A publication for Credit and Finance Professionals
What can be done if you discover that you have shipped goods to a customer who may not be solvent?
You have just shipped an order to your customer on credit when you discover that he/she has become insolvent. Worse yet, you discover that he/she has filed bankruptcy. Can you simply retake your merchandise and sell it to another buyer, or is your only recourse a lawsuit seeking monetary damages?
If the goods have not yet been delivered, you may stop delivery. Notice must be given to the carrier to either deliver the goods to another customer or to return them to you. You are responsible to pay the carrier for any costs or damage, which results from the stoppage of the goods in transit.
Furthermore, the carrier has a right to be indemnified by you for damages suffered by your customer arising out of an unjustified stop-order. Consequently, if you intend to stop delivery, notice should be given to the buyer.
What if goods were delivered?
What can be done if the goods have already been delivered to your customer? The Uniform Commercial Code gives a seller the right to reclaim goods if the buyer is insolvent at the time the goods are delivered. Insolvency is defined as either the inability to pay debts as they become due, or the so called “balance sheet test” where liabilities exceed assets. Once you are satisfied that the buyer is insolvent, you must then give formal notice of your intent to reclaim the goods. In most states the time in which to give the buyer notice is 10 days from the date of delivery. If the buyer has misrepresented his solvency, the time limit is extended to 90 days in most jurisdictions.
What happens if you give timely notice to your customer of your intention to reclaim, but he/she refuses to release the goods? Your remedy is to proceed with an action in state court seeking an order directing your customer to return the goods.
