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How to Manage Credit Balances when it comes to Escheatment

Many credit managers struggle with how to proceed on credit balances left on accounts from escheat proceedings. If these balances aren’t handled properly, they can cause serious problems for your business. 

If you aren’t sure how to deal with escheatment or if you are totally new to this concept, in this webinar. We’ll discuss:

  • The basics of dealing with escheatment on accounts
  • How to deal with credit balances and unclaimed funds
  • Proactive ways to avoid penalties, extreme audits, and massive cash loss


Lori J. Drake, CBA (00:01):
Good afternoon. And thank you for joining us today. My name is Lori and I’m with Levelset. I’d like to, or sorry. I’m am joined today by Edward Burton and Valerie of Isla with CST worldwide. Thanks for being with us today. Go ahead and change the slide, not in one second technical difficulties. Okay. We’re going to reshare that in the meantime, if you don’t know what Levelset does, we are at construction industry platform. We handle liens and waivers. We deal with contractor profiles. We have payment risk reports as the shows, and we also have a payment professionals community, which you’re actually watching this webinar through right now. Go ahead and change. Here we go. What we’ll cover today is dealing with escheatment. When you have credit balances on your counts. I know a lot of people don’t know what this is or haven’t dealt with it. So hopefully you’ll find a lot of great information here. Uh, we’ll tell you how to deal with the credit balances and the unclaimed funds, the basics of dealing with those and proactive ways to avoid the penalties, extreme audits and massive cash loss. As I mentioned, we have Eddie Burton and Valerie of ILA. Would you guys want to introduce yourselves?

Ed Burton (01:33):
I’m ed Burton, CST worldwide. We’ve, uh, been in the commercial collection business and do a lot of outsourcing programs with a lot of clients as most everybody in the industry does nowadays, um, generically, uh, uh, that was a credit manager for three years at general electric. So I understand that side of the equation and it’s helped me and, uh, uh, in our industry, uh, under helping out to credit people throughout the country, uh, over many years. So, um, I’ve been in other than that and they collect her, been a bookkeeper, a mail clerk sales. So I understand that side of the equation as well from our side. So hopefully a beneficial in what we’re presenting today.

Valerie Avila (02:21):
Salary, I’ve been with CST for a little over three and a half years now. And then I was in the construction industry as a credit analyst for almost 12 years. So, um, this is a pain point that I completely know about and I understand, and sort of the processes and the things that you have to do. So I’m really excited for us to be able to talk about and just give some general knowledge to everybody out there.

Lori J. Drake, CBA (02:44):
Well, thank you again for joining us and feel free to take it from here.

Ed Burton (02:49):
So the sheet man issue has been a, uh, a bigger problem for a lot of companies for the last 10, 15 years. Uh, uh, Laurie had, uh, done a survey questionnaire and, uh, there was a number of folks that hadn’t, uh, no knowledge whatsoever of it. And a lot of people that do have knowledge aren’t even utilizing, um, procedure for it. What we’re finding out is that about 10, 12 years ago, there was a particular agency. As a matter of fact, that went through the state of Delaware and said, I think we can bring a lot of money to your table. And so states started becoming more aware of that. And the, uh, Delaware itself came up and told some people that they thought they could go back infinity. They didn’t have to worry about seven years, 10 years, whatever they could go back as far as they were.

Ed Burton (03:48):
And they specifically asked one company for records going back to 78, which was absurd. Wow. So it gets out of control. Nowadays, it’s getting a little bit better as far as some, uh, continuity across the country, but what they’re typically looking for things that are aged out, they’re somewhere in their five-year range. They’re not looking for the last four months, six months, that type of thing. But if you don’t have enough treatment policy, uh, and credit balances, what that concerns, if you have credit balances on your books, you should have some standard policy that within your, uh, procedure manuals and that you were following it month in a month out, because once it does get out there where it’s aged, the first thing they’re going to do when they come in for an audit is ask for what you have done with regards to these.

Ed Burton (04:38):
And if you have nothing immediately, like most audits, the red flags go up whistles and bells, and the audits can be just disastrous. Uh, we had a client who was involved in an audit because they were providing, um, software to some major corporations, fortune 100 companies, all public. And if you know of a tax that you are not being charged, then you are supposed to pay that tax to the state of residency. And that’s what was happening. Our client was not charging the tax. They didn’t think they had to from their state. The ignorance that mark state of Texas was getting all these, this money in to the tune of two and a half million dollars from various major corporations that were referencing our client’s name as to this, or purchase a product that tax wasn’t paid. So that’s what brought the attention to his Texas, to this particular company.

