Dealing with Financially Distressed Customers

May 20, 2020

How can service providers and other vendors protect themselves as they navigate choppy economic waters? New business arrangements are never without risk, and the layer of uncertainty introduced by the coronavirus (COVID19) crisis has only compounded those concerns. Now more than ever, it is vital for vendors to protect their interests, as the economic effects of COVID-19 ripple through almost every industry. The more you know and the more you do to prepare upfront, the better situated you will be to successfully pilot these potential risks.

What are some of the best practices to implement regarding contracts with counterparties that will help lead to increased survival?

  • Be Alert. Draft contracts that anticipate insolvency rather than being reactive; understand the protective provisions that may or may not apply in a bankruptcy; and enforce your rights sooner than later – don’t let exposure pile up before taking action. 
  • Plan. Pay attention to how a customer’s bankruptcy can affect your bottom line. 
  • Learn. Stay on top of developments in the bankruptcy process that are influenced by the COVID-19 crisis. 
  • Anticipate. Be aware that companies may seek to claw back prior payments through avoidance actions.

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