Proceeds Tracing

Bank Identification

Forensic accountants use specialized rules to track funds in a mixed account. Under proceeds tracing, when a distributor deposits sales cash into a general bank account, the lowest intermediate balance rule is applied to determine which portion of the balance belongs to the secured supplier. Credit managers calculate this balance by assuming that the debtor spends their own money first before touching the secured proceeds.

This forensic analysis is crucial for proving ownership of funds during liquidation disputes.

Legal Allocation

Courts will award these tracked funds to the secured creditor over other claimants. This judicial award relies on clear evidence linking the sales transaction to the specific bank balance. This link must be documented through invoices, bank statements, and shipping records.

Separation Requirement

Segregating sales cash into a separate account simplifies the tracing process.