Ed Burton (05:46):
They announced to them that they would be doing an audit. They charged them for the full audit. They had to pay the two and a half million dollars. Our client did to the state of Texas. My end, you just told you that they’d already gotten the money from the all these major corporations, but the state of Texas have no of you got to pay it. Plus you have to pay the audit and you had to pay a penalty for the tune of the tow package was $3 million to the client that they were at. Then they were given a certificate that they could go back to the corporations and ask for that money back sounds ludicrous. They have to go through that process. State then was paid twice, right? My private business government gets me aggravated on those kinds of things. So I’m like, let’s have, what can we do to help people?

Ed Burton (06:35):
And a lot of companies generically, in our end of it, have us help try to help folks in establishing policies. If they didn’t already know it. And we use millennials to help us across the board. I love millennials, by the way, a notice that he said, she said, here, come down, get some policies in place that are going to be accepted by the accounting folks. You want to get that pass, get it blessed. And the main thing that you need to do is every 12 months that you were addressing whatever credit balances that you have on the books. If you’re making those notations into your system and you’re, you’re audited later, then at least you have a value that you can keep from having to be penalized. Now, granted, if there’s money to and you, and they want it back, you obviously want to give it back to them right away.

Ed Burton (07:31):
If they want to put it towards future purchases, that that will fly. And it is appropriate because you have companies that will put money out there and they’ve got it on the books. And they’ll simply tell you, it’s an aggravation for us to be able to bring that back in while, uh, so we’re going to have future purchase of we’re buying from you on a monthly basis or, or at least on a quarterly basis. And so we’ll use that the next time we purchased from you perfectly good and works well. It takes the stress out of the issue. We don’t need any more stress. We have enough stress in our world. COVID is created a lot of stress for us with that in mind, what we do is we try to help you bring the puzzle together. We all have the big salt puzzles that we’ve dealt with in the past.

Ed Burton (08:16):
And that is one of the things that, how do we fit these things together? We look at the corners with cheat and get those things lined up just right, and put them back into order for you. And that’s what we, you need to help have help him. Um, if we can create an, uh, specific procedure or process that you can stay with that simple enough generically across the board, if it’s, uh, through an agency or through, uh, your accounting people, whatever, whatever source that you need to grab, that will help you, uh, in doing that kind of a thing. You want to have a, uh, an approved a policy, um, w w we specifically, or Sarbanes-Oxley approved. And because of that, our auditors are coming in and their fine tooth combing and external folks. And it is a headache to go through. We have to go through it every year, and it’s a three week, four week process.

Ed Burton (09:16):
Sometimes it lingers on, you know, which they always do, but end of the day is if you don’t do those things, the example I mentioned earlier, convened a nightmare. Obviously that’s a large scenario, but you don’t want to put yourself in a position of harm’s way. And when you think about it, um, we had one client that they had a $850,000 credit balance on one company. Well, that can affect your billing, your end of the month, your DSO, that looks great. But when you have to come out of that and, and clear it not only is, it’s gonna mess up your DSL, it’s going to really bring it in light. The other problem with that is cashflow. So how do you, how do you account for it? You don’t want to have to get stuck with that kind of thing. So being attentive to them, not letting them get out of hand is as extremely important.

Ed Burton (10:13):
A new issue that’s come up because of COVID is that there’s many scenarios where you may have a deposit on hand for jobs that are coming up, that you have merchandise product that you have being in a production or delivered, but it can’t be placed on the job site yet. They can’t get the infrastructure done because of the issues of supply and demand or whatever the scenario is. But you have money. That’s been on the books for four to five months now, and your product is sitting in a warehouse waiting to get a stamp, uh, installed. Now that may get, it doesn’t sound too bad if it’s just four or five months, but what if it goes into six months, a year or longer? Now you get into an achievement issue because you have money that’s on the books. Ironically, I had a client that is a fortune 100 company that they said that they have taken the approach that, uh, now that they’re 18 months into this, they’re changing the date of the invoices to be current.

