Statistical Tools for Managing Accounts

Data scoring models can help predict your customer's ability to pay

With the current economic environment and a surge in defaults and bankruptcies, there has been greater emphasis on being able to ascertain the risks of customers and statistical tools to measure your customer’s ability to pay. On a past CMA webinar, “Statistical Tools for Managing Accounts,” Prof. Jack Williams, JD, CIRA, CDBV of Georgia State University praised the value of using various types of statistical models to aid credit executives in their decision-making process. The presentation also served as a primer for the liquidity, debt and performance ratios, the tools used to weigh the credit risk of customers.

“Use of statistics can be a valuable tool,” said Williams. “Statistical techniques are a way you can allow the data to tell you a story about your customer. Statistics unlock the doors to all sorts of information and can be used to compare a customer to the rest of that customer’s industry.”

He added, “Any statistical analysis properly framed will answer fundamental questions in a credit department’s operations.”

Modeling and scoring techniques have been hailed as being objective in assessing the risks of a customer, helping set opening lines of credit, as well as establishing a baseline for that customer’s historical payment cycle. It’s a lifecycle tool. There are a number of commercial options available and CMA offers such services as well.

“The interesting thing about statistical tools is that they allow you to look at a lot of customers simultaneously,” said Williams. “If you have a shop like the ones I grew up in: you’re underfunded, undermanned and overworked. So, any type of tool that makes you more efficient, particularly if it allows you to manage a lot of customers, a lot of invoices, is going to be a better tool at the end of the day.”

Williams noted that people are often turned off by statistical tools and modeling because it is routinely seen as being math intensive. The reality is, though there is math involved, it is not something only accomplished by rocket scientists.

“Statistics is less about numbers and more about patterns,” said Williams. “And that’s what we do intuitively as good credit managers. In fact, you’re already doing statistical analysis.” And by turning to an unemotional computing technique, Williams said credit managers can remove subjectivity from the process and embrace a tool that is reliable and consistent. Though he added, “They do not replace personnel and they certainly do not replace discretion. They augment credit discretion.”

Williams’ detailed discussion of statistical modeling covered everything from aging receivables, to analyzing raw data, to various types of averages, and even to dreaded terms like standard deviation. But he continued to tout the
importance and efficiency of modeling as well as the ease of use. Even basic office tools like Microsoft Excel can allow credit managers to start doing their own statistical modeling. Most have access and are familiar with the software.

“Excel gives you access to very amazing, powerful statistical techniques that are embedded in the Data Analysis Toolpak,” said Williams, going into detail into how simple it was to load from the Tools menu. “It’s very, very easy to use. Among other things, it’s going to give you summary statistics. It’s going to give you the averages so you can get an indication of what your particular payment cycle looks like with a particular customer or customers within a particular product or service line that you provide. It’s also going to measure variability.”

For more information about the tools that CMA-partner credit bureaus offer on credit scoring and modeling, contact CMA at 818-972-5300.

How the New York Supplier Surcharge Ruling Affects the Credit Team

Scott Blakeley, Esq.

New York State Court of Appeals Ruling Requires Fuller Disclosure for Supplier Surcharging: What it Means to the Credit Team and a Nationwide Surcharge Rollout

By: Scott Blakeley, Esq

While The New York State Court of Appeals has ruled on the topic of surcharges, the matter has been sent to the Second Circuit Court of Appeals to determine the law’s validity. Pending the court’s opinion, credit practitioners should be aware of the potential impacts to the billing process. CRF will report on the Second Circuit Court of Appeals as their opinion is rendered.

On October 23, 2018, the New York State Court of Appeals (Appeals Court) delivered the response to a certified question handed down from the U.S. Federal Court of Appeals for the Second Circuit: What must the merchant (supplier) disclose to customers when they surcharge in order to comply with New York’s no-surcharge law – the percentage cost of acceptance, or something more, by actually calculating the dollar amount of the surcharge?1

According to the majority opinion from the Appeals Court, a supplier must disclose the total dollar amount of the surcharge, not merely the surcharge percentage (say 2.25%) to comply with New York’s no-surcharge law. What does the Appeals Court’s ruling mean for suppliers’ surcharge disclosure to customers, especially in contrast with the Visa and MasterCard surcharge rules?

History of litigation challenges to NY no surcharge laws
History of litigation challenges to NY no surcharge laws

Enacted in 1984, New York’s no-surcharge law prohibits sellers from imposing a surcharge on customers who use credit cards in lieu of paying by check, cash or other payment forms. In 2013, five merchants, led by Expressions Hair Design, sued New York in federal court arguing to restrict the enforcement of New York’s no-surcharge law as a violation of First Amendment rights and being unconstitutionally vague. Merchants’ claim to the violation of First Amendment rights stemmed from the method used to display price differentials to customers.

Making its way through the Southern District of New York to the Second Circuit Court of Appeals, it reached the U.S. Supreme Court in 2017. The Supreme Court vacated the Second Circuit’s ruling that New York’s no-surcharge law does regulate speech through the “communication of prices rather than the prices themselves.”2

The Second Circuit tasked the New York State Court of Appeals to clarify New York’s surcharging disclosure requirement to customers.

Visa and MasterCard Surcharge Rule Disclosures

In 2013, Visa and MasterCard amended their network rules to allow for surcharging. To comply with the network rule surcharges, suppliers must disclose to customers their surcharge, which is the interchange fee, and cannot bury the surcharge through a price increase. The customer surcharge disclosure, which can be a line item on an invoice, does not require the supplier to do the math and calculate the dollar amount of the surcharge on the invoice. For New York, the Appeals Court’s ruling requires the supplier to actually calculate the dollar amount of the surcharge.

New York’s Surcharge Disclosure Ruling

The Appeals Court’s decision provides further analysis to the recent surcharge decisions in California, Florida, and Texas. Retailer litigation challenges in each state has defeated its no-surcharge laws. The Appeals Court found the no-surcharge law to be a disclosure law and clarifies the disclosure detail suppliers must make to comply with New York’s no-surcharge law.

The Court Mandates Specific Disclosure of Surcharge Amount

A majority of the Appeals Court found New York’s no-surcharge law is violated when a supplier does not disclose to customers the full dollar cost of the surcharge. Merely disclosing the interchange fee as the surcharge is not sufficient under New York’s law, although sufficient under the card network rule, as it may be confusing for customers to undertake an arithmetical calculation to evaluate total cost.

The Second Circuit Court of Appeals will now determine whether New York’s no-surcharge law is a valid restriction on commercial speech and either accept or reject the Court of Appeal’s interpretation to issue a final ruling.

What the Court’s Ruling Means to the Supplier Surcharge Rollout

The most expedient way for a supplier to comply with the Appeals Court’s ruling is to calculate the surcharge amount by disclosing both the interchange percentage amount (say 2.25%) and multiplying that by the invoice amount. In other words, the supplier does the mathematical calculation. Given a supplier’s nationwide surcharge rollout, a best practice may be to make this calculation and disclosure no matter where the customer is located.

Scott Blakeley is a principal at Blakeley LLP, where he practices creditors’ rights and bankruptcy. His email: seb@blakeleyllp.com.

 

 

 

1- Expressions Hair Design, v. Eric T. Schneiderman, &c.100.U.S.1,2[2018].
2- Expressions Hair Design v Schneiderman, 877 F3d 99, 101 [2d Cir 2017].

Meet CMA Board of Directors Member TJ Nance of Walters Wholesale Electric

TJ Nance, Director of Credit for Walters Wholesale Electric in Signal Hill, CA, is a huge supporter of CMA

TJ Nance, Director of Credit for Walters Wholesale Electric in Signal Hill, CA, is a huge supporter of CMA, having served on the CMA Board of Directors since 2015. On the Board and in his credit groups, he is a discussion leader, drawing on his diverse professional experience in credit and sales before that. He also participates in nearly all CMA events. His can-do attitude is infectious, as he often inspires others to be the best version of themselves that they can.

Nance says that industry credit group membership with CMA is the greatest benefit to his company. He strongly believes that “the practice of sharing trade data in my Group has been a great help to Walters.”

At Group meetings, the always jovial Nance is entertaining, engaging and welcoming to other credit professionals. Nance is a dynamic leader who constantly challenges his Group by leading in thought-provoking conversations about laws and other factors that can affect the way a company gets paid. His unique career path to credit which began in sales and management also has helped provide perspectives to credit professionals that they may not have otherwise considered.

“To me, the biggest challenge facing credit teams today continues to be getting paid on time, otherwise there’d be no need for credit managers. I’m thankful that I have CMA’s support which helps me do my job better,” he said.

While he’s not working, Nance is an avid golfer who despite the hundreds of rounds played has only one “Hole In One” to his credit.

Thanks to TJ for his contributions to CMA!

Why You Should Add Supplier Risk Management to Your Credit and Collections Skills

Credit professionals who add managing supplier risk to their skill sets can increase their odds of survival in credit as automation increases.

Remember when clearing new credit applications was a 20-30 day process? Reference letters were mailed out and you hoped that you would get a response. Credit reports had to be built and that could take anywhere from 2-3 weeks. Keeping track of the A/R was done from green bar computer paper and you would use a marker to indicate that a payment was made. The rest of the day was used for collection calls and other manual tasks.

Fast forward to 2018. It is reported that 80% of the credit function is now automated with scoring models approving a large percentage of accounts and the internet accelerating the other jobs that used to consume most of your time.
Has your role or more importantly “value” to your company been diminished by this new technology? What will the job description be in ten years?

Those who “get in front” of this change will increase their odds of survival and a great way is to expand your risk management skills to the vendor side.

Supplier risk management is gaining more traction as companies reach out to vendors globally. Who better to analyze the potential red flags of doing business with a new or existing vendor than someone who has been performing the job on the customer side.

Is your primary vendor sufficiently capitalized to continue supplying you with raw materials? Do they have the capacity to produce product for you if they bring on a new customer? Has anyone vetted the shipping companies used? Do you have a secondary supplier and are they financially stable if there is an interruption with your primary? What about the political situation in the country? A supplier risk manager knows the answers to all of these questions.

Working with your procurement department or whoever seeks out new suppliers can expand your role and value to your company. Just ask management to consider what would happen to sales and market share if you were not able to get product from your vendors domestically or internationally for 30 days.

For the past 3 years, CMA’s Supplier Risk group has brought companies such as Nestle and Pepsico together, exchanging best practices to assist those entering this field. You do not have to be with a Fortune 100 company to learn from these “credit managers” on how to position yourself in this growing profession.

Check with anscers and the CMA News for the time and agenda of the group’s next meeting and get in front of the next generation of credit management. For more information, email us at info@emailcma.org.

Integrating Credit Decisions with the Back Office

Experian is a CMA credit reporting partner.
Back office credit decisioning and why it matters

By Carl Stronach, Experian

When you’re launching a new product, business line, or starting up a business, you’ve got to move fast and break things.  This means taking a minimum viable product (MVP) approach, where you’ve got to sacrifice scalability by implementing manual processes to support the early stage business.  Commonly, a manual process will be in place for credit applications and approvals – pulling the credit report, reviewing the data against a scorecard or policy and then making the decision. Since this likely takes a day — or often longer — the process decreases your customer’s experience, and can hurt your ability to scale and grow revenue the longer you wait to automate.

To grow the business and take it to the next level, you need to migrate away from the paper-pushing approach. The next step is to move toward an automated solution that integrates credit decisions with the back office, such as an ERP, CRM, or other custom system, employing APIs.

