Scott Blakeley, Esq. SEB@BlakeleyLLP V. (949) 260-0611 BlakeleyLLP

1. THE CREDIT APPLICATION AND VENDOR CONTRACT: WHAT THEY ARE, WHAT THEY DO AND KEY TERMS AND CONDITIONS THAT MAY PROTECT YOU FROM CREDIT LOSSES AND CUSTOMER TERMS PUSHBACK Scott Blakeley, Esq. SEB@BlakeleyLLP.com V. (949) 260-0611 www.BlakeleyLLP.com Orange County | Los Angeles | New York Chris Finch Director of Credit, Sumitomo Electric CFinch@sumitomoelectric.com Susan Archibeque, CCE Director of Credit, Nicholas & Company, Inc Susan.Archibeque@nicholasandco.com

2. THE CREDIT APPLICATION AND VENDOR CONTRACT

3. THE CONTRACTUAL DOCUMENTS THAT GOVERN THE TRADE RELATIONSHIP THE CREDIT APPLICATION AND VENDOR CONTRACT Sales team Information Credit team pref Credit team Credit Application Information & T’s and C’s Who has the Trade Leverage? Indispensable customers or key supplier? Sales team/customer pref • Offer to buy • An acceptance of an offer to sell • Confirmation of a verbal agreement New Account Set up P.O.’s and Invoices Customer pref Customer-Supplied Vendor Contract

4. Credit Enhancements THE CREDIT APPLICATION AND VENDOR CONTRACT

5. THE CREDIT APPLICATION AND VENDOR CONTRACT • What Contractual Documents Govern the Trade Relationship • P.O.’s and Invoices • Offer to Buy • An Acceptance of an Offer to Sell • Confirmation of a Verbal Agreement

6. THE CREDIT APPLICATION AND VENDOR CONTRACT Four “P’s” of Credit People (who’s running the business) Profit (your margins) Payment (track record, new financials) Protection (security obtained) Politics (country conditions) Perspective (assessment of earlier “P’s” taken together, cost-benefit analysis) Credit Scoring Payment predictability/collectability Ultimate solvency/insolvency Training and guiding new customers Identify traits of desirable Customers Identify traits of undesirable Customers Creates a database for flexible reporting Automated versions save the time of professionals Allows comparison of customers with similar traits Manage risk by segment or characteristics Ability to adjust risk by adjusting model components Internal vs. external data inputs

7. THE CREDIT APPLICATION AND VENDOR CONTRACT Credit Policy Set the appropriate risk and exposure for a customer Credit Limit Protect company assets Bankruptcies Limit write-off exposure Out of business Fraud Reduce likelihood of having aged invoices Slow/no pay situations Assist in growing profitable sales Proper administration of credit Partnering opportunities Indicate who has authority to grant/deny credit to customer, to reduce conflict between credit and sales

8. THE CREDIT APPLICATION AND VENDOR CONTRACT Types of Direct Investigation Direct correspondence order Telephone contacts Sales representatives Terms of sale Bank information; Trade information; Public records Other sources such as newspaper, Internet, etc. Types of Indirect Investigation Credit data companies dun&bradstreet; creditriskmonitor Credit.Net; Cortera National Trade Credit Reports Credit trade organizations; NACM

9. THE CREDIT APPLICATION AND VENDOR CONTRACT Customer information Type of business; Type of operation; Legal entity; Years in business Customer financial information (may be limited or unavailable) Self reported, ask the customer Third party (D&B, CreditRiskMonitor, Cortera, Experian, Credit.net, etc.) Bank information Bank reference; Account balance; Available credit line Trade information Number of trades; High credit limit; Average balance • What product or service does the customer sell • Profit margin • Risk of the product • Who are their competitors • Industry information • What industry is the customer in Economy of the industry Customers position in the industry • Economic information • General economic condition; Capital markets • Ability to borrow capital

10. THE CREDIT APPLICATION AND VENDOR CONTRACT Types ofFinancials: Audit: UnqualifiedAudit; QualifiedAudit;Adverse;Disclaimer Other: Reviewed;Compiled;Companyprepared What to look for when you don’t have financial or performance information? Sales volume Ask the customer or estimate based on other factors Position in the market or industry Company size Size and number of facilities Type of equipment Number of employees

11. THE CREDIT APPLICATION AND VENDOR CONTRACT • Terms and Conditions • Applicant will not withhold payment when disputes arise. Only the disputed portion of a past-due balance may be withheld • Applicant agrees to pay all costs of collection (attorneys’ fees and court costs) • Applicant agrees to the specified governing law and forum selection clause • Waiver/duty to inspect within fixed time period

