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ComplianceFinanceAugust 24, 2017

Protecting your assets and your customer relationships at the same time

As a business owner or manager, the only thing more important than your valued relationships with clients is your business itself. You don’t want to do anything to jeopardize either of them.

You may think protecting your assets means that you should file a lien on your collateral when you loan or lease equipment. You may also worry that it will harm your client relationships and foster bad will. But that’s simply not true! You can protect your assets, minimize the risks associated with the lending/leasing of equipment, and keep a good relationship with your client all at the same time.

When you loan or lease equipment, sometimes you may have a problem with a client being slow to make payment, or not paying at all. This puts your company at risk of either losing your investment and/or the equipment itself.

Equipment lessors/lenders are experts in loaning out specific equipment to help satisfy a client’s needs. They aren’t experienced in collections and often think they have to put a mechanic’s lien on the equipment. They fear doing so will endanger their relationship with the client. A lien, after all, can negatively impact a client’s credit.

As a result, the word “lien” often carries a negative connotation in the industry. To avoid making a client angry or embarrassing them, the lender/lessor shoulders the risk and hopes for the best.

You don’t have to do this. You can protect yourself, mitigate risk, and keep your client happy by using a Purchase Money Security Interest (PMSI). A PMSI alerts other creditors and interested parties that your client owes you money. It protects your interests should the client later encounter financial difficulty. However, a PMSI is NOT a lien and does not affect your client’s credit. This is because your equipment, not any of the client’s property, is listed as collateral.

You can file a PMSI on equipment leased or loaned, as well as for construction work if you are an EPC (Engineering, Procurement, and Construction). Engineering, however, is an intellectual product, not a tangible one, and thus cannot be repossessed if not paid for. Engineering work isn’t coverable as part of a PMSI filing.

All good client relationships require trust and transparency. You may want to include a provision in your contracts informing clients that a PMSI will be filed as part of the transaction. Contact your legal counsel for advice on updating your contracts.

You may also want to assure your customers that such a filing is a financing statement — a form that gives notice that you have an interest in the equipment described. Be sure to let them know that financing statements do not usually negatively impact a customer’s credit.

A PMSI is a valuable asset-protection tool for all equipment manufacturers, dealers, resellers, and installers. Experienced companies take full advantage of its provisions to secure assets, mitigate risk, and keep good client relationships. If you aren’t familiar with its benefits, help is readily available.

Lien Solutions has nearly 40 years’ experience in helping equipment lenders/lessors secure their assets and minimize risks. Should you have any questions or would like to learn more about how a PMSI can help you in these regards, please let us know. We have a dedicated team of industry experts ready to assist and provide guidance on asset protection, risk mitigation, and other areas as well, including workflow optimization.
Robb Zurek
Senior Marketing Manager
Robb Zurek is Senior Marketing Manager for Wolters Kluwer Lien Solutions. Zurek’s primary focus is thought leadership, and content and demand generation. He creates and implements key marketing initiatives to position the company as an industry leader in providing lien management, risk management, and life-of-loan services.