Using an Application Programming Interface (API) to Connect to Your Decision Engine

An API, or Application Programming Interface, is many things. It’s a set of instructions and technical documentation for developers. It’s a collection of services which allow you to interact with a product or service. And it’s a way for businesses to open-up and allow for new kinds of innovation – allowing for new business models and application development that wouldn’t be possible without APIs.

In the last decade, APIs have become system agnostic, meaning they plug-and-play into nearly any system because they are standardized and popular amongst the development community.

Because of this popularity, APIs make it easier for the business to get buy-in from the IT department, which is essential to automating the credit decisioning process. Without an API, the IT department must devote significant resources to the project because more infrastructure to host large database will be required. APIs allow you to pull data in real-time only when you need it, reducing system complexity and decreasing application development costs.  Reduced complexity also means less risk because you are more assured that your IT department will be successful with the integration. Often, when IT departments are presented with information about the API, their response is “No problem, this is standard. We have integrated with a very similar API before. We can do this.”

How does your decision engine interact with APIs? You can use APIs to get the raw data elements your credit policy or model needs to render a decision, no matter if the data is internal to your business or provided by third parties.

Taking Decisions to the Next Level with Machine Learning

According to a recent Harvard Business Review project, the key to successfully utilizing machine learning isn’t to get caught up in new and exotic algorithms, but to make the deployment of machine learning easier.  There are many use cases where machine learning can be employed, but use cases where data-driven decisions are being made, as in the credit approval process, are archetypical.

During the early stages of the machine learning process, you train the model by feeding it data from past applications. Then, as you use the engine for real-time processing, the engine learns from past decisions. If the engine was originally approving applications with a borderline credit score, but found that these applications often ended up being poor risks, the model would then begin turning down these applications.

The key ingredient in making machine learning start to work for your credit department is to have domain experts, credit managers, help the IT department focus on the key variables that can help the machine learning model to predict key outcomes – credit losses, bankruptcies, and business failures, and to put the models through many rounds of testing and validation before putting them into real-life practice.

Now is the time to move your manual processes online using an API and machine learning. According to Mary Meeker’s Annual Internet Trend Report, 60 percent of customers pay digitally compared to 40 percent in the store.  And it’s likely that the gap will continue to grow. The longer you wait, the further ahead your competitors will be in digitizing the customer experience — and the harder it will be to regain your footing and catch up.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

How Changes to Consumer Tax Lien Data Impact Commercial Credit Profiles and Scores

By Gary Stockton, Experian

Last year the three primary credit bureaus; Experian, Equifax, and TransUnion announced and implemented enhanced standards for the collection and timely updating of public record data reported on consumer credit reports. This was done in accordance with the National Consumer Assistance Plan requirements. Part of this work involved the partial removal of consumer tax lien data from Experian’s consumer credit reporting database.

With the complete removal of remaining tax lien data scheduled for April 16th, some of our clients have asked how these changes might impact commercial credit reports. In this business Q&A I ask Brodie Oldham for some clarification.

What is NCAP and how did it impact Experian’s core credit data?

Brodie Oldham: Gary the NCAP is the National Consumer Assistance Plan and it was put in place by the three U.S. credit reporting agencies Experian, Equifax and TransUnion in response to the U.S. attorney general’s request for clarity and transparency in consumer credit data.
The data that was the main focus was data that did not meet completeness or freshness requirements of data furnishers to the credit reporting agencies. The data that had the most impact from the study was public record data; judgments and liens for consumers that weren’t updated or didn’t have all of the personal identifying data necessary to meet the guidelines. This data is planned to be removed in April of 2018.

Was there impact to Experian’s commercial credit data?

Brodie Oldham: No Gary not an impact to our commercial credit data collected at Experian. We continue to collect that public record information for use in evaluating small businesses through our commercial credit scores. The impact with the public record information is really when we’re evaluating a business owner guarantor using the consumer credit information where public record data has been removed.

What was the impact to commercial blended scores?

Brodie Oldham: The impact is when we’re evaluating small business owners or guarantors using their consumer credit information. When we look at segments where commercial-only data is used there is no impact there because we’re not changing the way that we collect public record information on the commercial side of our business?With the blended scores you would expect that if we remove some of the consumer derogatory information in public records that the score would go up. And we saw a mean lift to about .03 percent, so very small. In the performance of the blended generic credit scores in their evaluation and capture of those delinquent accounts. We saw a very insignificant lift, so the scores are very stable and working well even with the change that we’re having with public records.

To view a video of the interview, click here.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Meet CMA Board of Directors Member Melissa Kobus

CMA Board of Directors Member Melissa Kobus of Walters Wholesale Electric

Melissa Kobus, CCE, the Assistant Director of Credit for Walters Wholesale Electric in Signal Hill, CA, is our favorite type of member. CMA’s 2018 Mentor of the Year, Kobus is a huge supporter of CMA, having been on the CMA Board of Directors since 2008, serving in several roles including Chairman and Advisor. On the Board and in her credit group, she is a great leader, setting an example for others. Her fellow Board members have described her as having a huge heart, always thinking of others first, full of helpful knowledge, as she visibly goes out of her way to help and answer questions or find information. She also participates in nearly all CMA events.

Kobus says that industry credit group membership with CMA is the benefit her company most uses. “The connection with other industry members has saved our company money, we avoid a potential bad credit decision,” she said.

“My first industry credit group meeting in Northern CA was challenging. There were so many people who had been attending that meeting for a long time that it was a little intimidating. Their confidence and experience pushed me to grow and become more involved. I became a group chair and started taking CMA’s education classes. Today, I encourage others to participate fully in the industry group meeting and reach for their goals.”

“To me, the biggest challenge in credit today is finding good credit managers. I’m thankful that I have CMA to help me put together a network of credit managers in my industry who I have created relationships with and that I regularly call on both professionally and personally,” she said.

While her profession causes her to sometimes travel locally doing customer visits, Kobus and her husband enjoy travelling internationally as much as possible. “Some of the best places I’ve been have included Paris, Lucerne, Budapest and Vienna.” She’s also a fan of the TV show Game of Thrones. “I binged watched the first 6 seasons in 2 weeks and became hooked. Not sure that I can wait until next year for the 8th season,” she added.

Kobus has this advice for younger credit professionals: “When in doubt, DO SOMETHING. It’s become a popular phrase, but it is so true.”

We appreciate Kobus’s great and can-do attitude, and we hope you get to meet Kobus at an upcoming CMA event.

Why Financial Institutions Need an Analytics Sandbox

Experian is a CMA credit reporting partner.

The appetite for businesses incorporating big data is growing significantly as the data universe continues to expand at an astronomical rate. In fact, according to a recent Accenture study, 79% of enterprise executives agree that companies that do not embrace big data will lose their competitive position and could face extinction. Especially for financial institutions who capture and consume an incredible amount of data, the challenge becomes how to make sense of it. How can banks, credit unions, and other lenders use data to innovate? To gain a competitive advantage?

This is where analytics sandboxes come in.

A sandbox is an innovation playground and every data-consuming organizations’ dream come true. More specifically, it’s a platform where you can easily access and manipulate data, and build predictive models for all kinds of micro and macro-level scenarios. This sounds great, right? Unfortunately, even with the amount of data that surrounds financial services organizations, a surprising number of them aren’t playing in the sandbox today, but they need to be. Here’s why:

Infinite actionable insights at your fingertips
One of the main reasons lenders need a sandbox environment is because it allows you to analyze and model many decisioning scenarios simultaneously. Analysts can build multiple predictive models that address different aspects of business operations and conduct research and development projects to find answers that drive informed decisions for each case. It’s not uncommon to see a financial services organization use the sandbox to simultaneously:

  • Analyze borrowing trends by type of business to develop prospecting strategies
  • Perform wallet-share and competitive insight analyses to benchmark their position against the market
  • Validate business credit scores to improve risk mitigation strategies
  • Evaluate the propensity to repay and recover when designing collection strategies

A sandbox eliminates the need to wait on internal prioritization and funding to dictate which projects to focus on and when. It also enables businesses to stay nimble and run ad-hoc analyses on the fly to support immediate decisions.

Speed to decision
Data and the rapid pace of innovation makes it possible for nimble companies to make fast, accurate decisions. For organizations that struggle with slow decision-making and speed to market, an analytics sandbox can be a game changer. With all your data sources integrated and accessible via a single point, you won’t need to spend hours trying to break down the data silos for every project. In fact, when compared to the traditional archive data pull, a sandbox can help you get from business problem identification to strategy implementation up to 30% faster, as seen with Experian’s Analytical Sandbox:

Analytical_sandbox


Cost effective analytics

Building your own internal data archive with effective business intelligence tools can be expensive, time-consuming and resource-intensive. This leaves many smaller financial services at a disadvantage; but sandboxes are not just for big companies with big budgets. An alternative solution that many are starting to explore is remotely hosted sandboxes. Without having to invest in internal infrastructure, this means fast, data-driven decisions with little to no disruption to normal business, fast onboarding, and no overhead to maintain.

For financial institutions capturing and consuming large amounts of data, having an analytical sandbox is a necessity. Not only can you build what you want, when you want to address all types of analyses, you’ll have the insights to support business decisions faster and cheaper too. They prove that effective and efficient problem solving IS possible!

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Why Data Models Matter More Than Ever

By Brodie Oldham, Experian

Are the credit models you are using to make lending decisions more than 2 or 3 years old? If so, you are likely making less than optimal credit decisions. You may be turning down a customer who is a good risk — while taking on customers who are more apt to default on their obligations.

Every year a model isn’t updated, its accuracy decreases. The economy changes. The consumer’s or business’s financial situation changes. Updating your models, using the most current data and attributes available, you can have confidence that you are making good credit decisions.

To make the most accurate credit decisions possible, many businesses are now turning to data-driven decisioning models that are powered by artificial intelligence (AI) within machine learning engines. While the standard regression model works well in some industries, the lift in predictive value from using AI data models can be very important in other industries, such as retail, fraud and marketing. These models use sophisticated algorithms to predict the customer’s future ability to repay their obligation, which means a much more accurate decision than traditional models.

Starting with High Quality Data

Primary-Experian-Violet-data-iconWhile data has always been at the core of credit decisions, models using machine learning are even more dependent on data. These models can be very accurate, but their accuracy depends on having the necessary data to understand what happened in the past and present behavior to make a prediction for what will happen in the future. The more data provided, the higher the accuracy of the decision. Here are three things to consider when building your data-driven decisioning model:

 

Clean Data – As innovation spurs business and technology to run faster and more efficient, the quality of the data underneath all of that innovation becomes even more important. Machine learning becomes smarter the more data it consumes. This means the accuracy of the credit decisions made by the model is largely dependent on the quality of the data provided. Data from third-party sources often contains mistakes, missing fields, and duplicate information, which results in less accurate credit decisions.

Correct Data Points – The accuracy of the results depends on considering the right criteria in the form of data points in the model. When you use machine learning and AI algorithms, they can predict which specific data points will help increase the performance of the model for the specific customer and the specific type of credit decision. Often, data points that you may not consider are the ones that can make a big impact on the accuracy of the decision.

Real-Time Data – In the past, there was often significant lag time between collecting and being able to use the data. By using real-time data with machine learning models, you can get a clear picture of the most current view possible and see changes in the different data points as they occur. This lets you make a much more accurate prediction of what will happen, with the consumer or business, than was previously possible with a traditional credit decisioning process.

