Comprehensive Business Survey
An in-depth analysis of a customer's viability and positioning. Our premier product, used by lenders and credit managers mostly when red flags arise, but also used to qualify candidates for new credit or to structure financing needs of the customer outside of the direct credit arrangement.
The survey is performed by a two-man team and generally takes 1-2 days at the customer's location to obtain both qualitative and quantitative information. The assessment is provided in a bound report and includes categories such as: review of financial data-historical and projected; review of collateral and its relationship to all lien positions; management evaluation; supplier and vendor status; legal problems existing or pending; status of taxes and creditor problems; other intangibles affecting the creditor, such as operational difficulties, customer dissatisfaction, etc.; and issues of potential insolvency. The report also includes recommendation alternatives for the particular customer. These are tailored to the survey objectives and include ways to shore up, expand, or dissolve the existing relationship in accordance with risk levels uncovered.
Collateral Survey
A shorter more limited analysis service designed to review particular collateral. This includes lien adequacy, composition, method of accounting, collateral risks, and sufficiency of internal controls. The resulting report also evaluates and proposes alternatives in ongoing collateral management services we provide. It is our normal company policy that a Collateral Survey is prerequisite to any of our "certification" programs.
Periodic Examinations
Throughout the World, we perform continuous or one-time examinations of inventory or accounts receivable. These examinations are done with specific scope and instructions from the lender. For example, we may be asked to perform a physical count of inventory and an examination of accounts receivable each 90 day period and compare results to borrowing base information provided by the lender. Given the needs of the particular situation, we often provide recommendation on frequency, sampling percentages, documentation review, etc. Examination services are priced on a time-basis.
Reporting Services
These are continuous information services in which we track the movement in collateral, but are not contractually responsible for maintaining levels or ongoing accuracy. We will install a reporting system to suit the needs of the situation, review all reporting for compliance, sufficiency, red flags, etc., and conduct periodic exams to check accuracy. A reporting service creates discipline and timeliness and often establishes an information flow, where none previously existed. Fees, which are typically paid by the customer instead of the lender, are based upon collateral level, typically around $1.00 per $1,000.00 or less monthly.
Certification and Control Services
All of these services feature certification of collateral levels and contractual responsibility to the supplier or lender on the part of Collateral Risk Management, Inc. The primary services in this category for lenders are the Inventory Management Service and the Accounts Receivable Management Service. Each is based upon continuous responsibility for such areas as quantity and eligibility of inventory, validity of invoices, dominion of proceeds and maintenance of sufficient collateral to support loans and advances. CRM normally issues its daily or weekly Collateral Certificate, which is in the form of a borrowing base report, and indemnifies the lender against loss suffered from reliance on such Certificate. Variations are numerous and often include collateral dominion in a troubled scenario; facilitation of intercreditor agreements; cash collateral agent in bankruptcy; liquidation manager, etc.
A sample certification program is as follows, although not all are requirements:
1) We perform our survey at the customer's headquarters and storage locations. The survey would include a review of the lender's position as it might relate to other secured creditors or priority supplier positions in a worst-case scenario. From that information, we review and design the operational procedures to best protect the lender's position. The survey process would therefore review storage, personnel, information, and cash flow systems. Specific operating procedure proposal and survey report is issued to the lender.
2) Following acceptance of proposal and three-party agreement execution, the program would be installed. We would expect, subject to our survey findings, to do the following, depending upon whether inventory, accounts receivable, or both are involved:
a) Lease the area where inventory is stored, obtaining any necessary sub-lease consents and waivers of subrogation on insurance policies;
b) Select two or more customer employees to serve as our agents. Agents would retain keys to our locks, if used to secure our leased area. Agents witness and report all movements of inventory, and are covered by our liability insurance as if CRM employees;
c) Perform an initial physical count of inventory on-hand and determine eligibility compliance issues to prepare our initial Certificate.
d) Conduct an initial examination of accounts receivable, reviewing source documentation and detailed ledgers. Prepare analysis of ineligible accounts including contras, over-age, cross-aging, intercompany, concentrations, specific debtors, etc. These will be used for the initial Certificate.
e) Select those customer employees active in preparation of invoices, handling of collections and/or credit memos, to serve as our agents. Such agents will be involved in day-to-day certifications of activity and preparation of the Collateral Certificate.
3) Collateral Certificates are prepared at the frequency contained in the lender instruction letter to CRM. Incoming inventory, conversion from raw materials to finished goods, and shipments, are documented on backup schedules, with totals carried forward in eligible inventory dollars to the Certificate. New invoices, payments, credits and other adjustments are documented to CRM, with the Collateral Certificate reflecting summary dollars and conversion to eligible loan base collateral.
4) In most receivable lines, all payments are directed to a lender collateral account and applied to the loan, with re-draws based upon availability. Proceeds can be handled in many different ways including bank lockbox, company post office box, or regular mail to company premises. In one alternative, CRM can establish rights to the company post office box, limiting access to those borrower employees acting as agents. This can effectuate proceeds control without redirection of account debtor payments.
5) Normally, the lender's instructions to CRM require preservation of adequate collateral levels to support loan(s) outstanding. Based upon the system designed to accomplish these objectives, CRM instructs its agents at the customer and monitors their compliance on a daily basis. Each account is assigned an Account Coordinator at the CRM processing office, who maintains the communication link with the agent.
In some cases it may be impractical to utilize borrower personnel as CRM agents. These reasons can include lack of non-family or non-officer employees in the key positions required to accomplish service objectives, or in instances where there has been questions regarding the integrity of certain management actions or reporting. CRM can then establish “independent agents” who are employed directly by CRM to serve in the on-site monitoring and control function. Normally, the cost for such personnel is passed through at cost on top of normal service fees.
6) Our audit staff will visit each account on a 45-60 day basis to perform a physical inventory, a receivables exam, and to verify the accuracy of the work of our on-site continuous agents. Results are communicated to the lender. Of course, the lender is free to send its own personnel in to perform examinations whenever it wishes.
The control programs are always customized to fit the needs of both customer and the lender, and crafted in accordance with risks. We bring our experience and expertise in bankruptcy, UCC law, bailment and intercreditor relations into play in the design of each account. That doesn't mean our program will be considered onerous or reprehensible to a healthy customer, as in some instances we provide our services to support new growth or loans regardless of size or financial condition. The customer normally pays our fees for this service which are based upon collateral level, and typically run around $1.50 per $1,000 monthly, for loans of about $1MM, and considerably less for larger loans.
Liquidation Services
Because of our activity in the control and dominion of current asset collateral, CRM is frequently chosen as Liquidation Manager in orderly liquidations. These entail both liquidations under Chapter 11 or Chapter 7 of the Bankruptcy Code, as well as consensus agreements or Assignments for the Benefit of Creditors. CRM has established a reputation as a company that can serve in a fiduciary capacity, while at the same time obtaining the maximum return for creditors. Many recoveries can be enhanced through the continued use of Debtor personnel, a difficult undertaking without a third party whose primary service base incorporates working with Borrower or Debtor personnel. CRM also maintains relations with national auction firms and public sale facilitators, and can investigate and manage the process on behalf of the creditor(s). As these liquidation activities vary widely, contact CRM for confidential discussion on the options available.