Security Interests – Protection in a Down Economy

If you own a business and sell goods you’ve likely encountered situations when your customers want to make a purchase, but don’t have the cash flow to pay the balance.

In this situation you have two options 1) turn down the sale or 2) sell on credit.  Assuming you chose the later, get a security interest.  This helpful tool will allow you to repossess the goods in the event your customer fails to pay the remaining balance.  In fact, assuming your security interest meets all the requirements, you can even get your goods back if the buyer files bankruptcy before paying off the debt.

Interested?  Well keep reading because you need to know a bit more before calling your local business attorney.

First, you should know how to create a security interest.  The requirements are:  1) obtaining a security agreement; 2) entering a transaction which involves consideration and 3) giving your buyer (debtor) rights to the goods.  The security agreement will usually be included in the contract and must reasonably describe the goods, be signed by the buyer (debtor) and be in writing or some other form of record.  Consideration is when there is an exchange between parties, i.e. goods for a promise to pay.  Finally, the buyer or debtor must have rights in the goods, meaning that buyer must have ownership rights.  Assuming these and a few other requirements are met you will have a valid security interest.

Having it is just half the fun.  To make sure you protect your interest you need to file it with the Department of Licensing.  Most of the time filing can be done at the DOL’s website.   http://www.dol.wa.gov/business/UCC/uccefees.html.  Filing is important because it protects your interest from other creditors who take a security interest in the goods you sold to the debtor.  If you’re the first person to file, you have priority and your interest will likely be protected.

Unfortunately all good things must come to an end, and security interests are no exception.  Your interest will expire in five years if it is not renewed, so make sure to note the expiration date on your calendar.

Remember, obtaining a security interest is one of the best ways to protect yourself as a creditor.  Now that you know what an interest is and how it can help you, give your local business attorney a call at 206-922-3506 and have him get the ball rolling.

If you have any questions, please feel free to contact me or post.

All the best!

Ryan