Ed Burton (11:20):
So it doesn’t age, uh, with light, which gets them problem, because I have checked with, um, CRF credit research foundation and a couple of auditors and their attitude is no, you don’t want to do that kind of thing because it was received. And that’s, what’s going to be determined by the state is when the money was received is when it’s aged and don’t, don’t try to change the books. Right? All right. So be cautious of those kinds of things you want to check with your own next internal auditors to find out you should be and should not be doing. So, just be careful that, um, those are odd balls scenarios, but they will come up because of COVID Tacoma issues are from a to Z. We don’t know yet how much that’s going to affect us. Long-term it’s going to be 10 years before we know the full effect of this whole scenario once we’re through with it.

Ed Burton (12:16):
We’re not through with it as we well know, but it has changed the environment in many, many ways in how, how business is operating, um, legal, legal issues have just been fiasco. Uh, certain states are telling us that, uh, we can’t pursue because of COVID still, um, we have, we’ve seen some lightening up in those like New York specifically was a great state in may to get back to the business. Uh, some of them we can bring in some attachments, we still are not able to go into trials in many states. So you’re stagnant there. You have to watch out for your statute of limitations if you get into that. So it’s not only just a sheet meant, but there’s a lot of things that this brings into play. Time is money. We all know that we that’s every day, all day, and it never will change in credit.

Ed Burton (13:08):
And we have to be attentive to what’s going on in the marketplace. And achievement is one of those areas that has become a major concern. And with the states, recognizing that there’s so much money out there in it, they’re fast and quick to come after that money. So they want to get it into their coffers. Now caution you there with the states. Yes, we have to be obliging with them, but they report this money as an, as a liability. But I know for the fact that the state of Texas, if they had to come up with the money that’s on that liability, they don’t have it. They’re using it for other things. Of course, they’re no different than any other state. I don’t know of a state that’s that can say that it’s a, uh, truly fluid, casual, uh, and get off the soap soapbox, right at the end of the day, bottom line is I think that your customer deserves to get the money back more than the state deserves to get it back, but the money where it belongs. Right? So anything in that regard, uh, I would be cautious to do it in the proper way, but at the same time, do it the right way. That’s going to keep the PR and the loyalty of your customers with you. They appreciate the fact that you’re trying to watch out for their money as well.

Lori J. Drake, CBA (14:31):
I had a question pop in really quick. What if the customer has gone out of business, what would you do with,

Ed Burton (14:36):
And that particular instance you’re supposed to give that money to the state? Yeah. Um, the it’s kinda like, uh, uh, someone dies, uh, like, uh, uh, and then monies money has given to the state. You, you everybody’s heard that scenario where you can contact the state and find out if there’s any money under your name. Right. So it’s been wheeled to you, or it’s been turned over to you, or somebody shows that they sent a check to you and you never cashed it, or whatever, a payroll check, the same thing with, with this kind of thing. If somebody goes out of business, that’s considered that’s a death of the organization, right. So if there’s any money out there that you have with regards to that, the effective rate, what you’re supposed to do the proper way is to turn it over to the state of residency. That’s your, your company, your company’s residency.

Lori J. Drake, CBA (15:33):
Uh, another question came up. Do you happen to have a sample policy that a company could use to follow the astute?

Ed Burton (15:40):
Yep, we do. We can have it. Um, any we available, you can contact Valerie or myself.

Lori J. Drake, CBA (15:47):
I can email it out. Yeah, no problem. Lauria message. And then I’ll send it TV. Yeah. Thank you. Uh, I got a couple more questions that just popped up, uh, what governments or does each state has its own policy? And what if so, what governing state would you go by?

Ed Burton (16:06):
The, uh, late they’ll have their own policy, but they becoming more generic. Um, and as I mentioned earlier, the, the rule of thumb now seems to be that they’re looking at things that are in the five-year range. They’re not looking for something that’s been out there just the last few months. And specifically during COVID knowing that you have so many, uh, contracts, uh, that are, uh, job sites that are being put on hold, uh, shortages are everywhere. I mean, today, I’ve, I’ve heard this the last three weeks, and I just saw another blog today about the port of Los Angeles has unbelievable number of freighters that are sitting out, that they can’t even bring into court. Then number one, they don’t have the workers to unload them. And then secondly, even if they do unload them, they don’t have the trucks to put them on, to send them out.

