ABC To Classic
1, 2, 3, 4
ongoing diligence that an asset-based
lender should include in its standard
policies and procedures. Follow the
tion of $20,000
indicates that the
sell through at
prices and that the
customer is authorized to mark the
product down (and
pass this along to
Fact 7: The de-
duction of $8,579 for returned products
is an indicator that the borrower is
waiting for the customer to take the
deduction rather than issuing credit
memos in a timely manner.
Fact 8: The borrower repeats this
pattern with other customers.
Joseph Iannuccilli is president of Sound
Shore Financial ( www.ssfcorp.com),
which provides various due diligence, and
consulting services to financial institutions.
Fact 1: Effective on 4-2-11, the
asset-based lender had advanced 85%
of $166,733, or $141,723 against the
Fact 2: The customer’s check dated
5-27-11 was remitted to the borrower.
The borrower immediately deposited
the check as “Non A/R cash only,”
thereby picking up full borrowing
availability on an additional $133,517.
The deposit should have been classified as a receivable payment. In effect,
the borrower did not purge the invoice
in its accounting system until later.
Fact 3: The customer check indicates
that it recognized the invoice on 5-17-11,
not 4-2-11. That’s approximately a month
and a half after the borrower’s date, a
INV;# Balance Curr.
Iannuccilli began his career in 1974 as a
field auditor. He is a graduate of St. John’s
University with a Bachelor’s Degree in
accounting. He has served on the Board
of Directors of the Commercial Finance
Association. He has also developed and
delivered collateral monitoring training to
GE Capital Account Managers and back
office operations staff.
Another illustration is a comparable
January and February “due date” aging
for the borrower’s account debtor,
ABC. Note that the $31,216 is not only
uncollectable; it would be aged in the
over-60-day ineligible column if the
correct 30-day terms were in the accounting system instead of the 45-day
terms reported in the aging.
clear indication of prebilling.
Fact 4: The customer received 1%/10
Net 30 terms from the shipping date
of 5-17-11, not 75-day terms from the
prebilled invoice dated 4-2-11.
Fact 5: Several days later and during July 2011, the borrower partially
covered itself by applying the net
cash amount received from the May
2011 check. The borrower left open
the $31,216 uncollectable deduction
taken by ABC.
Fact 6: The Price Protection deduc-
Many asset-based lenders do not have
the resources to ramp up cash monitoring in all credits. At the same time,
it’s critical to do so when red flags
such as turnover and dilution deteriorate to the point of concern.
We cannot prevent fraud from
occurring; however, we can detect it
early. With appropriate management,
we can eliminate larger write-offs
in our industry. That’s why vigilant
cash monitoring is an element of the