Using Alternative Data to Get the Full Picture

Primary-Experian-Violet-profile-iconOften, additional data — typically referred to as alternative data — that is not readily available from traditional data providers is used to enhance the accuracy and predictive ability of a model. While the model can seem complete without this information, the model may provide suboptimal results without it. Machine learning models can predict the situations and exact type of alternative data a model needs to produce an accurate decision. Experian offers a wide variety of alternative data that clients can use to improve decision models.

For example, a business owner may be taking out short-term loans to increase her cash flow, which makes her a much higher credit risk than she appears to be without this data. Weather information is also a common type of alternative data; a business located in Tornado Alley may need higher cash reserves to be a good credit risk. On the other hand, businesses located in an area impacted by a recent weather event, such as a hurricane, may be a good credit risk even with a lower score because both their business and local economy is recovering.

Regularly Evaluating Your Data Model

Primary-Experian-Violet-calendar-icon
You must build in governance and make sure you are evaluating how the model is working on a regular basis, like having an annual checkup with your healthcare providers. Once you begin using a data model, you can’t simply set it and forget it. Ask the following questions to periodically evaluate your models:

  • Are there changes in the outcome of the models? You need to verify that your attributes are still predicting the same outcomes as intended, as well as capturing the same data. For example, say you have an attribute in your model that counts the number of credit lines open for a small business. If the attribute changes and those types of credit lines are no longer reported by the data provider, that number can go from three or four to zero, without there being a change in the number of credit lines open by the business. Because the data that goes into your model has changed, your model is not accurate unless you update the attribute.
  • Is your model stable? You need to make sure that degradation hasn’t reached a point where the predictive value is no longer accurate. For example, scores before the 2008 recession have a different meaning than afterwards, due to the changes in the financial system.

The future of your business depends on making accurate credit decisions. Instead of using outdated models, use the latest technology and methods available by using machine learning data-driven models. It’s simple. It’s quick. And most importantly, data-driven models are accurate.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Meet CMA Board of Directors Member Janet King of Joseph T. Ryerson & Co.

Janet King is the Credit Supervisor, North/West Region for Joseph T. Ryerson and Sons, and is a member of the CMA Board of Directors. A 25+ year credit veteran (and a 25+ year member of CMA), King knows the value of her CMA membership: priceless. “For me, I use CMA for the anscers.com website, industry credit groups and support. anscers is a beneficial tool that our group uses on a daily basis. It is the best source out there to get information regarding customers.”

In addition to actively participating in CMA’s groups, King encourages her team to attend CreditScape and the Credit Executive Symposium, and attends herself. “Attending CreditScape each year is beneficial, providing a great opportunity to get together with likeminded professionals to discuss issues that we all have in common, regardless of industry.”

“As a credit professional, I know that CMA has our best interest at heart, and I try to support CMA in every way I can. For those who are not taking advantage of all of its benefits, I recommend that you call your CMA representative and get involved in the Groups or its wide offering of education events. I promise you won’t be disappointed.”

Outside of credit, King enjoys playing in a band with her family, and is an avid concert goer and music fan.

Next Supplier Risk Group Meeting to Provide Strategies to Manage Your Suppliers

If your responsibilities include vetting your vendors to ensure the steady supply of raw materials or services to your company, you need to join the next teleconference meeting of CMA’s Supplier Risk Credit group to provide strategies to assist you in managing your suppliers.

On August 29 at 10am, we will have two guest speakers. First up is Gary Mendell of Meridian Finance, who will be providing an international supplier risk update on topics including international supply-chain issues updates, assessing the reliability of vendors in other countries, and protecting advance payments against non-delivery from abroad.

The second speaker will be Nick Vyas, an expert in supply chain management, who will address establishing a vendor risk framework. Mr. Vyas is the Executive Director for the Center for Global Supply Chain Management, the Academic Director for the MS in Global Supply Chain Management, and an assistant professor of clinical and data science and operations for the Marshall School of Business at the University of Southern California.

Whether your essential suppliers are in California, the U.S. or worldwide, any interruption in the Supply Chain can have a devastating effect on your company.

For more information on how you can join this Group discussion, contact Larry Convoy at lconvoy@emailcma.org.

How Small Business Owners Can Avoid Post-Disaster Recovery Scams

By Gary Stockton, Experian

Avoiding Construction Scams During Disaster Recovery

When a small business is damaged by a natural disaster — be it a hurricane, flood, earthquake, tornado, or fires like the ones in California recently — recovery presents its own set of hazards. There is, of course, the immediate cost of lost business. There are both short- and long-term physical dangers posed by weakened walls and ceilings, exposed power cables and mold. And then there are the threats posed by skilled disaster recovery scam artists who see small business owners as easy prey.

Kenneth Citarella, CFE, knows all about these post-disaster scams. A former New York state prosecutor, Citarella now works for Guidepost Solutions LLC, which provides investigations, compliance, monitoring, and security and technology consulting solutions for clients in a wide range of industries. In the wake of Super Storm Sandy, which devastated large sections of coastal New Jersey, Brooklyn and Staten Island in 2012, Citarella served as a Guidepost Solutions “Integrity Monitor,” making sure contractors were in fact performing the work for which they were being paid.

“The days and weeks following a natural disaster are times of great stress and confusion,” Citarella said. “This is the perfect breeding ground for scams of all kinds. Small business owners need to be aware of how they may be targeted and how to avoid being a victim.”

How Fraudsters Find Their Marks

While natural disasters are horrific events, they’re great for contractors and restoration companies for whom such events are their bread and butter. As soon as a disaster occurs, it’s not unusual for construction companies to descend on the affected site, blanketing the area with pamphlets and brochures, and stuffing mailboxes with business cards. While many contractors are legitimate, there can be a good number of storm chasers who are just out to make a fast buck. At a time when construction labor is at historic lows, small business owners may find themselves working with a firm with less than stellar credentials

“The more enterprising scam artists will take the time to go door-to-door, offering low-ball prices or even offering to cut the business owner in on the fraud,” Citarella said. “For example, they’ll offer to do the $75,000 worth of restoration work that is actually required, bill the business owner’s insurance company for $100,000, and then split the difference. This is an obvious solicitation of fraud and should be reported immediately to the local police.”

Common Types of Post-Recovery Fraud

In addition to the insurance scam described above, Citarella discussed other forms of fraud a small business owner might encounter following a major disaster.

“The most common type of recovery fraud involves a contractor who shows up to do the first two or three days’ worth of work, and then just disappears. Another type involves the use of lower-grade or otherwise substandard materials,” Citarella said.

Citarella also noted that otherwise well-meaning contractors may buckle under the pressure a natural disaster creates, leaving the business owner out thousands of dollars and still unable to operate.

“A small contractor can easily get in over his head,” Citarella stated. “He may not be able to get enough workers, have problems with his supply line, or be managing too many projects at once. There may be no criminal intent here, but the outcome is the same.”

How to Avoid Contractor Fraud

Find reliable, licensed contractors and validate their businesses before hiring them to help you rebuild. Experian’s ContractorCheck.com/Hurricane is being offered as a free resource to those affected during this time of recovery. This website enables you to find contractors and easily check the critical components of a contractor’s business background, including license, bond and insurance data (if an when available from state licensing boards). Click here to see a sample report.

Also, the Better Business Bureau (BBB) offers a list of recommendations to business owners and anyone else looking to hire a construction contractor, among their recommendations:

1. Ask for Recommendations. Ask friends, relatives and fellow business owners to recommend contractors they have previously hired.

2. Check Their Track Record. Use bbb.org or other business review websites to get customer reviews, complaints and any notices of criminal violations.

3. Verify the Business License. Make sure the contractor under review has a valid license to do business in your state.

4. Get Multiple Quotes. Always get at least three quotes for any particular job. Any quote that is unusually low is probably one to avoid. Remember the old adage, “If something seems too good to be true, it probably is.”

5. Look for Signs of “Professionalism.” A reputable contractor will arrive in a vehicle that is clearly marked and branded, and may wear a uniform bearing his/her company name.

6. Request References. Ask the contractor for a list of previous customers you can contact and discuss their satisfaction with the contractor’s service.

7. Check Professional Affiliations. Ask if the contractor belongs to any trade organizations. Such companies are usually bound to operate according to a strict code of ethics.

8. Avoid Large Up-Front Payments. Pay by check or credit card for added protection. Avoid paying in cash.

9. Get Everything in Writing. Demand a written contract, and make sure to read it carefully, especially the fine print. Make sure the contract includes the contractor’s name, street address, telephone number, email address and state license number. Fill in any blank spaces. Don’t sign anything you don’t understand.

“Document every step of the reconstruction progress,” Citarella added. “Take pictures every day to record the contractor’s progress. Smartphone pictures can be invaluable in the event of contractor misbehavior or if there is a challenge by your insurance carrier.”

Citarella described four “gears” that run any reconstruction machine. “There’s the business owner, the adjuster, the carrier and the contractor. All four need to work together to get a job done right. However, the only one who has a stake in effective cooperation is the business owner. So if you have a business that needs post-disaster repair, take the time to make sure it’s done right.”

If you are in the process of rebuilding following Hurricane Harvey or Irma and need to check the contractor you are working with, go to www.contractorcheck.com/hurricane to receive up to 15 free reports.

Also, Sam Fensterstock of Credit Management Association published an excellent article titled “How To Assist Your Customers To Stay In Business After Natural Disaster“, it contains lots of great information about disaster preparedness and working with your customers if they are impacted by a natural disaster.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission.

Are Your Trade Credit Emails Ending Up in Your Spam Folders?

Many of CMA’s members have reported that a growing problem in their companies seems to be their ability to receive trade credit related emails through their email spam filters. It seems that an increasing number of wanted emails from customers, creditors, trade groups such as Credit Management Association and others aren’t being received because IT departments filter out emails from bulk servers, or ones with words like “debt,” “collections,” “credit” and “past due” in the subject line or the body of the email itself. Such filters can automatically send wanted emails to your spam folder, or even worse, automatically deleted—unseen, unknown and unread by you.

At CMA, we filter incoming messages for malware and viruses, which can be embedded in commonly traded files via email such as Microsoft documents (Word, Excel), PDFs, and especially ZIP files. Similarly, as we communicate RFIs, meeting requests and information with our members, we routinely ask members to check their junk email if they should have received emails from our servers that they say they didn’t. On occasion, we make use of cloud storage transfer sites such as DropBox, Mega or WeTransfer to avoid emailing files to get through tough firewalls (even our own!).

Here are several things I recommend you do to ensure that you’re receiving emails from your customers and trade association.

  • Add your customers, associations and others to a safe “white list” to allow all emails from them to come to your main email inbox.
  • Check your Junk/Spam email box regularly to make sure that your important messages aren’t going there.
  • Talk to your IT department about how to “white list” or add your customers to an “approved list” to ensure you receive their emails.

How do you make sure that you’re getting important emails at your company? We welcome your feedback.

Meet CMA Board of Directors Member Tracy Rosenbach of Silgan Containers

Tracy Rosenbach, Financial Services Manager for Silgan Containers LLC, has been a CMA member since 1995. In her more than 20 years in credit, Rosenbach said that the networking opportunities she’s had with CMA members has been invaluable to her experience as a credit manager. “To have the opportunity to speak with other credit professionals about credit situations and how they handled them has been a great help. I believe that being able to network strengthens the profession.”