Ed Burton (16:54):
It’s a truly, the pandemic is becoming just a phenomenal scenario, right? Small, small stuff. We went to the grocery store the other day to get a breast of chicken. So we don’t barbecue. Chipper chicken could not find breast of chicken. Packaged had to go to the meat counter and the butcher at the cut rest of chickens out. And they were double the price. They were I’m up in Africa. Um, the fires in California on the west coast, they’re having to plow under a lot of the vegetation that was being burned, were going to be produced for all of us to send a cross country. Right. We’re losing out on food is an issue. All of that area, the chips, things that have going on. So phenomenal, an auto car thing the other day, driving in the car. And they’re talking about this specific car that has an SUV that’s very popular now.

Ed Burton (17:54):
And the guy was trying to look for it. He used to call calling in to tell the auto guys that well, I found the one and he didn’t say what the manufacturer’s suggested retail price was, but he said the dealer price, it was $10,000 added home. Oh, by the way, there’s an additional $5,000 for the chip. So $15,000, if it was a $25,000 manufacturer suggested retail, it just became a $40,000 car. The craziness of across the board of what the pandemic has created in the way of shortages. We have a lot of people that didn’t want to go back to work. I saw a thing from a 26 year old, said the government should pay me my money because I’m tired of working. Well, no, we don’t want to get back to work, but we have a lot of jobs out there. There’s 10 million, 10 million plus jobs available today.

Ed Burton (18:46):
We see there’s 351,000 that applied first time for unemployment. They it’s up from what they thought it was going to be three 20. So there’s a lot of people that are still out there out of work, 11 million, but that’s, that’s a lot less than it was last year, 26 million. Right? So we’ve got a lot of people back to work, but won’t lumber meals. When all this hit last year, all the lumberjacks left all of the meals, shut down, bringing those people back has been a real chore. Finding, finding the people that can fill the slots across the board. Medical is huge. I mean, were they ever were, you know, nurses or shortages doctors event or were overstaffed, you know, are overworked. It’s, there’s not a thing that the pandemic hasn’t touched. I made a comment publicly back a year ago. I said, I hope this is something that they’re only going to be talking about in history books for 10, 15 years. No, it’s going to be a hundred years. They’re going to be talking about this. We’ve not seen anything like this in our lifetimes. The last time anything happened, like this was beginning of the 19th, 19 hundreds, you know, this is historic, right.

Valerie Avila (20:04):
So thanks for joining. Um, but Cindy had a great question. It looks like there’s a lot of questions in there. Um, and one of them was, um, from Cindy, what if you don’t turn monies over? So what’s,

Ed Burton (20:18):
If you don’t turn money over and the state comes and gets indication and that you have to take the roll of the dice, that they’re going to find out about it. Um, and if they do come in and out achieve, and then as I said earlier, one of the ways that they can wind up out of you is if you don’t collect a tax that you’re supposed to collect from specifically a public company, public companies have an obligation just as the private, everybody does to report to a state that any tax that’s not collected, that they know should be collected and they are supposed to in turn, pay that money. Anybody, if you don’t have a tax that you know is you’re not being taxed and you know, it’s supposed to be done in Texas or Mississippi or wherever, then you’re supposed to pay that tax.

Ed Burton (21:10):
That immediately becomes a red flag to the state. If it happens just one time, they’re probably not going to pick it up two times, not going to pick it up. But in the case I alluded to earlier, there were multiple major corporations sending in large sums of fund money, referencing the same supplier. And that’s what the red flag that brought them up. And then they audit is done and you have to pay for them to come to your state and do the audit. But whether it be Texas where I’ve been Minnesota, California, whoever, whatever state it may be. And when they come, you have to pay for their housing, their meals, their airfare across the board. And if they’re there for weeks and they send three people multiplied out and then on top of that, whatever penalties they put in. So the repercussions of not doing it, when, you know, it’s, there is a major issue. And if you start putting it to miscellaneous income, that’s really going to be a nasty because they’ll go back as far as they can. And once they figure that out, that’s the bad part, taking the role of dice of what are you going to play that game? I don’t want to play it.

Lori J. Drake, CBA (22:24):
Ryan that asked a question. He said, I’ve been a credit manager for over 13 years, and I’ve never been told to do this. Who is, I mean, where are you supposed to hear about this thing? Whose job is it actually, I guess, to handle this sort of thing?

