The Case of the $60,000 Ambiguity

So it’s time to update your credit application because there’s been some significant changes in your company due to merger, acquisition, buy out, incorporation, relocation or just because it has been a long time and it needs to be done. With computers you can redesign, cut and paste, move things from one page to another elaborate, shorten, and add graphics borders boxes and tables. Whatever you do, be careful. Your credit application can be a land mine it you’re not careful. Here’s a true story to illustrate.

A wholesale distributor of automobile windshields was owed nearly $100,000 by a retail auto glass shop. Another $60,000 in interest (or finance charges) had accumulated over time. The wholesale distributor had closed, so the retailer had to find another supplier, and simply stopped paying. As that was not going to be a good defense, they claimed that they had paid everything and the wholesaler simply failed to post all of the payments. They were counting on the wholesaler’s history of poor documentation storage, but they were able to reconstruct the entire history of the account and account for every invoice, credit memo and dollars received. At the end of the day, the wholesaler proved its case and the judge awarded a favorable decision.

However, (yes, there is always a “however”) the defense attorney pointed out a discrepancy in the terms of sale on the credit application. There just so happened to be two sections on the credit application that described the interest rate and neither were identical. In one section the finance charges were described as 1 ½ % per month or 18% per annum and in another section the finance charge was only 1% per month.

Why were there two sections? Way back when the wholesaler was purchased by a national chain, the credit manager re-did the credit application, using a cut a paste method with the old form and incorporating the new and as the finance charge descriptions were in two different locations they were put on the new form, one on one page and the other on another. It was never proof read or was it noticed for years, until as it always happens, they were in court.

The judge did not have to struggle with the decision. The terms were ambiguous therefore, he disallowed any. $60,000 wiped out in a heart beat. The equivalent of the credit manager’s annual salary, lost because of a simple oversight.

It seems when times are busy, and they are always busy, no one has time to review the simple things. Yet, omission, such as this example, or others, such as terms on an invoice or purchase order, can cost you a fortune. This is where Strategic Credit Management Solutions can help. We know forms, terms and documents. We can review yours and make sure they are in order and free of omissions and or ambiguity. Spend a little, save a lot. See our website http://powerscredit.com/. You can e-mail us at patrickpowers@sbcglobal.net. Your comments are welcome.