In addition to networking, Rosenbach said that using CMA as a resource for services has been great for Silgan. “We purchase our credit reports through CMA which has helped to save my company money,” she said. Rosenbach also attends many of the education sessions that CMA offers, including CreditScape. “Attending these events has been beneficial on multiple levels. Receiving the educational updates and networking with other credit professionals has been a tremendous boost professionally. I believe our biggest challenges in credit are keeping up with changes in laws that directly impact how we handle our customers and being aware of the latest changes in technology. As credit managers, we are impacted by so many areas, sometimes all at once. Attending conferences and webinars helps us to keep up with the changes in our profession.”

Rosenbach has served on the CMA Board of Directors for a number of years, including a run as Chair of the Board of Directors from 2016-2017.

As a veteran credit professional, Rosenbach said this for new credit managers: “My recommendation for people joining the profession is to become a member of Credit Management Association and join an appropriate trade credit group. Take in as much education as you can and get out and meet the people that can help you the most.”

In her personal life, she enjoys traveling as well as photography. For example, last year she flew to Guatemala with a customer-lead group to work with local children. “I feel so strongly that travel also provides an opportunity for education. The understanding of and compassion towards another culture is so important in the world today.”

Rosenbach resides in the greater Los Angeles area with her family.

You May Not Know, CMA Has a Solution For That

CMA Has Solutions

Recently, a friend of mine told me that he joined a well-known national association. When I asked him why he joined, he told me he was really only interested in one of the benefits they offered, and that he would probably never explore the other benefits because that one thing was valuable enough to him to justify membership.

After having this discussion with him, I realized that some CMA members may think the same about its programs and services: they join for the Industry Credit Groups but are unaware about (and don’t explore) the other benefits that can help manage risk. Here is a quick look at some additional benefits that you may not know about that are included with your membership:

Credit Reporting: CMA is a reseller of reports from the major credit bureaus (Equifax, DNB, Experian), Ansonia, plus the hybrid anscersX multibureau report. Let CMA be your first call when you’re looking for customer information; report rates through CMA are often less expensive. Plus, members receive several free CMA Credit Reports, which is included with their annual membership.

RFIs: CMA offers the ability to submit an RFI (Request For Information) on specific accounts from other members who may have experience with those accounts. The system is fully automated and available online in an as-needed basis.

Professional Development Programs: CMA offers dozens of webinars, seminars, in-person networking opportunities and more to help you stay current in the quick-evolving credit management profession.

Construction Forms Filing: If your company has the need to file preliminary notices and mechanics liens in the United States and Guam, our staff offers everything you need, including a free lien provisions guide.

Business Insolvency Services: What options do you have if one of your customers threatens to file for bankruptcy? What if your company suddenly faces financial distress? CMA’s Adjustment Bureau is the largest entity in the United States specializing in neutral administration of out-of-court workouts and liquidations of insolvent businesses.

– Collections Services: CMA has partnered with AG Adjustments to handle all of your collections needs. All placements can be viewed on CMA’s interactive web site, www.anscers.com.

– Transactions processing: If your company offers Electronic Funds Transfer, Online Bill Pay, Credit Card Services, Fifth-Third Check Guarantee Services can probably help you get a better rate than you’re already receiving.

– And more!

With many benefits that you may not have already been aware of, if you’re in the credit management profession (or if you may need help with determining the riskiness of a potential customer), CMA should be your first call at 800-541-2622. CMA is known for its top-notch industry credit groups, but the association offers many more benefits besides them. CMA probably already has a program or service that can provide information to help answer your credit questions.

What is your biggest need in credit management today? I welcome your feedback.

Benefit of the Month: anscersX Multibureau Trade Credit Report

Have you checked out CMA’s exclusive anscersX multi-bureau trade credit report that contains the key factors about your customers payment habits from the top three credit reporting bureaus?

The anscersX multi-bureau commercial credit report combines key elements of the data from the largest trade credit reporting agencies (D&B, Experian, Equifax, Ansonia plus CreditSafe International), giving credit managers the most complete payment story available. The report is affordably priced, which is based on the number of reporting agencies you request. Better yet, anscersX Reports are available on a transactional basis – no contracts, no minimums, no hassles!

For more information on the report, click here.

How PACA Can Protect Your Produce Customers

PACA (Perishable Agricultural Commodities Act) is the federal law which applies to interstate and international trade in fresh and frozen produce. If you sell fresh or frozen fruits, vegetables, herbs or roots into the U.S. or between states in the U.S., then the PACA law almost certainly applies to your dealings with your receiver, consignee, broker or buyer.

On Wednesday, September 5 at the Produce Market in Los Angeles, we invite you as a guest to our upcoming Produce Dealers Industry Trade Group meeting to hear Don Blake from the U.S. Department of Agriculture discuss PACA. Mr. Blake will cover:

  • How PACA can protect your business from problems receiving payments from your customers
  • How PACA can help protect your business from payment disputes such as refusal to pay
  • …and much more!

At the end of the presentation, Mr. Blake will allow time to answer your questions about PACA.
You won’t want to miss this free informational seminar.

TO RSVP, contact Larry Convoy at 818-972-5323 or lconvoy@emailcma.org

Are Electronic Signatures valid on credit applications?

By Phyllis Saavedra, Order to Cash Executive and SME at Emagia Corporation

Most credit departments still use paper or faxed versions for their credit applications. The pace of business continues to accelerate and Sales is expected to close deals faster. In order to stay competitive, many credit departments are prompted to revisit their credit application process and consider credit approval process automation. This brings up the very pertinent topic of electronic credit applications and the validity of electronic signatures.

They are the most secure, convenient and easy way of transacting documents, contracts and letters, so why are people so hesitant to use electronic signatures? The most common fears are associated with legality, forgery and someone inappropriately signing on your behalf. All of these are nearly impossible if you use a trusted solution.

Understanding electronic and digital signatures

Before you embark on using e-signatures first and foremost you need to understand the difference between an electronic signature and a digital signature. This is often the problem when questions of legality with a document arise. A simple electronic signature is any electronic means by which you submit consent or acceptance of documentation. It may simply be a box where you are asked to input your initials. Not all of these will hold up in court. By comparison a digital signature on the other hand is an advanced electronic signature and takes the form of a script that is associated with a person. Typically, and I am by no means an attorney, a signature on the documents signifies intention to accept the terms of the text. For a digital signature you must have a certificate-based digital ID. Since digital signatures are far more secure they are being widely used for regulatory filing in many countries such as the United States, the European Union, India and Brazil.

Enforceability of electronic signatures

In the United States most states have adopted the Uniform Electronic Transactions Act (UETA). At its most basic level the Act provides rules for those that MUTUALLY agree to transact electronically. A federal regulation, the Electronic Signatures in Global and National Commerce Act (ESIGN) was passed in 2000. The objective of these two Acts is to establish that electronic records and signatures are viewed on the same legal level as traditional paper documents and handwritten signatures.

Security risks associated with electronic signatures

So they are legal, can I really trust the security of an e-signature? Again, this is where the important distinction between electronic and digital signatures comes into play. Electronic signatures are not as secure. Digital signatures are by design embedded in the document and cannot be forged. Without the encryption you may risk (and that risk it is still a very low) the desired levels of authentication and confidentiality you desired. For added peace of mind make certain you are using a respected e-sign provider with an industry standard authentication function.

Many of us have signed a document on behalf of a spouse, a boss or a co-worker upon their request. It is fairly universally understood that signing on behalf of another, at their request and with their permission is okay. Digitally or on paper without consent it is considered forgery and you may be committing fraud. Forgery is illegal.

Digital signatures are designed with two different kinds of translation keys that are essential for your security. The public key creates a digital signature by transforming the data into an indecipherable code. The second key, the private key verifies that signature and returns the message in its original form. A person should only give out their public key to those with whom they wish to do business. You can put it on your corporate website or attach it to the document. Your private however is only known to you and perhaps a limited number of other authorized signers. The private key creates the digital signature. When you send a document the recipient must have your corresponding public key in order to verify the digital signature. Simply put the two keys must talk and verify the validity of each other. Your signature is completely secure a long as you keep your private key PRIVATE. Your signature is attached to the document itself. Change the document and a different signature will be produced.

Growing usage of digital signatures

The old ways of doing business are quickly changing. E-signatures are now becoming prevalent in all aspects of our lives. We use them for contracts, tax and banking documents and a whole host of other areas. At my company Emagia we educate our customers on the automation of the corporate credit process. One of the biggest time-saving efficiencies we promote is online credit applications with digital signatures. The digital signature legitimizes the credit application, speeds up the customer onboarding process and keeps our customers from having to print paper applications.

If the above arguments don’t alleviate most of your doubts I will appeal to your environmental nature. Each year in America it is estimated that the average US office worker uses approximately 10,000 sheets of copy paper each year. Not only is this wasted paper, but ends up costing somewhere around $195 billion.

The time is now to set your reservations aside and take one of the easiest steps to automating and expediting your business processes. Cut operational costs, improve efficiency and collaboration, address legal compliance issues and possibly most importantly Go Green! Talk to a trusted legal advisor and get onboard quickly so you can help your organization make faster credit decisions and improve customer satisfaction.

Phyllis Miller Saavedra is currently the Director of Order to Cash Solutions at Emagia Corporation. She has been working in the field of credit and collections for more than 20 years. Over the years she has held senior management roles in companies such as Cisco, Aspect, Novellus, SanDisk and Saba Software. Additionally she has extensive experience as a consultant in all areas of the order to cash lifecycle. She can be reached at 408.386.8462 or by Email at phyllis.saavedra@emagia.com.

Metrics For Job Security in Credit

This article originally appeared in Credit Today, the leading publication for the credit professional.
Click here for Special CMA Member $10 Trial!

In his book “Accounts Receivable Management Best Practices,” author John Salek, VP, Order to Cash for outsourcing giant Genpact, offers two important principles for what metrics you track and report to management.

  1. Report monthly and minimize the number of metrics routinely reported.
  2. Report on the basic dimensions of the receivable asset:
    – Risk. Age profile, risk profile by credit score, and bad debt expense.
    – Turnover. DSO actual versus best possible and cash collected.
    – Quality. Billing quality index, level of clutter.
    – Cost. Cost of accounts receivable management group as percent of revenue.
    – Service. Cycle time of disputes and credit application turnaround.

These are at once both complete and concise as a way to measure how both your receivables and your department are doing.

The first one of the five “basic dimensions of the receivable asset” above is something we see most credit managers report and often in great depth. The last four, not as much, but they are every bit as critical as the first one.

As we ponder these, we think the last two, in particular, are not just important for you and top management to track and work on. We are also certain they’re great metrics to track to ensure job security!

How do you stack up in all five of these?

 

Like this article from Credit Today?

Meet CMA Board of Directors Member Pam Craik

Pam Craik, the Regional Director of Credit for McKesson Corporation, knows the value of being a CMA member, as she demonstrates by actively participating in CMA Industry Credit Groups and educational and networking events. A 20-year CMA member, Craik says that her experience with CMA’s Industry Credit Groups is the main reason her company is a CMA member. “The professional development and networking has helped my company by allowing team members to learn more about credit, how we approach credit, and how others do as well. It has allowed us to be rounded and considerate about how we go to market. It allows us to grow while also measuring and understanding risk. We have learned about new tools to help us advance. This includes technology and generally all types of enhancements,” she said.

Craik, who has been in credit for 30 years with McKesson, said that her time volunteering with CMA and participating in Group meetings and other events have helped her both professionally and personally. “Taking the time to serve as a volunteer board member has helped me to grow my own leadership skills and make sure my company stays relevant. Being on the CMA Board, I have met so many people I may not have otherwise known. I have learned about other industries and challenges in business. It has been one the most rewarding professional experiences I have ever had. I encourage others to get involved and make a difference.”