Ed Burton (22:37):
Well, there’s, there’s people like credit research foundation that, um, uh, in NACM that, uh, will provide that Levelset would have that information. Uh, these things are, are becoming more and more, um, uh, uh, needy to know because Mo most states are grabbing into it. And why do we know about government again? Where they find out they can pick up revenue, then they’ll do it again. You just have to be cognizant of what’s out there. This the shipment’s been in place for a long time, but it’s a matter of the states being cognizant that there’s so much of that money. That’s owned books with major corporations, and they have found how much they can pick up. And if you’re a small entity, they probably won’t come after you. But that’s not to say that somewhere down the road, you may have some issue that brings it to their attention, whatever state you’re dealing in. And then you’re in trouble. The public thing I mentioned earlier, state of a public company, like an Exxon or an IBM, they have an, a shipment policy with the stock exchange into. And if that’s one of the things for disk, this listing and a company,

Valerie Avila (23:59):
Well, and then another thing Lori, another thing to throw in there is the fact that there is, you know, like Eddie said, like Levelset we have Thea’s book. So Thea’s book touches a little bit on all these things where it’s just a good guide where it’s not a black and white of this is how you’re supposed to do everything. Um, but it at least give you some guidelines, things to look into things. If you don’t know about how do I do this, how do I do that? How do I expand our whole department? How do we make things easier? So it’s just little things like that to educate.

Ed Burton (24:31):
And I’m along that line, I read his book made you fade, referenced the fact that, you know, she didn’t know all this stuff, but she started reading about it, started up at upscaling and find out, you know, here it is, that’s coming up. And the question earlier, never heard about this. She hadn’t heard of that years ago. We hadn’t heard of it years ago, but you hear about it. And then you start spreading the message. Let me help you. And that’s reason that people like the, uh, like Levelset like ourselves or out there to try to help out, to keep people out of trouble. Our whole philosophy has been that we are an extension. And I think most everybody I’ve just mentioned has the same opinion. We’re an extension of your office. And if we can help you stay out of trouble, then you’re going to be in better, better light with us down the road. And that’s the whole purpose. We’re just, we’re all working for you. And that’s the reality of it.

Lori J. Drake, CBA (25:24):
Thank you guys for bringing up Thea for anybody that doesn’t know what they’re referring to. This is the deadly she is referred to as the credit overlord. And this is her book. The links are right there, but if you just want to shoot me a message, I can go ahead and get you the link right now. If you download the first 11 pages of the book, we’ll send you out a free copy of it if you want. It it’s just the basics of everything. Like they said, it talks about the escheatment. It talks about liens, basic credit needs and policies. It’s just a nice overall book that can share that information that they were talking about. So I appreciate you guys bringing that up. It looks like we got a couple of times is how long can I keep the balance on the account?

Ed Burton (26:05):
Yeah, again, uh, the rule of thumb that I’ve been told is the five years. But if you, if you’re holding it five years, then unfortunately what you’re going to do is create even more in depth of, of an audit. Uh, if you’ve had an audit, you know, that what they look for as things that you’re trying to hide, and if you have something that shells up, that’s a warning sign, then they want to see 10 of 10 items of it. They want to go into 50 items of it, and that’s going to extend your audit or your cost, and then your exposure, unfortunately. So in the event that it goes past 12 months, then my recommendation is that you offer to send a check. If you haven’t already offered us into check, you know, what you should be. What we typically do is a, would you like to use this for future purchases that is completely acceptable and agree and bus states, if you put the note in your system, you got to cover it. But if that note is 14, 18, 20, 20 months old, you’d involve the pro policy has to be within 12 month periods every 12 months. You’ve got to make sure you cover that base. And if it gets into that second year, then you need to start thinking about sending, you know, at least partial back. They want to keep some of it on your books, agree to that, whatever, but keeping it on the books for four or five years is going to be a red flag to any audit.

Lori J. Drake, CBA (27:33):
I like that. You mentioned that 12 month. Thanks. I didn’t even know that you had to do it every 12 months, myself.

Ed Burton (27:39):
Yeah. Unfortunately, uh, you know what that’s, you know, again, it’s just kind of like the guidelines got to pay our taxes every year, every year too, so

Lori J. Drake, CBA (27:46):
Right. Just anyone else have any more questions? I know we kind of got into the Q and a little early.

