Factoring Companies Guidebook
Liens
Definitions
Where a third party other than the debtor has rights of possession of the goods which are the subject of assigned debt.
More specifically in the terms of our ability to collect the debt due:- A right to first call on the goods or proceeds of the sale of goods, up to the value of amounts owing to the holder of the goods e.g. Warehouses, Carriers and Agents.
Alternative terms:-
- Possessor Liens
- Possessor Title
Concerns
The nature of the Lien is that the amounts due to the Liens holder, may be recovered from the sale, or proceed of sale, of the goods that they hold.
In the case of carriers in particular, the goods held may have been invoiced by the Client and funds forwarded from us relating to these goods. In a collect out scenario goods/paperwork could be withheld until monies under the Lien have been received by the holder, which may ultimately have to be remitted by us.
Identification
A review of delivery procedures, in particular noting amounts due to third parties in respect of warehousing and delivery, through the Purchase Ledger. Bear in mind that whatever is due is likely to increase considerably as a Client experiences cash flow difficulties and on its demise.
Treatment
If amounts due to Lien holders are material or are overdue, a reserve to the value of that amount may be needed. If the transit period is significant, invoices should only be assigned as they have been delivered to the customer.
Monitor the Creditor position very closely. This becomes a major concern where all the Client's goods are delivered by third parties or moreover, one third party.
