In this virtual chat, attorney Patricia Scott of Foster Swift Collins & Smith, PC talks about how to conduct business during the COVID-19 pandemic. What to do when a vendor closes, how to handle collections and more.
As a leader of the firm’s Finance, Real Estate and Bankruptcy law practice group, Patricia concentrates her practice in the areas of bankruptcy, finance, collections, real estate, and commercial litigation. Her work with financial institutions includes collections, loan workouts, foreclosures, receiverships and various complex banking and finance issues. Patricia also represents companies – from small and mid-sized businesses to large corporations – in multi-faceted litigation matters in state and federal court.
Learn more: fosterswift.com
Julie: Good afternoon. Welcome back to our special Facebook live series Expert Connexions. We launched this series. It’s kind of crazy to think, we are thankful for the support that we’ve had from Foster Swift law firm. Foster Swift has a dedicated resource page for businesses and individuals and now lending us insights yet again with the live interview. I’m excited to bring Patricia Scott into the show with me. Patricia thank you so much for joining us.
Patricia: My pleasure.
Julie: Patricia leads the firm’s finance real estate and bankruptcy law practice group, so I’m really looking forward to having this conversation Patricia because I think for those that are trying to do business as usual or some new semblance of business as usual there are a lot of new things to navigate and a lot of things to figure out as we go along and so I want to first ask you about some of the you know what are the main concepts that you’re talking about with your clients right now?
Patricia: Yes, it’s uncharted territory for sure and one of the things that we all know is that everybody is in the same boat here and one of the biggest things that we’re concerned about is where are we going and what do we do when a customer calls up and says I want to terminate the contract and I have the right to do so and that’s often one of the questions that I’m asked right now and the answer while it seems simple is the terms of the contract govern. So if the contract says there’s a clause called force majeure that says that if there are unforeseen circumstances, then you can terminate the contract. It’s rare that those exist. So then in that instance it goes to really your business relationship and communicating. If you take anything away from today, I think that the key for all of us going forward is communication because the fact that we’re all in unchartered territory.
Julie: Absolutely. Okay, so what happens if a customer wants to terminate a contract? What are you recommending in a case like that? Especially if it’s a customer that perhaps their business is closed or they’ve been impacted in some way with this. What are you recommending?
Patricia: There’s a lot of factors there, so I hate to say case-by-case but you just described a couple of different things right. So the business has closed, that’s one thing. If you have obligations in the contract that’s another. So really quickly I’ll just kind of break them down to a couple of different examples. One of my first concerns is if you, if my client, is supplying goods or services and you had those obligations in the contract and then the person wants to terminate or simply the person can’t pay, then what you want to make sure is that you don’t also breach the contract because there’s this concept called material breach, who materially breached the contract first and if it’s you then they could actually come after you. So we want to make sure that that doesn’t happen and so then the next thing that we want to talk about is what are you owed now and how do we collect that and in these circumstances we might have to get creative. You know you may have to try to get some security. You might want to try to get it in writing. You may want to find out if they are really closing their doors, which is the other example that you gave. If they’re actually closing their doors permanently then that’s a bigger issue and collecting is probably going to be much more difficult, but if we’re just talking about a pause like right now a lot of people are just putting things on pause because of the governor’s order or because they just don’t have customers right now, then we might want to talk about a deferment. Where we get those payments later and again we want to get that in writing as much as we can. We want to maybe get some kind of a promise you know that I’m going to pay you soon as possible or get some security such as collateral maybe a personal guarantee. If you generally deal with business-to-business, then getting somebody personally to sign on has a lot of value. So it really does depend on the circumstances and we talk through each of those to see what best fits you and like I said this can be difficult because a lot of times these are customers you’ve worked with for many years and you have a very good relationship. You don’t necessarily want to just cut them off or go after them like you might what somebody who you think is trying to scam you because that’s typically not what’s happening right now.
Julie: Right and as you and I were talking about this you know yesterday, it’s one of those situations where no one person has caused this to happen to their business. It’s not a business mistake, it’s not you know anything we could have predicted or done, and it’s not a reflection on the relationship so what a difficult you know circumstance to kind of have to learn how to navigate this and work with each other to figure out the best solution. I’m curious about Patricia as we look at maybe entering into new work agreements, maybe new contracts during this time. Do you want to know what you ultimately like when it comes to taking on new customers without running into these same issues? Do you have any recommendations for that?
