An issue of Priority

Toll Logistics (NZ) Ltd and ASB had an interesting court battle last year (MCKAY AND ORS V TOLL LOGISTICS (NZ) LIMITED HC AK CIV-2009-404-7389 22 June 2010) over the strength of the priority of a Personal Property Securities Act (PPSA) listing over a contractual lein.

Toll provided warehousing services for DVDs imported by Scene 1 Entertainment Limited. When receivers of Scene 1 were appointed by ASB Bank Limited, Scene 1 owed Toll $287,000. Toll claimed it had priority over the secured debt of ASB by virtue of a contractual or common law lien over the DVDs in its possession at the date of receivership.

From what I gather (and the discussion went on for 17 pages of legal gobbly gook using case law from the 1840's) the parties agreed in the end that Toll did in fact have a contractual lein over the DVDs in question but that as ASB had a perfected security interest under the PPSA. This meant that the judge made the following conclusion: 

"I make a direction that the respondent [Toll] does not have a security interest or other right in respect of the property of Scene 1 Entertainment Limited (In Receivership) which ranks in priority to the security interest held by ASB Bank Limited over the property of Scene 1."

Why is this important?

Looking at this issue from Toll's point of view leins are an old way of maintaining an interest in items (normally goods of some sort) you are looking after for someone else. For example a vehicle left with a mechanic. This is all well and good, but if there is a prior interest in the items registered on the PPSA the goods you are looking after belong to whoever made the registration and you loose your priority rights you used to have with your lein.

So if you were a mechanic with a workers lein over a motor vehicle which had money owing to a finance company and you sold the vehicle under your lein then you would have to pay out the finance company first.

Looking at this issue from ASB's point of view they did the right thing by registering thier interest in the DVDs and saved themselves $287,000 because they could get thier hands on the money first.

I cannot say it often enough but the PPSA is such an underused piece of legislation which is of such great benefit to creditors. Use it our loose your rights.  Contact us to find out more.

How do I ask for my money?

When we discuss what a client is doing to chase overdue debtors themselves, it is obvious that there are some simple changes that could be made to improve collection rates. Here are a few simple tips you can use on a daily basis to help you.

Tell them when and how you want to get paid

How often do you actually know when your supplier wants payment? We recently had work done at home and 3 out of 4 tradesmen didn’t say when they expected to get paid when we agreed to the job going ahead.

When we eventually got invoiced 2 of them didn’t even have account numbers on their invoices! Don’t be embarrassed to tell your customer how and when you expect to get paid, they will appreciate the certainty.

Be one of the early callers

The old saying ‘the early bird gets the worm’ really does apply. Often if an account is due by the 20^th the creditor waits until the beginning of the following month to follow up payment. Why wait?

If you debtor is a business customer then they need to be educated that you expect payment as arranged. Whilst we all understand that there is no money until they have been paid, why wait? Call them on the 21^st. Perhaps it will prompt your customer to get onto their debtors quicker.

If your debtor is a consumer customer you should only offer 20^th month terms if you invoice them monthly. In any event there is no good reason why they would be late with payment so call them the day after any invoice is due. I bet they get paid on time every week, why shouldn’t you?

So what question do you ask?

When you phone your overdue debtor your mission is to get paid. You do this by simply phoning (yes you actually have to pick up the phone and dial!) I good initial question, after you have made your greetings and such, is to ask “I see your account hasn’t been paid yet, is there any reason for that?”

You can ask this any way you like, using a soft voice or a hard voice or any other voice you can think of, but before you hang up you want to know why your debtor hasn’t paid, as well as a commitment from you debtor as to when you will be paid. Just remember that they might actually be telling the truth when they say the cheque’s in the mail, so you don’t have to make any threats at this stage.

If your debtor makes a promise to do something in the future make sure you put it in your diary to check it actually happens. Don’t make the mistake of waiting until next month to follow up.

Follow Up

Another old saying is ‘the squeakiest wheel gets the most oil’. If a debtor makes a commitment make sure you follow up immediately if it’s not kept. And don’t forget this is when a debtor turns into a plonker so you can also harden your language slightly. The key here is to be persistent rather than a nuisance.

For the next step you should refer to my February column “When To Use A Debt Collector”