Craik holds a Bachelor’s Degree from the University of Phoenix and an MBA from the University of Sacramento.

A self-described “practical joker,” Craik said that she is the quiet one that you need to watch out for, or you might become the subject of her pranks.

Craik lives in the Placerville, CA area with her husband.

Delinquent Accounts Remain A Problem For All Credit Professionals

By Scott Blakeley, Esq.

Credit professionals face delinquent accounts on a regular basis. But before a company begins to take action in order to remedy the delinquent account, it’s important to know when to consider an account delinquent.

Technically, a delinquent account is one that fails to pay by the agreed-on date. However, these terms may be flexible depending on the type of customer and the type of vendor you are.

Should a customer pay beyond terms, it’s important to remember that they have still paid. Look to their payment history to determine if their lateness is business-as-usual or if it’s some sign of a major malfunction. If so, then it might be time to call it a delinquent account and work to get your money. It’s also important to consider your own business; if an account represents an important amount of business for a credit extending company, it might make sense to relax the standards a bit.

While there isn’t an industry rule on what constitutes a delinquent account, there are vendor-by-vendor guidelines on what should be considered delinquent. In certain industries, it might be acceptable to delay payment for certain reasons that wouldn’t be acceptable in other industries. Credit professionals should be well aware of these things before pursuing a delinquent buyer.

Once you’ve established that you have a delinquent account on your hands, it’s important to take action. If a company fails to do so, it could face serious losses. For some companies, accounts receivable may be their most valuable asset. If they’re not able to collect, then their revenues may be off and any consequences could be dire.

In addition to the obvious financial pitfalls, a company who fails to address its delinquent accounts could wind up raising an eyebrow or two at governmental agencies. A publicly traded company that fails to collect a large sum of money will have to change its reported numbers. It could require them to give notice that they may not be making their earnings targets.

There are a number of ways to collect on a delinquent accounts, one of which is filing suit and using litigation to your advantage. CMA offers many educational webinars on the topic, and much of the conversation at CMA-sponsored Industry Credit Group meetings focus on this topic.

For more information about Industry Credit Groups, click here.

For more information about upcoming educational events, click here.

Adding Value Through Good Customer Visits

“As credit people we don’t ever look at our roles at making the customer experience a little better,” said Susan Delloiacono, CCE, director of credit for Brother International Corp. “We kind of just stay in our own silo and
we forget about the touch point we have with the customers.” However, as Delloiacono discussed in a past CMA webinar, “Effective Customer Visits,” a credit professional’s ability to pull off a productive customer visit
and successfully maintain a healthy customer relationship can add real ongoing value to a company.

Preparation is required for any successful customer visit and, throughout her presentation, Delloiacono offered tips on what to know and what to take care of before a customer visit, such as creating an agenda, confirming
with the customers what issues are going to be discussed and setting the travel logistics so both parties are clear on when the meeting will take place.

Delloiacono also noted that, prior to the visit, credit professionals should know as much as possible about the customer. “Understanding the cash flow and looking at their operations cycle is so critical to a credit professional,” she said, adding that potential visitors should check the customer’s website for any recent press releases, even if they don’t necessarily pertain to business. “Customers really like that, because then you’re really taking an interest in
them.

But just as important as it is for visiting creditors to know their customers, it’s also important for visitors to know everything about their own companies, including any ongoing sales and marketing initiatives. “We want to understand our companies,” before visiting a customer, she said. “You really need to understand what is going on with your sales person and it’s very important for you to understand your upcoming promotional activities.”

Supply Chain Bankruptcy Preference Releases: Good News for the Credit Team, But Watch for the Claim Offset, By: Scott E. Blakeley, Esq.

As originally published in the Credit Research Foundation 2Q 2018 Credit & Financial Management Review

Abstract

In managing credit risk with an insolvent customer, the seasoned credit team also appreciates not just the A/R risk, but the preference risk should the customer file bankruptcy, or an out of court liquidation such as an Assignment for Benefit of Creditors. In some settings, suppliers may have larger exposure with preferences than with A/R. The welcome news for suppliers is that a number of large Chapter 11 filings have included supplier preference releases as part of their negotiated exit from Chapter 11. But with a provision in a Chapter 11 that provides for a preference release, suppliers holding priority claims should be mindful that the debtor may take back the supplier chain preference release through a reserved claim objection.

The Bankruptcy Preference

The Bankruptcy Code vests the trustee with far-reaching powers to avoid payments to suppliers within 90 days prior to a bankruptcy filing, and is one of a debtor’s most potent weapons to discourage a supplier’s collection strategy of racing to the courthouse to seek a judgement against the insolvent customer.

Supply Chain and One-Off Preference Release

Several high-profile companies have exited Chapter 11 with a plan of reorganization that provides for release of preference actions against the supply chain. Recent case examples include Rue 21, Haggens Supermarkets, Gordmans and Central Grocers. These cases highlight the Chapter 11 exit strategy in two settings: (1) a sale of assets, with an asset purchase agreement negotiated between the debtor, the buyer and creditors’·committee, that includes a preference release; or (2) an operating plan negotiated by the debtor, secured creditor and creditors’ committee that includes in the Disclosure Statement and Plan, a preference release. In both settings, title supplier qualifies for the preference release by offering credit terms for their product or service to the buyer or reorganized debtor upon exit from the Chapter 11.

If the debtor does not propose a supply chain preference release, the supplier may seek to negotiate a preference release only for its own potential liability. The one-off preference release is commonly through a negotiation of supplier trade terms in exchange for early payment of the supplier’s 503(b)(9) claim.

With the sale of asset cases, a Trust is created for purpose of retaining the estate’s preference actions and sale proceeds. The party responsible for the Trust’s assets is often referred to as a plan administrator. The responsibilities of the plan administrator are to maximize the Trust’s assets and limit its liabilities. One way to limit liabilities against the Trust is through plan administrator objections to claims submitted by suppliers.

A claim objection can be such things as books and records-the debtor’s reconciliation of the supplier’s claim does not match, or a late filed claim. Another strategy for the plan administrator to reduce claims is object to a supplier’s claim based on the supplier having received a preference. But does such an objection have merit where the Plru1 provides for a supply chain preference waiver? Is such an objection, selective enforcement of the preference powers as these types of claim offsets are commonly asserted against suppliers, asserting 503(bX9) claims?

Claim Objection Based on Preference

A plan administrator may object to a supplier’s claim, most likely a 503(b)(9) claim, under section 502(d) of tl1e Bankruptcy Code. Section 502(d) provides, in pertinent part, that “the court shall disallow any claim of any entity from which property is recoverable “under the preference statute, unless the preference is repaid.

How might a plan administrator support a section 502(d) claim objection where a debtor under a confirmed Plan releases suppliers from preferences?

For example in In re Gordmans, the confirmed Plan (at Article VII. paragraph F) provides:

Any Claims…recoverable under section …547 of the Bankruptcy Code, shall be deemed disallowed pursuant to section 502(d) of the Bankruptcy Code…

However, Article VIII, paragraph C of the Plan provides an unconditional preference release to suppliers from preferences. Thus, the question for a supplier holding a 503(bX9) claim is whether a plan administrator may disallow the supplier’s claim under section 502(d) on the grounds of an alleged preferential payment, even though a preference action cannot be filed as a result of the preference release.

Does the Legal Authority Support the Supplier Dealing with a 502(d) Claim Objection?

In most Chapter 11 cases, suppliers holding non-priority claims generally do not receive a distribution. Rather, only those suppliers holding priority claims. Generally 503(b)(9), receive a distribution. Therefore, in most Chapter 11s, the plan administrator’s focus with claims·objections, including 502(d) objections, is against priority claimants.

Fortunately, the majority of courts hold that section 502(d) does not apply to 503(b)(9) claims. In re Lids Corp., 260 B.R. 680, 683 (Bankr. D. Del. 2001) (“administrative expense claims are accorded special treatment under the Bankruptcy Code and are not subject to section 502(d)”); In re Durango Georgia Paper Co., 297 B.R. 326, 331 (Bankr. S.D. Ga. 2003) (“Section 502(d) does not apply to administrative expenses that are allowable under § 503”); In re Plastech Engineered Prod. Inc., 394 B.R. 147, 161 (Bankr. E.D. Mich. 2008) (“the allowance of claims
under § 502 is entirely separate from the allowance of administrative expenses under § 503”); In re Ames Dep’t Stores. inc., 582 F.3d 422,427-432 (2d Cir. 2009) (“[w]e hold that section 502(d) does not apply to admin istrative expenses under section 503(b)”); In re Tl Acquisition, LLC, 410 8.R. 742, 750-51 (Bankr. .D. Ga. 2009) (“Section 502(d) does not contain any language or reference which would make it applicable to administrative expenses of any kind”‘); In re Momenta. inc., 455 8.R. 353. 364 (Bankr. D. .H. 20 1 1) (“Because § 502(d) is inapplicable to administrative expense claims, including an expense requested under § 503(bX9). the claim shall be allowed”); Jn re Energy Conversion Devices, Inc., 486 B.R. 872, 878 (Bankr. E.D. Mich. 2013) (“1l1e Court is persuaded that the correct reasoning and views are those taken by the Second Circuit in the Ames Dep ‘t Stores case, regarding § 503(b) administrative expenses in general, and by the courts in the Plastech and Momenta cases, regarding § 503(bX9) administrative expenses in particular”); In re Quantum Foods. UC,554 B.R. 729, 735 (Bankr. D. Del. 20 16) (“Section 502(d), by its terms, does not include administrative expense claims. Conversely, § 503, which addresses administrative expense claims, has no provision similar to 502(d) disallowing administrative claims if the administrative claimant fails to satisfy a preference liability”).

The minority position is that § 502(d) applies to all claims, including administrative expenses. In re MicroAge, Inc., 29 1 B.R. 503, 508 (B.A.P. 9th Cir. 2002)(“[W]e believe that the better analysis is that §502(d) may be raised in response to the allowance of an administrative claim”); In re Circuit City Stores, Inc.,426 B.R. 560, 571 (Bankr. E.D. Va. 20 10) (“(T)he Court concludes that § 502(d) may be used to temporarily disallow § 503(bX9) claims”).

Supplier·Strategy to Ensure Priority Claim is Free from 502(d) Objection

If the supplier has a provision in a confirmed Plan that provides for a supply chain preference release, the next step is to confirm that a 502(d) claim objection is not preserved by the plan administrator. If so, consider objecting to that provision of the Plan.

If an objection to the Plan is not lodged, the supplier still has an alternative to preserve the priority claim. The court in In re Energy Conversion ruled that a provision in a confirmed plan does not override Congressional intent. In In re Energy Conversion, the Trustee requested the court delay payment of a supplier’s 503(b)(9) administrative expense until after the preference claim against it had been determined. The Court explained that, whatever discretion a court may have to allow a Chapter 11 debtor to defer paying allowed administrative expenses before a plan is confirmed, such discretion no longer exists once a plan has been confirmed; the confirmed plan controls when allowed administrative expenses must be paid.

Supplier Takeaway

As more large Chapter 11 debtors are considering supply chain preference releases, the supplier, especially one holding a 503(b)(9) claim, should be vigilant as to whether the plan administrator seeks to retain 502(d) claim objections. lf a supplier preference release is obtained, but 502(d) claim objections are retained, consider objecting to that provision. Otherwise, case authority supports the 502(d) claim objection be overruled.

