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Reclamation, Administrative Claims and Other Possibilities for Recovery When a Factor Has Not Approved Orders
Consider the plight of a manufacturer of women's blouses who sells her finished product to every major department store and specialty store chain in the country. One of her highest-volume customers is a 150-store chain of upscale boutiques located in the metropolitan areas of the largest cities in the United States. Let's call the manufacturer “Better Blouses, Inc.” and the boutique chain, “Le Boutique” (both names are fictitious and any resemblance to actual business names is purely coincidental). Better Blouses' New York salesman has taken orders from Le Boutique for the Spring line at his New York Showroom; $3,000 per store. A nice order totaling $450,000!
When Better Blouses received the order confirmation, the company's credit manager advised her factor, who gave a tentative approval of the credit. Piece goods and trim were ordered, the goods were put into work and the complete order was ready to be shipped when the factor called and advised that the credit approval had been withdrawn. Panic set in.
The credit manager called the chief financial officer of Le Boutique and was given assurances that everything was fine; there was a temporary cash flow problem and the factors were giving Le Boutique a rough time. “Don't worry. Ship the goods and you'll be paid. In fact we will pay in 30 days even though your terms are net 60.” The credit manager then phoned the New York salesman and was told by him, “They're as good as gold. Everyone's shipping! Your factor has a new man on the credit desk and is being overly cautious.” The credit manager presented the situation to Better Blouses' CEO, who decided to ship the orders without factor approval. (Sound familiar?)
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