Patricia: I do and before we get to that if I could back up for just a minute and I don’t think I gave the third example which is, what happens when somebody calls up and they don’t necessarily want to terminate but they can’t pay right now and you’re still providing goods or services. So what we need to talk about our best business practices going forward and one of those things that I would recommend you stop doing is extending credit and what I mean by that is if I’m if your entity providing goods or services and you’re not getting paid COD as they call it our right now then you’re extending credit and the amount of time that we use to extend credit used to be pretty common 30 days you know turnaround or accounts receivable and that was not uncommon. That may not be a good practice right now knowing that your customer probably can’t pay that. So you may want to shorten that timeframe or talk about getting additional security like I said a little bit ago and so in relation to new customer’s kind of the same thing. It used to be in the old rule of thumb in the old rules was they would fill out an application which you would still do. You ask you know whether it’s a formal application or you’re just having these communications on the phone and you’re talking with them and getting information. You’re getting referrals, you’re getting bank account information, you’re getting you know their history and you need to pay attention to red flags. If somebody is not interested in giving you that information, they don’t want to sign anything, they don’t want to tell you where they Bank, that red flag in and of itself is probably enough for you to question whether or not you want to form a business relationship, especially if you are extending any kind of credit or leeway in the amount of time that they have to pay you for those goods or services. I think you’re going to have to keep a closer view and what it is that you’re providing in what time frame and the other thing that I think is really important to get is collateral, as security and it’s not typical. It used to be that you would sell goods and they would pay you within 30 days and that was not a problem and nobody signed a personal guarantee for that, nobody gave you a security interest in their real property, personal property, or the goods that you’re selling themselves. Taking a security interest in the goods that you’re selling them is probably one of the easiest things to do. Obviously for providing services don’t take a security interest in the services that you’re providing, but that’s where counsel can help you with that and there are some standard forms you don’t necessarily need a new one every time you enter a relationship because you can kind of you know change the names and protect the innocent kind of thing so that would be a good recommendation is to get some security so that if you know you have a business and then the person individually is willing to sign out and say yes I’m going to guarantee this is going to be paid it may take a little bit longer to pay it, but I personally am also going to guarantee it. There’s value in that as well.
Julie: Well I imagine for those that are tuning in and listening this is really valuable information because I think for many small businesses we haven’t I mean all businesses but small businesses, in particular, these are not things that we’ve necessarily done before or had to think about before this is really a different way of looking at things and I invite our viewers if you have questions go ahead and use the chatbox and we can ask and answer these to the best that we can. You know Patricia you’ve mentioned as you and I have been talking you’ve said a few things that have really stood out to me that I really want to emphasize. One of those things is communication and another is to get creative. Tell me you know as we’re talking about businesses and you and your advice you know get creative, what is that what does that mean to you?
Patricia: Well obviously the communication is key and because we are all in this together you know it used to be the old saying is when you’re trying to collect from somebody and they go radio silent it’s because they just don’t want to pay and this instance people aren’t going radio silent, hopefully, they are going to communicate and it’s because they don’t just not want to pay they can’t or they don’t have the means or maybe they have applied for a loan you know there’s a lot of new SBA loans out there that I don’t tend to be an expert on, we have experts on those areas, but that may take some time to be able to pay so when we get creative we’re all I think going to have to stretch a little bit and it’s going to hurt a little bit and it’s going to you know pinch in that regard and so and now you also mentioned getting it in writing. I think that whatever agreement that you come to, I have found that if you can get people to agree in writing it typically will stick to it and again in these circumstances folks are not trying to run from you. So getting them to agree and maybe we want to get creative by we talked about the security taking the security interest in something if they have something to give you security interest in, maybe we defer the payment. Maybe we take their sixty day’s worth of payments that they can’t make, but they still need the goods that you provide them. You know I think a restaurant business is a good example, you know when they get to back to the point that they can restart maybe they couldn’t have paid rent to you if you’re the landlord or maybe they need a bunch of materials and food and things that they provide, maybe we can defer that to the end and maybe you can you know charge them a little bit more interest than you used to or maybe they can pay a little bit more. I think that that’s where communication comes in to try to so that it works for everybody because if nobody pays and you don’t get paid. It’s just lose-lose for everybody and so the goal would be to be able to communicate through that and see what would work. Well, I can’t pay you this but I can do this or I can add it into the end you know something in that regard and that’s you know communication that is really the biggest thing that you can do at this point.
Julie: Absolutely, especially with everyone working from their homes from people trying to figure I mean we keep saying in all of these interviews there’s no such thing as over-communicating right now. So communication is going to be key and Patricia I feel like some of this can kind of be said in Reverse almost so but I want to ask you that too. So what if you know as a business what if I’m the one who is owing a contract and I can’t pay or I can’t deliver you know what that looks like? What are some I mean you talked about you know maybe some deferring of payments or coming up with the plan what guidance do you have for maybe a business owner who’s watching this and saying yeah I’m not on the receiving end but or maybe I am on the receiving end but that’s causing me not be able to pay or fulfill my obligations you know. What do we do in that scenario?