Scott Blakeley, of Blakeley LLP, advises companies regarding creditors’ rights and bankruptcy law. His email: seb@blakeleyllp.com

Wanda Borges Explains Anti-Trust Issues and Why CMA Industry Credit Groups Exist

Those who attended a past CMA webinar learned some valuable information on how to steer clear of possible violations of anti-trust laws. The session, entitled “Navigating the Antitrust Rules: Myths To Dispel And Realities To Understand,” was presented by Wanda Borges, Esq., of Borges and Associates, LLC, who is an advisor to CMA on a range of legal issues relevant to business credit.

Borges discussed the three main federal statutes that pertain to antitrust and restraint of trade practices. They are the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and the Robinson-Patman Act of 1936. She said the Sherman Antitrust Act prohibits contracts, combinations and conspiracies in restraint of trade in interstate commerce or with foreign nations. The act makes it a felony to conspire to restrain trade; or to monopolize (or attempt to monopolize). The Clayton Act was passed, she noted, to correct defects in the Sherman statute and further makes it unlawful to enter into any of several specified types of prohibited transactions whose purpose or
effect would be to restrain trade or injure a competitor. Robinson-Patman was partially an amendment to The Clayton Act, making it unlawful to “discriminate in price between different purchasers of commodities of like grade and quality” or knowingly to induce or receive a prohibited discrimination in price. She added that violations of this act could result in civil or criminal penalties.

Credit terms are tantamount to price, Borges noted, according to a 1980 Supreme Court decision. “Anytime you fix or adjust credit terms you are fixing a price,” Borges said. She pointed out that allowing a customer to pay in 30 days gives that customer the use of that money for that period and is of monetary value. “There is a big difference between C.O.D. and credit terms.”

In determining if an action constituted a conspiracy to commit an action that resulted in a restraint of trade, Borges pointed to four elements that must exist. There must be knowledge of all the parities, a common purpose, an actual restraint of trade and intent to restrain trade. She presented an actual example—where a movie distributor, in a written communication to 7 movie theaters, required a $2 increase in movie ticket prices in order to continue
getting first-run movies. She noted that six of the theaters complied by raising their prices while the seventh resisted and sued the other theaters and distributor for restraint of trade. The argument presented to the court by that
theater was that the economic status of the neighborhood in which the plaintiff’s theater was located could not sustain a ticket price increase. Therefore, the ticket price increase would render the theater incapable of
presenting first-run movies. The court ruled that the arrangement was a restraint in trade by the defendants. “You have to watch very carefully you don’t get roped into a conspiracy…,” Borges advised.

“You always have to keep in mind what price fixing is all about,” she said. “You have to charge the same prices to same quality customers.” She noted that different terms could be set for customers of differing qualities, however: “If one customer has a superior credit history you can give them a discount.”

The exchange of credit information is perfectly legal, she added. “You may exchange information—and today you are exchanging more information electronically. I heartedly recommend that when you exchange information you do not do so on the telephone, because that information can be misinterpreted.” Another way that credit information can be shared is through credit (industry) group meetings. However, she noted that these meetings must be run under strict guidelines that prevent the exchanging of information or comments that could be a violation of antitrust laws. “CMA runs credit group meetings exactly by the book,” she noted.

One of the critical things participants must observe during such a meeting is that any remarks relating to a customer be confined only to completed transactions. Any comments relating to intended future actions are not allowed under antitrust laws, she noted, such as saying, “I will never sell to that customer again.”

“You can’t say that,” Borges said. All you can say is “I’ve cut them off’. I’ve placed them on a credit hold.'”

Credit group meetings should have a written agenda that is followed, she said, and noted that the agenda and the minutes of the meeting should be kept on file. She also cautioned against holding any meetings outside
the scheduled credit group meetings: it would even be illegal to discuss future price or credit terms with other competitors regarding a customer in Chapter 11 bankruptcy.

A new rule in federal court requires complete disclosure of all electronic data pertaining to cases. Borges noted that even if an e-mail or other electronic document has been deleted on a computer it may still be retrieved. “What we think is gone, a forensic computer examiner can find,” she advised. “Be extremely careful what you transmit electronically.”

How a Credit Professional Can Have More Conversations that Count

What type of impression are you leaving? How effective are your communication skills? As you either thumb through your daily planner or scan through your smart phone, review your recent interactions. Did any of the following issues arise?

  • You were asked to speak up or repeat yourself
  • Your message was misunderstood
  • You couldn’t get the full attention of your audience
  • You didn’t get the results or reactions you had anticipated
  • You didn’t make the sale or close the transaction

These phenomena are quite common in the course of the typical business day. What causes these missed opportunities? Usually the missed opportunity stems from one of the following communications flaws:

  • Speaking too rapidly
  • Speaking with too low of a volume level
  • Slurring your words or mumbling
  • Speaking in a tone that lacks confidence, interest, or authority
  • Failing to organize your thoughts before speaking
  • Lacking eye contact or other non-verbal body language to support your message
  • Speaking too much and listening too little

Whether it’s nervous energy or just bad habits, the results are the same. Your message is not understood as you intended. Improving your communication skills takes time and practice. Even the best speakers benefit from rehearsal and preparation!

  • If you are preparing for an important call or conversation, take a few minutes to jot notes and
    organize your thoughts. Locate a mirror and smile as you speak on the phone.
  • If you find yourself speaking rapidly, try emphasizing the pronunciation of important words. Give the listener something to remember.
  • Ask questions! Check to see if your message is being understood by the audience.
  • Practice presentations in front of a mirror. Make sure your gestures and body language match your intentions.

Great communication skills set you apart from the rest of the pack. If it is worth saying, it is worth being understood.

About the Author

Accent On Business founder and CEO Ellen Dunnigan is a nationally-recognized voice and speech coach for business professionals. She is specially trained in voice, speech, and English improvement. For more information
or to schedule an interview or assessment with Dunnigan, call (317)843-2983 or visit her website at http://www.AccentOnBusiness.net

Meet CMA Board of Directors Member Robert Shultz

If you’ve ever attended a CreditScape event or Credit Executive Symposium, you probably already know Robert (Bob) S. Shultz, a partner at Quote to Cash Solutions (Q2C) LLC, Trade Information Exchange LLC and Cutting Edge Business Resources & Solutions. Shultz has been consulting at these companies since 2002, and has been working in credit since 1980. A CMA member since 1984, Shultz said his favorite CMA benefit is the great networking opportunities and sharing of best state-of-the-art practices and resources.

“The professionals I have met in my years of membership have helped me repeatedly with ideas on how to streamline processes and how the credit department can add value to any company,” he said.

“By regularly meeting with peers, a credit manager will quickly realize that they are not alone. No one in your company truly understands your role or challenges like the people you connect with through your industry groups, or events like CreditScape, and other valuable CMA events.”

Shultz said that he believes the biggest challenge in credit is that trade credit management is quickly evolving into a multi-faceted responsibility with a critical role in a company’s overall working capital management. To gain a seat at the upper management table, it is essential to grasp credit’s role in the bigger picture. “The key for any credit professional today is to keep up with all the technological changes and evolving business priorities. The best way to do this is through networking, access to information and education, education, education!”

Outside of credit, Shultz loves the outdoors, especially camping, hiking, and fishing. He says he is also fortunate to have had many animals; horses, chickens, rabbits, ducks and goats. “They keep me landed and add to the life balance we all need with busy careers.” Bob and his wife, Cathie, enjoy their family, particularly their six grandchildren.

The Most Valuable Tool in Your Credit Toolbox

Not too long ago at an Industry Credit Group meeting I attended, the Group chair was reading the “Question of the Month” that asked members what they felt the best tool in the credit manager’s toolbox is.

I’ve been dealing with credit and credit professionals for a long time, and the number of tools out there to help you make an informed credit decision are overwhelming. There are a growing number of bureau reports by the likes of D&B, Experian, Equifax, Ansonia, CreditSafe International or the combined multibureau anscersX report. There’s the new CMA report. You can check the references provided on the credit application. You can do a Google search for the company. You can check public record information. But the group members who answered the question all had the same answer: the best tool in the credit manager’s toolbox is participating and attending their credit group meetings.

One member at the credit group meeting clarified that statement by telling the group, “My Industry Credit Group and anscers.com are the only two places where I can get real-time information about my customers.” Another said, “I can benchmark the things my department is doing against what others in my industry are doing, helping me gain approval on projects that I otherwise wouldn’t have.” A third told mentioned a specific example where they learned that their contact person was no longer the best person to send their invoices to, allowing them to get paid by that customer. As you can tell by these statements, it’s as valuable now as it’s ever been to attend and participate in the Group meetings.

For CMA staff, it was great hearing the ACTUAL value that the members are receiving from attending their Industry Credit Group meetings, straight from the members’ mouths. At CMA, we go through great lengths to prepare for the meetings to make the time spent with other credit professionals in your industry as valuable as possible for you. We’re glad you’re benefitting from this preparation.

For those who haven’t attended a Group meeting in awhile, hopefully these testimonials will be the motivation you needed to come back to attending the meetings. And for those already attending the meetings every month, we thank you for your continued support, as we strive to make sure that your monthly 90 minute (or so) time investment is time well spent.

Five Things You Need to Know About Your Customer Before you Extend Business Credit

All business customers are not created equal. Even companies that look solid at first glance can hide festering problems that eventually can impact your bottom line. Successful credit management requires you to carefully evaluate the financial health of every business that asks for credit terms. According to Experian, here are 5 questions you should be able to answer before extending business credit:

1. Is the business what it claims to be?
Sometimes, companies needing credit will provide inaccurate information to win approval. Before opening an account, you need to confirm the applicant‘s bona fides, including its location, size, number of employees, annual revenue, years of operation and similar financial indicators.

2. What is its payment history?
Although past performance does not guarantee future results, a company’s payment history is often a strong indicator of how it is likely to behave in the future. Pulling a business’ credit report can easily provide you a snapshot of an company’s payment history as well as other risk measures.

3. Are there hidden factors that could affect its ability to pay?
Are there pending judgments, lawsuits, bankruptcies, regulatory citations or other “red flags” that could make it difficult for the applicant to meet its obligations in the future? This is another area where a business’ credit report will be a key factor in helping you uncover a potentially risky business.

4. How much credit should you extend?
All credit contains an element of risk, but you can mitigate that risk by limiting the amount of credit you extend based on factors such as the customer’s sales volume, debt to-asset ratio and similar aspects.

5. Under what terms should you extend credit to this customer?
You can mitigate risk further by carefully calibrating the combination of interest rates, minimum payments and other contract terms based on each customer’s individual financial metrics.

CMA offers solutions, such as Experian and other bureau credit reports, Industry Credit Groups and more to help companies determine how much business credit to extend. For more information on how we can help your company, contact Credit Management Association at 818-972-5300 or visit www.CreditManagementAssociation.org.

This article originally appeared here and has been reprinted with permission. 

Missed the Webinar on Credit Card Acceptance? We Have Your Playback Recording Here

Credit card acceptance and surcharging continue to be two of the hottest topics among credit professionals. With more and more companies opting to pay by credit card, the surcharges can definitely eat into your company’s bottom line. At our recent webinar, Michael Williams from UTA and Ronald Clifford, Esq., addressed some of the most frequently asked questions they hear regarding credit card acceptance and surcharging from a practical and legal standpoint. Additionally, the question-and-answer session at the end of the webinar from fellow credit practitioners is worth your time to listen to.