Valerie Avila (27:55):
No, your comment, but it’s good that you guys already have that policy in place because it’s something that not everybody does. So good kudos for you guys.

Lori J. Drake, CBA (28:04):
Absolutely. Yeah. I was surprised when we did that poll that Eddie had mentioned early on about who knew about the escheatment and all that. I mean, I would say it’s close to 80%, really didn’t know about it, or know how to deal with us. So,

Ed Burton (28:17):
And if you’re a, middle-size a smaller company, you’re probably not been approached by it because the state hadn’t come after you. It’s the larger companies. What they’re looking for is the big bucks, right? If you have repetitive issues, then you know, you could be a middle size or a small company that that’s going to be called to their attention. And that’s how, like I said earlier, it was, you know, indirectly that was brought to the state’s attention and had nothing to do with the one-on-one with that company. You know, that company wasn’t even in the state of Texas, but because of the reporting that we came in and the payments that came in that all alluded to that client is what report raise the red flag. And if you have that kind of a scenario going on you, then, then that’s, what’s going to be the issue you got to watch out for.

Valerie Avila (29:00):
And then Renee, thank you for joining as well. Comment now, um, he asks, is there a minimum map that is used to gauge when the money should be sent back to the state? I’ll just tell you from my personal, but Eddie knows actual answers. I would try to give back small amounts. I try to give back large amounts, but it’s always funny. It would always seem harder to give money back than it would be to collect money back sometimes. But that was just my scenario as an analyst sometimes, but any of the natural agents before,

Ed Burton (29:28):
And that’s true, you know, there’s, you know, people, don’t, it’s an aggravation for me to bring the money back in. I’ve got to make three or four entries to get that back in and just leave it up for books. Okay. Okay. We’ll do that. But no, there is no minimum that you can consider that you should just take the miscellaneous or to leave it there for indefinite. You need to have an actual attempt to try to resolve it every 12 months. And if you have that policy in place and follow it, then you should be okay for any audits that were to come in later. Questionnaires don’t want, I don’t want to have a large penalty. Don’t want to get a stigma about us.

Lori J. Drake, CBA (30:08):
Yeah. Well, if they’re auditing you for that, they might decide to audit you for something else at the center.

Ed Burton (30:19):
You’re right. You’re right. Yeah. Any, any kind of alert approach or like that kind of thing can be detrimental to your company. It gets out on the internet and then you got all kinds of questions and answers and feel loss of customer base. Nobody wants to have get into that. End of it. And that’s what this whole thing is about is just be informative. Try to help people out, but it’s okay.

Valerie Avila (30:42):
Just cause you worry about your past use doesn’t mean that you don’t have to worry about your past credit balances. You know, they’re just they’re items that need to be resolved as well. You don’t want anything that’s out there and you’re aging that far anyway. So it’s always like, how do I clean this up from the right side to the left? And his cheat mint is just part of the process.

Ed Burton (31:01):
I mentioned earlier about the Liam $850,000. If you had $850,000 one account that you had to give back, think of your total AR what is that going to do to upper management’s bonuses at the end of the day? You do that internally, not externally, but internally you’re going to have some issues. That’s another reason why to take care of that stuff.

Lori J. Drake, CBA (31:29):
Don’t look to see that we have any other questions in there. Do you want to go onto the next slide, Valerie? I think the next one was the, uh, okay, go ahead and go. One more. Uh, we did go ahead and put us certificates ability put together for you on this. A few check your email right after this webinar ends, there will actually be a little quiz. It’s just has three short questions. And if you answer them correctly, you’ll get a certificate. So you can just share it with your boss, share it with your socials, just so that you, they know you took an, a stupid class and now you know what you’re dealing with. And I want to thank you, Eddie and Valerie for taking time out and talking about this. I know it was a hot issue and hopefully people got some good information and we look forward to getting that sample policy from you. So we can share that with everybody as well.

Ed Burton (32:16):
Thank you. And we’re happy to participate. We appreciate the invite and, uh, we appreciate levels at

Lori J. Drake, CBA (32:24):
Well, thank you very much and have a great day. Thank you. Have a good afternoon, everyone. Thank you. Bye bye-bye.