12. THE CREDIT APPLICATION AND VENDOR CONTRACT • Terms and Conditions (cont.) • Waiver of counterclaims • Waiver of consequential damages • Notice of change of ownership and sale or disposition of assets • Incorporation of financial statement • TPS / Battle of the Forms / Amendment of Credit App. • International Sales of Goods Contracts

13. THE CREDIT APPLICATION AND VENDOR CONTRACT • Legal Considerations • The Electronic Signature in Global and National Commerce Act (E-SIGN) • The Equal Credit Opportunity Act (ECOA) • The Fair Credit Reporting Act (FCRA) • Sarbanes-Oxley Act (SOX)

14. THE CREDIT APPLICATION AND VENDOR CONTRACT • Antitrust • Sharing and receiving credit information from third parties falls under the Sherman Act • Setting pricing/credit terms falls under the Robinson-Patman Act • Privacy Rights and the Credit Application • Purpose • Key Terms • Notice Requirement • Complying

15. THE CREDIT APPLICATION AND VENDOR CONTRACT • Disposing Of the Credit Application • Holding Period • Destroying the Credit Application and Information • Confidentiality Agreement

16. THE CREDIT APPLICATION AND VENDOR CONTRACT • Organizational Chart • –Include roles of each credit professional • –Should discuss interplay with other groups (like sales and/or those that can override credit procedures) • Tasks • –Credit Applications • –Turnaround times for credit review • –Modes of communication (e-mail, fax, phone, etc) • –File procedures (updates, maintenance, organization, naming conventions) • –SOP on establishing credit limits

17. THE CREDIT APPLICATION AND VENDOR CONTRACT • Credit Terms • What are your standard terms? Net 30? Net 15? Net 30, but 2% discount if paid in Net 7? • Your policy should dictate what terms you grant and when and under conditions you can deviate from standard terms • Classes of customers –maybe you give better terms (or worse) based on class • Blanket allowances of credit amount • When can terms/limits change • Who authorizes changes • When/who can use changes to negotiate enhanced credit protections

18. THE CREDIT APPLICATION AND VENDOR CONTRACT • Investigation to determine creditworthiness • Set limits based on tolerance of company • Investigate if limits requested are beyond • Which credit reporting agencies should you use (required to use) • Bank references/trade references/NACM trade reports • Request/review financial statements • Payment history • Reimer reports • Use Google, social media, etc… • Lien and litigation searches • Guaranties, lines of credit/letters of credit/pledges • Who signs off on investigation/approves increased limits? • Chain of credit employees/management to approve

19. THE CREDIT APPLICATION AND VENDOR CONTRACT • Policy on bad debt • When does debt go to a collection agency • When do you hire attorneys • Do you have a policy on serving on creditors’ committees in chapter 11 cases • What if a customer files for bankruptcy • Filing a claim (pay careful attention to section 503(b)(9) claims) • Critical vendor status

20. THE CREDIT APPLICATION AND VENDOR CONTRACT • A complete credit policy must address at least the following situations: • New customer accounts • Foreign accounts • Updating and maintaining credit files • Extending/increasing credit terms/limits • Selection of collection agency and counsel • Charge offs • Communications with Banks • Managing/creating reports • Others???

21. THE CREDIT APPLICATION AND VENDOR CONTRACT • Review all company produced documents • Terms and conditions (net 30, 1.5%/18% interest, late fees, collection costs, etc..) should all be consistent between policy, credit application, invoices, etc... • Credit Policy and other documents/contracts should all include identical choice of law/venue provisions • Credit Policy should mandate credit application including acknowledgment that invoice terms apply, despite any further offers/acceptances; any change in terms must be via a signed, separate acknowledgment, requiring two non-electronic signatures.

24. THE CREDIT APPLICATION AND VENDOR CONTRACT • Social Media • Antirust and competition laws apply to allforms of business conduct and contact, no matter now “novel” they may be. Social media (Facebook, Linkedin, Twitter, blogs, etc.) certainly offers unique marketing options and creates some intriguing business opportunities for informal communications, but, at the same time, also heightens a company’s risk of committing antitrust or competition law violations • Just like email, social media use creates an audit trail, replete with documentation highlighting potential violations of antitrust laws

25. THE CREDIT APPLICATION AND VENDOR CONTRACT

26. THE CREDIT APPLICATION AND VENDOR CONTRACT • Social Media information from a service that aggregates across multiply sources • Internal company policy prohibiting use of social media as a source of information? • Fair Credit Reporting Act • State Privacy Laws • Fair Debt Collection Practices Act • Facebook • Twitter • Linkedin • Pinterest • Google • Tumblr. • Instagram • VK • Flickr • Vine • Meetup • Tagged • Ask.fm • Meetme • classmates