The playback recording of the webinar is available free to CMA members, while non-members can get the recording for $79. Click here to request a recording of the webinar.

Characteristics Needed For Success

This article originally appeared in Credit Today, the leading publication for the credit professional.
Click here for Special CMA Member $10 Trial!

By Peggy Morrow

Do you have what it takes to succeed in the ever-changing business environment? Here are a few behaviors and characteristics I have noticed in successful people. How do you rate?

1. You have the ability to juggle multiple assignments. It seems as if everyone has too much to do today. It is important to prioritize duties and negotiate with the people who assign you projects. Spend some time brushing up on your time management skills.

2. You keep learning and growing in your knowledge of new technologies. The better you are at using new technologies, the more successful you will be.

3. You demonstrate an ability to adapt to change. I feel we are experiencing a cataclysmic time of change and it is not going to go away or slow down. Develop more flexibility by exposing yourself to new interests and taking more risks. Organizations want people who can quickly adapt to the whirlwind of change going on in the world.

4. You push yourself out of your comfort zone by deliberately changing your routines. Make it a point to reach out to people who are different than you. Go to lunch with different people than the usual gang. Even something as simple as changing your normal route home can make you more adaptable to change. Learn something new. Get out of your rut.

5. You are an exceptional communicator. Polish your presentation skills, writing ability, and personal appearance. Remember these channels of communication–your words, tone of voice, body language, and image. Are they all sending the same message that you are a competent professional?

6. You get along with your co-workers. Surprise! Not everyone is easy to work with. Compliment your co-workers on their work, let your work habits be a model to others, and stop criticizing others.

How did you do? Pick one you think you could improve and start working on it.

Peggy Morrow, CSP, is a professional speaker, seminar leader and author of the recently-released book, “Customer Service: How To Do It Right!” To have her work with your group call (281) 280-8190 or email peggy@peggymorrow.com

Like this article from Credit Today?

What Are You Bringing to the Table at Your Credit Group Meeting?

Recently, CMA hosted an Industry Credit Group meeting where there were only a handful of accounts listed in the past-due report, but the members who attended that meeting told us afterwards that it was one of the best meetings they’d attended. I suppose you’re probably asking yourself why, when the account discussion only lasted 15 minutes, would they say that? Quite easily. Everyone in the meeting brought something to the table.

Here’s a quick synopsis of the meeting. The Group read the antitrust statements and the handful of accounts from the report were discussed. A couple of members chimed in with payment experience about some of those accounts. Then the Group had a round-robin discussion about other accounts they either were having trouble with, or were so new that they didn’t yet enter them into anscers. During that part of the discussion, most accounts that were brought up were common accounts with someone in attendance, and everyone who attended was able to bring valuable information back to their department.

Arguably the most valuable part of the discussion followed, with the discussion topic of the month which segued into a 30-minute best-practices discussion on credit card acceptance in that industry. Everyone in the meeting discussed their company’s experience in accepting credit cards, from beginner to expert, and it was easy to see the value of attending this meeting, judging by the “a-ha!” moments I could see on attendees faces when key discussion points were brought up.

I know that every credit professional is very busy, and in rare occasions you may not have any accounts to bring up for the month’s meeting. Remember, a great Industry Credit Group meeting is more than just an accounts discussion; it’s the opportunity to speak firsthand with those in the same industry as you to see what processes they’re using, to understand their credit policies and procedures and walk away with processes that you can implement in your own business. In this particular example (and I’ve heard countless others like it), this type of information is not available anywhere else except for the Group meeting.

I remind you that even if you don’t have accounts to bring up this month, bring a best-practices question to the meeting or a solution that the others may not have thought of that’s helped your credit department. Your attendance at the meetings is valuable in that you could learn something from your competitor, or present something that could spark another important half-hour discussion.

What will you bring to the table at your next meeting?

CMA Board of Directors Installed for 2018-2019

Congratulations to the following Board of Directors members, who were installed as of May 1, 2018.

  • Gent Culver, ICCE (Chair), IGT
  • Pam Craik, CCE (Vice Chair), McKesson Drug
  • Nannette Bringard (Treasurer), Breakthru Beverage
  • Tracy Rosenbach, CCE (Counselor), Silgan Containers
  • TJ Nance, Walters Wholesale Electric Co.
  • Alvin Moreno, Nestle USA Inc.
  • Tim Cratty, Jackson Family Wines
  • Mark Speiser, SuperValu
  • Janet King, Joseph T. Ryerson & Sons, Inc.
  • Rosa Moody, Ahern Rentals Inc.
  • Brian Atteberry, BSH Home Appliances Corp.
  • Rob Meza, Brenntag Pacific, Inc.
  • Melissa Kobus, CCE (Advisor), Walters Wholesale Electric Co.
  • Robert Shultz, Special Advisor, Quote to Cash Solutions LLC (Q2C)

Each Board member will serve a term varying from one to three years.

The CMA Board of Directors for 2018-2019 includes (left to right): TJ Nance, Gent Culver, Pamela Craik, Rob Meza, Tracy Rosenbach, Tim Cratty, Janet King, Mark Speiser, Melissa Kobus, Nannette Bringard, Robert Shultz and Rosa Moody. Not pictured: Alvin Moreno, Brian Atteberry.

We appreciate your service and dedication for the future of the association and the credit industry!

Why Delinquent Accounts Require Swift Action, by Sam Fensterstock

When an accounts receivable ages past its due date, it is vitally important to take positive action, not only to maintain a healthy cash flow but to adapt to constantly changing market conditions. In our current economic times, a savvy management understands that managing the cost of doing business is vitally important. Cash is king, and too many delinquent accounts can bring your business to a standstill. Don’t let current economic conditions provide the basis for extending the time you will permit an account to age prior to instituting formal collection efforts. Relaxing payment requirements will severely impact your company’s cash flow and bottom line.

THE COLLECTIBILITY OF DELINQUENT ACCOUNTS

A survey by the Commercial Law League of America (CLLA) illustrates how much more difficult it is to collect delinquent debt as it ages.


Source: Commercial Law League of America

According to the survey, after only three months, the probability is that you will only collect about $0.71 of each delinquent dollar. After six months, only about $0.55 of each dollar will be collected. And after one year, you will have to settle for about $0.22 of every delinquent dollar. Essentially, time is your worst enemy. The sooner you implement aggressive collection proceedings the better off you will be.

THE BOTTOM LINE IMPACT OF WRITE-OFFS

When you write-off an account, cash flow is affected, but so are sales and marketing.

The “multiplier” impact on sales from bad account write-offs is shown in the following table:


For example, a business with a net profit of 2%, that experiences $100,000 in write-offs, requires an additional $5,000,000 in sales to offset the lost profit on the $100,000 in write-offs. Or, if you have a net profit of 4% and write-off $250,000 in bad debts you need an additional $6,250,000 in sales to recoup the lost profit. All the more reason to act sooner rather than later.

WHY USE A COMMERCIAL COLLECTION AGENCY

The primary reason most companies use a third party collection agency is because their internal efforts to collect the debt have failed and management believes that the company’s resources are best spent making better credit decisions and attending to the customers that are paying their bills rather than wasting their personnel’s time chasing accounts that are not going to pay.

A commercial collection agency is the embodiment of “third party psychology”. Once a third party agency becomes involved the debtor knows that the third party will do whatever is necessary to collect the money due including employing legal remedies if necessary to collect the debt.

A collection agency will not have any sympathy for the stall tactics and excuses employed by debtors. “Third party psychology” will motivate the debtor to pay because they want to avoid the additional costs, and the potential embarrassment that comes with a prolonged collection effort and the possibility of litigation together with negative information provided to credit reporting companies that may impact their ability to get credit in the future.

A professional collection agency has resources, methods and techniques for collecting delinquent debt that are not available to the average company. In some cases, a full asset and liability search is required to understand the current financial situation of the debtor and their ability to pay the money owed.

In particular, an agency has the ability to access databases that may be needed to assist in identifying and locating the responsible party related to the debt and in identifying and locating assets that may be used to satisfying the debt.

State-of-the-art collection software is expensive but vital when pursuing delinquent debtors. Collection agencies today utilize software that merges all account information into a sophisticated database that can be used to coordinate all collection activity, i.e., telephone calls, call history and notes, follow-ups, promises, call-dialers, collection letters series, etc. to maximize the collection process while keeping costs down. The result is a complete record of all collection history and the ability to use this information to make better collection decisions.

The above are only some of the reasons to use a professional collection agency. There are many more, like skip tracing for example, but you get the point.

CONTINGENCY FEE STRUCTURE

Professional collection agencies usually work on a contingency fee bases. If they don’t collect they don’t get paid. Additionally, agencies are also adding and collecting the collection costs and attorney fees to the past due balance. This helps to reduce the overall collection related costs if a collection is made. Collection personnel employed by agencies are primarily motivated by the opportunity to make more money. Today, most collection agencies compensate their collection staff based on their performance rather than on an hourly basis. This has increased individual collector performance. In summary, when you utilize a professional collection agency they will exert every effort possible to collect the money due you. If they aren’t successful they have increased their overhead and impacted their bottom line. Not a welcome outcome.

CONCLUSION

When should you employ the services of a professional collection agency? According to the chart and table above as soon as you are being stonewalled by your debtor. The sooner you act the more likely you are to collect at least some of the delinquent debt. And, the multiplier effect of write-offs is significant. Timing is everything if you want to maximize your cash flow. The increase in debt that is not collectible from 90 days overdue to 180 days overdue is over 44%. Sooner is better!

For information about AG Adjustments and our commercial collection services visit www.agaltd.com or email us at info@agaltd.com.

Piece by Piece, Step by Step, by Joel Block

Goal setting is very difficult for many people, in part because they try to swallow the whole elephant all at one time. Sometimes goals are very easy to understand but for whatever reason, they’re very difficult, confusing, and sometimes seemingly impossible to achieve.

In the 1991 movie “What About Bob,” Dr. Leo Marvin wrote a book called “Baby Steps” and that pretty much summarizes the way that goals need to be achieved.

I travel frequently. Let’s say that I’m going to Florida. I don’t focus on going to Florida; I focus on the many steps that it takes to get to Florida. For example, first, I have to get in my car and make sure that the car has gas. Second, I have to get myself to the parking area at the airport. Then once at the parking area at the airport, I have to get myself onto the shuttle bus to the terminal. And once I’m at the terminal I have to get through security. And once I’m through security I get to the gate, board the plane, take my seat, change planes, whatever the next series of steps are. There might be 15 different steps, but when I travel I focus on doing one step at a time until I’ve arrived at my destination.

Business goals, educational goals, personal goals, and social goals all work the same way. Break them down into little pieces.

Sometimes it’s easier to understand sports than it is to understand real life, because sports are so definable. The rules are so clear and well understood. Any game or sporting event is easy to follow if you understand the rules. Everyone on the field understands the rules, and everyone in the stadium understands them too, and for those reasons, everyone knows when a player is making the right move, the wrong move, or if he is completely off course. But somehow in our life, setting goals just doesn’t work the same way.

We have to get in the habit of breaking big and seemingly impossible goals into bite size pieces. For example, writing a book is not a book, it’s a series of chapters. Or maybe the focus shouldn’t be on the whole chapter but rather on a number of pages or a series of paragraphs. And maybe those paragraphs follow a series of outlines that require some research.

