comply with the rules and terms of that sector? How do you know which amount is collectable when your debtors default? As a great mentor, Pat Green, use to say: “GET OUT! What is your get out?”
You might also have a personal surety in place. Do you know what the asset and liability value of the surety is? How often do you confirm the value of the assets? Is the surety holder married in or out of community and how will this affect the security value? Is a personal surety alone sufficient when it is perfected on a “first come first serve” basis?
Having a security from a debtor might help you sleep better at night, but hopefully it will not become your worst nightmare when you have to perfect that security. So, how secure is your security?
Written by: Antonia Scholtz, Operations Director at CoreXalance.
