The dot-coms’ demise has filled the news recently. Every day brings new reports of layoffs, CEO resignations and, inevitably, bankruptcies and liquidations.

Those who never forgot that profits, a positive bottom line and a business plan really do matter may simply shrug, "Too bad!" Perhaps it’s as natural to dance on the hoods of repossessed Porsches of twenty-something former paper millionaires as for warriors to dance on their enemies’ graves.

But what if that failing tech firm is your customer? Before explaining to your banker how you plan to collect your receivables, let’s review a few guidelines for doing business in troubled times.

Tech firm or not, the first rule is simple: trade creditors lose. According to a prominent bankruptcy, attorney, "The trade creditor should take whatever money he can get, whenever he can get it."

In a bankruptcy, unpaid supplier bills get paid only if cash is left - after paying taxes, secured lenders, and (to a limited amount) employees. Only the owners do worse.

Diligent collections in the months before bankruptcy may even be worthless. Payments on pre-bankruptcy receivables may have to be paid back to the court, under the rules of "preferences". Creditors who got paid recently can only keep what they would have gotten in a fair division of remaining assets.

Unfortunately, failing tech firms often have few assets that can be sold for cash to pay bills. Out of date computers often have only salvage value, and rapidly emerging privacy concerns may prevent any sale of customer data.

Perhaps old-fashioned receivables management - cutting off credit and stopping shipments - offers the best protection against new economy risks . Just don’t allow more credit than you are willing to write off.

Of course, COD always remains another option. There’s no law against discriminating against those who don’t pay bills, and "deadbeat" isn’t a protected class like race, age or sex. Some utilities are even demanding large security deposits from tech firms, rather than gamble by financing new high-volume facilities for customers with a life expectancy equal only to their current cash balance.

Yet none of these desperate measures builds long-term customer relationships. Nothing creates loyalty like standing behind a client in a crisis.

Fortunately, the law helps vendors keep doing business. To encourage credit to struggling firms, the right of "reclamation" lets sellers demand back unpaid goods shipped immediately before bankruptcy.

However, swift action is critical. Inventory gets used quickly, particularly in today’s "just in time" tech economy. Only a few days’ shipments can be stopped, so the quicker you act the more inventory you can reclaim.

However, reclamation isn’t a solution, only a last-chance at cutting losses. Reclamation also doesn’t defeat the bank lender, and doesn’t help a service provider, a more common tech vendor.

Instead, protect yourself before a bankruptcy. Converting a conventional trade account into a secured line of credit takes little work. Also, first-lien bank lenders will often accept second position behind new credit - from someone else - to keep a troubled business afloat.

Yet don’t be fooled into over-extending credit by the often-illusory security of a UCC-1 filing. New economy receivables may yield little if your customer’s customers are themselves in trouble, and lenders may not have the expertise to properly market or service high-tech inventory.

Perhaps the best advice on doing business with the troubled tech firm is simply to make the best of each situation. Sophisticated creditors have long known that a voluntary, negotiated workout usually provides the greatest recovery from a failing company. The cost and delay of formal bankruptcy make it very expensive to go broke, for both debtor and creditor.

Even if the customer fails, many firms have found opportunities in buying up inventory or sophisticated computer systems at deep discounts. Even with today’s privacy concerns, customer lists and marketing information may still be very valuable assets.

Helping a struggling customer through temporarily difficult times can build lifetime loyalty for those with the entrepreneurial spirit - and knowledge of the law - to brave the added risks of the techno-bankruptcy.

Copyright 2001 Stanley P. Jaskiewicz, Esquire

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.