Patricia: Yeah I would agree and certainly you know financial planning going forward is important. So if you don’t have an accountant or a financial planner you probably want to consider getting one I would think. There are several you know one stimulus package passed and I suspect we will see another one if not a couple and so there are things that are being offered that are pretty good that can be taken advantage of to help you get through this time and that is the goal is that everybody gets through this and comes out on the other side because obviously, most people are most concerned right now about their health, their families, their well-being, but then obviously the financial component is just as every bit is unsettling and scary so it’s important to know that there are options out there and there are experts that you can speak to and there are folks that are firms Scott Turner being one of them that can help you in relation if you want to apply for an SBA loan. There’s a couple of different types. There are some that help you with your payroll that you don’t have to pay back. There are others that you can just get in general and so you may need to look at doing something like that as a business owner and then the next component is communication to who you owe money to and say look I’ve done this and this and I’m hoping that I can pay you in 60 days or 90 days and what can we do in the meantime and I think that you can expect I think that it’s going to take everybody like I said it’s going to pinch a little bit but it’s going to require everybody to be a little bit more understanding or giving a little bit than more than they used to. So you can expect that they’re going to ask you to maybe sign on personally or they’re going to ask you to maybe give a security interest in your home or in your you know your building or your inventory. That said, I have another side note for that which could be in a whole another segment. You probably have lenders already who have security interests and a lot of you are your business assets or all of your business assets and so you could be in violation of some of those contracts, you start to get more security interests. So that again is where you want to either reach out to your lender and communicate or you want to talk to council about whether or not you can give another security interest and if that goes back to the terms of the contracts. You know your long documents, the contract you have with your vendors, all of those govern and then outside a second component of that is how do we manipulate this to the best for everybody.
Julie: And I think this all goes back to what we talk about in both life and in business where you have your team of trusted advisors, you have your care team so to speak, you have your attorney, your CPA, your experts who you know your lenders who can help you make these decisions, so Patricia I appreciate that because like you said if you aren’t sure what to do, you should be reaching out and talking to someone who can counsel you specific to that. We do have a question here and okay let’s put this up and see if there’s an answer, I don’t know if there is or not. Dave says David says what do you see coming in future stimulus packages? Any past events in the US or other countries that might give some insight into what the government could do here?
Patricia: I have not seen anything yet at this point personally and I haven’t seen and what the next stimulus package will be. I have heard indication that what was just passed was phase one which indicates to me there will be phase two. I do know that during world war two there were several stimulus packages and that it was a much greater percentage of the GDP than what we just passed because I know everybody thought gosh you know two trillion dollars was a lot of money. I think that there’s still some room there and I still think that there’s some availability for a future stimulus package, but I’m certainly not an expert in that regard but I do have faith and that all of us are not going to fail and all of us are not going to be without jobs and homes and so I think we can continue to watch and see how this evolves which is daily at this point.
Julie: Absolutely and I know we’re going to definitely keep these interviews going. Patricia, I know that another attorney and one of your colleagues from Foster Swift will be joining us next week to talk specifically on some of these SBA loans and I’m sure there will be more developments between now and then that we don’t even know what’s in the works. So we’ll have more on that then but thank you so much. Is there anything else you want to add before we wrap up here?
Patricia: No other than you know just keep the faith and you know be well and if you need assistance or if you have questions just reach out. There are plenty of people that want to help. I personally am happy to help. There’s plenty of people at my firm that are willing to help and I know that that’s just you know the general rule of thumb these days.
Julie: Absolutely and again I want to plug fosterswift.com because you and your colleagues have put together an incredible page full of resources both on the legal aspects some of these loans coming through, grants and other information, tax law information, so a lot of information there at Fosterswift.com. Patricia thank you again so much for joining us.
Patricia: My pleasure, thank you.
Julie: Thank you. Okay and so coming up today we have one more interview that we’re bringing you today in this series. At three o’clock we’re going to switch gears a little bit and we’re going to talk with a nonprofit organization. Beth Peck is the executive director of project Koru which focuses on serving the cancer community. She has some really creative ways that they’re using right now to be able to stay connected with their national network of people. So we’re going to check in with her, we’re going to see how things are going, hear some of their ideas and also talk about the impact that nonprofits are facing. So tune in for that today at 3 o’clock. We will see you then.