Priority list: Who are the folks that get paid first?
In my experience, the creditors who get priority are those with the most leverage and who can control their product/collateral or who can cause real problems for a lessee’s ongoing business.
Following is list of who gets paid first and why.
- Utilities (Electricity, heating fuels)
Always number one on any list. These companies keep a tight control on what they sell, and they will immediately shut it down in the event of a late payment. No payment, no power, no delivery - Communications (Cell Phones, Internet, and Landlines)
Like a utility, a lessee’s company needs this service to conduct business, or they are dead. Thus, communication providers are atop of any list for prompt payment. And just like utilities, they will shut down service quickly with scant warning. - Banks with Liens on Bank Accounts (a.k.a. Cash Collateral)
On term loans or lines of credit, bank lenders strongly encourage the borrowers to use the bank for the checking and merchant accounts. If a company gets behind on a note payment, the bank can easily (and without court order) offset any cash in the bank account, leading to an inevitable chapter 11 filing to get the money back. This control over critical cash puts these lenders high on the list. - Payroll (Often Including Payment to Owners)
Of course struggling companies want their employees to focus on their jobs and the wellbeing of the business, as opposed to worrying about their paycheck; this makes them a clear priority. But do they need to pay the insider-officers their often-high salaries? Either way, payroll is a high priority. - Taxes, Including Payroll Taxes
Few business owners are foolish enough to put this off. Just as with wages, if not paid these (especially payroll taxes) debts to the IRS will pass through a bankruptcy and hound the debtor and its principals forever. However not all taxes are the same, and some state taxes, including real estate taxes can be deferred with little penalty. - Critical Vendors of Raw Material, Goods and Components
Again, this comes down to leverage. In many cases the company has lost its credit worthiness with this important group and is now COD; no cash means they don’t get goods or services that are needed to keep their business running. They must reserve cash for these demand payments. - Landlords
An aggressive landlord can cause real trouble and I’ve seen them just change the locks in the event of non-payment. Although doing so is generally not legal in most states, the consequences of such action can be lethal to a struggling company. That gives them an advantage on the priority list. - Trade Debt Personally Guaranteed by Owners
This is something that’s near and dear to the principals of a troubled company and it should be. If the company goes down, they potentially could be facing filing personal bankruptcy. That gives this debt a measure of priority. Even if the debt is old or not for critical components, most lawyers will advise paying this before the last category. - Lessors and/or Equipment lenders
Sorry to say, lessors are last on the list of priorities simply because of lack of leverage or control over the asset. Mostly lessors don’t understand why they are at the bottom of the list for payment, but as noted above, the legal deck is stacked against them. Of course loans can be extended or re- written, but that just kicks the can down the road. Likewise, calls, letters, texts, demands, the tried and true conventional methods (some say tired and true) make small headway when a lessee is making hard choices – choices informed by a legal professional like me. Such efforts will not move the lessor up on this list,
A careful observer of these priorities will notice those who are on top have control of their product and its delivery without going through legal process. Let’s face it, lawyers are expensive, and our process is slow – it’s not our fault, it’s just the system we’ve inherited.
A Better Solution…
An often overlooked section of the law which governs leases and loans in all 50 states – the Uniform Commercial Code – actually allows lessors to disable equipment in place without having to get a court order. I discovered this doing some research years ago and began developing a system that matches current technology with what the law allows.
This revolutionary wireless technology is called Blok Box, and will provide absolute control of collateral for the entire lease term, and it is always right at your fingertips when needed.
A prudent lease company will always work with its customers to resolve payment defaults. However with the advent of Blok Box, that leverage and tenor in that conversation has changed. You now can quickly and firmly re-educate your lessees as to the priority of your debt. And if necessary, you can shut-down the leased equipment to press your point. The Uniform Commercial Code clearly allows this, and now finally technology is here to deliver this leverage.
Your lease customers should know that if they do not live up to agreements, if they refuse to pay, or if they habitually pay late, you can now enforce payment like a utility – i.e. with no lawyers (heaven forbid), no endless collections efforts and no repossessions. Just the click of a mouse.
It is not nefarious or confrontational that you should wield this leverage. Look around, it is standard practice in many consumer and business categories (see priorities 1-4). It is not mean-spirited, it actually alleviates a great deal of angst, as the understanding is clear.
A final observation: When the priority debt comes knocking, you would be surprised how many “hard-up” businesses can find money…it’s all just a matter of priority.
Peter Tamposi is the co-founder of Lease Security Systems, creator of Blok Box.
For more information visit contact:
Peter N. Tamposi, Esq., CEO
Lease Security Systems, Inc.
North American Sales Division
159 Main St., Nashua, NH 03060
603-860-0240
603-864-8286
p.tamposi@leasesecuritysystems.com
https://get.blokboxnow.com/
