Secured creditors who finance their debtor’s inventory and receivables are often concerned with being able to maintain their perfected security interests not only in the original collateral but also in the cash proceeds generated from the disposition or collection of the original collateral. In discussing how having an enforceable security interest in cash proceeds in particular can be a tricky business, Professor Margit Livingston writes:

The Code’s broad grant of an automatic perfected carryover interest in identifiable cash proceeds certainly benefits the secured party that has a perfected security interest in inventory or accounts. However, there are two possible pitfalls for secured parties pursuing interests in cash proceeds: the first is that the secured party must be able to “identify” its cash proceeds in the debtor’s hands, U.C.C. § 9-315(a)(2), (b)(2), and the second is that if cash proceeds are transferred to a non-bad faith transferee, the secured party’s security interest in those proceeds is cut off. U.C.C. § 9-332.

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