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Jul 2017
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July 20, 2017

Don’t Let Disruptors Disrupt Your Best Practices

Everywhere you look, industries are being turned on their heads due to “disruption.” So far in 2017, there have been ten major retailers that have filed for bankruptcy, mostly due to online options such as Amazon disrupting the traditional brick and mortar retail industry. Airbnb has disrupted the New York hotel market by capturing 8% of the market share. Uber, Lyft and half of Silicon Valley are continually written about as disruptors to the traditional auto industry players­—even a CEO of a profitable OEM was recently replaced for not embracing autonomous vehicle and mobility trends fast enough.

And if that’s not enough to keep you up at night, there are still the traditional cyclical pressures on the auto industry to worry about. Production is plateauing, causing stress on those in the supply base who have been dependent on continued growth, not to mention the typical payment term challenges and supply chain disputes.

While it’s important to keep an eye on current and future trends, it’s also important to not get too distracted by “disruptors” in the industry, such that you become lax with core “best practices” to keep your business well-positioned to survive and prosper during these rapidly changing times.  

Focus on the Basics
 
  • Keep a close eye on your accounts receivable. If a customer’s good payment history begins to creep beyond your contractual payment terms, start investigating your customer. A simple Google search might reveal negative statements or media reports about the company or its cash flow which could form the basis of making a demand for adequate assurance of performance under Section 2-609 of the Uniform Commercial Code.
  • Review your contractual documents to make sure they are in order. Are your quotes, purchase orders and change orders executed by the counterparty? Are the applicable terms and conditions adequately incorporated into the governing documents? It’s common to overlook these items during the sales process, only to have them rear their ugly heads when problems arise later. 
  • Take advantage of ways to become a secured creditor. Leverage is nearly always increased when a creditor has a lien or a security interest in the underlying collateral that is the subject of the parties’ contractual relationship. Liens on tooling, molds and other types of special machines may be available under certain circumstances which could make the difference between you getting paid in full versus receiving pennies on the dollar if your customer is experiencing insolvency issues.  

Changes in the auto industry are much easier to navigate with strong financial and operational controls in place. The foundations of such controls are simple, straightforward best practices that provide stability, regardless of the traditional pressures or “disruption” in the auto industry. Warner Norcross & Judd’s Automotive Industry Group is highly experienced in helping clients fine-tune their best practices—whether it’s dealing with a customer whose payment history appears to be getting worse, reviewing contractual documents and terms and conditions to make sure everything is in order or pursuing lien rights on tooling and molds. Contact Dennis Loughlin or your Warner Norcross attorney for further assistance in these areas. 

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