One way or the other, you have to ask yourself, “What are the pieces that will eventually get me to the place I want to go?” By asking that critical question, you will eventually get yourself to the goal line. It’s very tough to get through the Red Zone to the goal line. The first 80 yards are pretty easy, but once you get into the Red Zone, those last 20 yards, the field is short, players are on their guard and there just isn’t a lot of margin for error. The Red Zone is where most of the fumbles take place but it’s also where the points are made.

Taking the ball 90% of the way down the field isn’t good enough because you don’t get any points for 90%. You have to cross the goal line. You have to identify your goals, you have to understand the objectives, and you have to really be clear about what it is you want to do and why you want to do it. When you understand what the outcome is going to be and what the reward is to you when the job is done, it gets a lot easier to plan the work and break the job into lots of little pieces.

We’re all doing more with less these days. As the organization changes, how can credit professionals create meaningful goals despite internal and external changes that are beyond their control? How can credit professionals proactively bring change to their organizations by changing process and policies to increase cash flow? How do you create a credit culture where people think about doing business differently and are purposeful about making and accepting change that they believe will make a positive difference? Attending CreditScape will help arm you with tools to do your job better. Visit CreditScapeConference.com for more information. I hope to meet you there.

Joel Block is a business advisor and long-time venture capitalist and hedge fund manager (gobbledygook for “professional investor”) who is based in the San Fernando Valley area of Los Angeles. He will speak on Managing Change in Your Credit Department at CMA’s Spring CreditScape Summit on April 4-5, 2018. For more information about the event, visit www.CreditScapeConference.com.

Coming Soon: How to Effectively Manage Change in Your Company’s Credit Department

The only thing constant in business these days is change. As the organization changes, how can credit professionals respond effectively to internal and external changes beyond their control? How can credit professionals proactively bring change to their organizations by changing process and policies to increase cash flow? How do you create a credit culture where people think about doing business differently and are purposeful about making and accepting change that they believe will make a positive difference?

Stop us if you’ve heard any of these scenarios before. Your boss comes to you and tells you that you need to start accepting credit cards (when your company hasn’t done that before). How about this: your company is repurposing someone in your already short-staffed credit department. Or, maybe your previously great-paying customer of many years tells you, “We’re changing your terms. You must accept in order to continue to do business with us.” Or, have you wished that you could have that proverbial “seat at the table” with upper management?

At CMA’s Industry Credit Group meetings, the majority of the best-practice conversations that were had in 2017 had something to do with managing changes like the ones mentioned above. As a response to these conversations, CMA has put together a program centered around managing changes like these, to help you do your jobs better. The program is geared towards practitioners with all levels of experience and expertise to leverage the knowledge and experiences of practitioners who can help you be ahead of the curve and effectively manage change.

The 2018 CreditScape Spring Summit, powered by United TranzActions, will feature a two-day workshop that includes a keynote address on change management, training sessions, expert practical and legal advice, and networking with other credit professionals. The goal of CreditScape is to provide an opportunity for credit practitioners at all levels of experience and expertise to come together to solve problems and provide solutions for their real-world issues they face at work.

Over the next few days, our keynote speaker Joel Block will be guest blogging about dealing with change in your credit operations, a topic he will explore at CreditScape.

We invite you to join us at the Spring CreditScape Summit, powered by UTA, April 4-5, 2018 at the Hyatt Regency Orange County (or view the website at www.creditscapeconference.com), and to read the blogs, as the information you’ll receive can help you do your job better in the long run.

What changes in your credit department do you think are the most difficult to deal with? We welcome your feedback.

Here are the other posts in this series:

Coping With the Chronic Complaining Customer

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!

Like it or not, handling complaints is part of the work that goes on in a credit department. And it’s a task that’s vital to your company’s success. How well you handle gripes from disgruntled customers can make the difference between getting paid and keeping the customers–or losing their business altogether.

You answer the phone, hear the voice on the other end of the line, and feel your blood pressure begin to rise. It’s one of your chronic complainers, credit customers that always have a problem. Much as you’d like to turn the call over to someone else, you’re the one of the firing line. How are you going to keep from losing your cool–and losing the customer? Here’s help.

  1. Listen actively. It’s important not to turn a deaf ear to the chronic complainer. To begin with, there is often a legitimate grievance of some kind. If you don’t take corrective steps, the problem could come back to haunt you.

    Key Point:
    Paraphrase the complainer’s main points. Say something like “Excuse me, but do I understand you to say that the package didn’t arrive, you’ve written twice and received no response, and that’s why you didn’t pay your bill?”

    Added point: Be sure to acknowledge the caller’s feelings. A big part of the chronic complainer’s problem is the sense of powerlessness that comes from feeling that nobody knows, cares, or even understands how he or she is suffering. Verbalizing what you take to be the customer’s emotional reaction to the situation helps to break the cycle of blame, ignore, blame-for-ignoring, etc.

  2. Establish the facts. A key feature of chronic complainers is their tendency to exaggerate facts and then to overgeneralize them. Thus, if a chronic complainer tried to call you three times during lunch hour, it becomes: “I tried calling you all day, but, as usual, you were trying to avoid me.”

    Key Point: Limit the scope of the complaint by asking questions that isolate the facts. Ask when, exactly, the customer’s unanswered calls were made, unanswered letters were written, or the problem was first noticed. Check your files or phone logs to verify these statements, and state your findings. Remember to keep the discussion on a factual level. Don’t comment on the implications of the facts because this will lead very naturally to responses like: “You see, I told you your department fouled up.”

  3. Resist the temptation to apologize. Although apologizing for some glitch may seem like the most natural thing in the world, it’s the wrong thing to do when you’re faced with an unhappy credit customer.
    Reason: Since the main thing the person is trying to do is fix blame–not solve problems–your apology will be seen as an open invitation for further blaming.

    Key Point: Ask problem-solving questions. For instance, ask “Would an extended warranty solve your problem?” or “Would a credit to your account be satisfactory?”

  4. Force the complainer to pose solutions. If the chronic complainer ignores your suggested solutions, evades the opportunity to help, and persists in trying to get you to admit what a poor company you work for, throw the ball back into the complainer’s court with this gambit:

    “I have to speak with someone else in 10 minutes. What sort of action plan can we work out in that time?”

    If the customer can’t come up with anything, he or she should at least recognize by this point that you alone can’t take all the blame for the impasse. And if the person does come up with a suggestion–no matter how impractical–you will have at least succeeded in getting him or her to stop complaining. Now your customer should be much more receptive to whatever reasonable compromises you come up with.

This article originally appeared in Credit Today, the leading publication for the credit professional.
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Joel Block to Deliver Keynote at CreditScape Spring Summit

Joel Block has been added as the keynote speaker at the upcoming CreditScape Spring Summit, powered by United TranzActions on April 4-5.

Block, who will talk about change as a constant practice in your company’s credit department, is a long-time venture capitalist and hedge fund manager (gobbledygook for “professional investor”) who lives in a Shark Tank world like what you see on TV. Companies regularly pitch ideas to Joel’s company, looking for business capital so he has learned to spot likely winners – frequently in 3 minutes or less and sometimes in under 30 seconds.

Speaking on business and money for over 15+ years, Joel has put together more than 40 companies; he has advised hundreds more and he has taught thousands of people innovative ways to think about leadership, strategy, sales, and money.

Unlike most business speakers, Joel explains sophisticated concepts around personal effectiveness, money, and business leadership in plain English – no jargon, no hype, and no fluff. Nobody breaks down complex issues like Joel Block with hard-won lessons and practical principles from the real world to help your attendees gain traction personally, professionally, and financially.

Nicknamed The Money-Making Guy™, Joel’s massively unique and immensely powerful leadership, sales, and disruptive innovation message is perfect for senior management, middle managers, and sales teams. His programs are refreshingly memorable, quotable, and actionable so your people leave your event ready to think, act, and work differently – impacted by big ideas and actionable insights at the convergence of money, success, and significance.

The 2018 CreditScape Spring Summit will feature two days of workshop training, expert practical and legal advice, and networking with other credit professionals, designed to give you insight on areas where you can make improvements in your company’s credit operations.

The goal of CreditScape is to provide an opportunity for credit practitioners at all levels of experience and expertise to come together to solve problems and provide solutions for the real-world issues they face at work.

While the Summit features subject-matter experts sharing their experiences with credit practitioners, much of the learning at CreditScape will come from practitioners sharing real-world experiences with each other in workshop-style settings. This is a perfect opportunity for credit and collections teams to get away from the office to pursue a journey towards process improvement.

For more information, and to sign up, visit www.CreditScapeConference.com.

How to Evaluate Your Collection Agency’s Recovery Rate, by Sam Fensterstock, AG Adjustments

At the end of each year, when you evaluate your collection agency performance, what method do you use to calculate their recovery rate and over what period of time do you analyze? We discuss this topic very frequently with our clients. Contingency based collection agencies only earn revenue if they collect the debt that is placed with them, therefore, the recovery rate is usually the critical factor for allowing both the client and the agency to properly evaluate their relationship.

If a collection agency has a 50% recovery rate for your company, an excellent result, it still means that 50% of the time they are working for free as they still must work the files they are not able to collect on. Fixed expenses such as rent, payroll, insurance, electric, phones all must still be met. Given this, and the fact that over the past 20 years the average fee charged by an agency has been dramatically reduced, collection agencies are laser focused on collecting as much money as they can, in-house, in the shortest period of time. This is how they make the most money for both their clients and themselves.

As many companies use more than one collection partner, most measure head to head performance by how much money an agency brings back to the bottom line. Ultimately, the agency that nets you the most cash will probably get the most placement volume. However, is the method of evaluation you are using really showing you who is doing the best job for your company in the long run and collecting on the most files? You should realize that how collection agencies judge themselves is often very different from how they are judged by their clients.

To compare the various performance measures, let’s assume that you are turning over, to your collection agency, 30 past due accounts per month with an average accounts receivable balance of $5,000 per file. The accounts are from 120 days to 240 days past due, and two accounts per month or $10,000 are defunct corporations or uncollectible at placement that cannot be recovered. Now let’s look at three different ways that collection agency recovery performance can be evaluated on the last day of the year, six month later, twelve months later and twenty-four months later.

Gross Collections Method (GCM)
GCM = Amount Collected / Total Dollars Placed

In Year 1, the total dollars placed was $1,800,000 and the amount collected on Year 1 placements at the end of Year 1 was $700,000. Therefore, at the end of Year 1, the GCM for Year 1 placements was 700,000/1,800,000 or 38.9%.

Six months after the end of Year 1 an additional $250,000 has been collected on Year 1 placements so at that time the GCM for Year 1 placements is 950,000/1,800,000 or 52.8%

Twelve months after the end of Year 1 an additional $50,000 has been collected on Year 1 placements so at that time the GCM for Year 1 placements is 1,000,000/1,800,000 or 55.6%

Twenty-four months after the end of Year 1 an additional $25,000 has been collected on Year 1 placements so at that time the GCM for Year 1 placements is 1,025,000/1,800,000 or 56.9%

Net Collections Method (NCM)
NCM = Amount Collected / (Total Dollars Placed – Uncollectable at Placement)

In Year 1, the total dollars placed was $1,800,000 and the amount uncollectible at placement was $120,000. Therefore, the net amount available for collection was $1,680,000. The amount collected on net Year 1 placements at the end of Year 1 was $700,000. Therefore, at the end of Year 1, the NCM for Year 1 placements is 700,000/(1,800,000-120,000) or 41.7%.

Six months after the end of Year 1 an additional $250,000 has been collected on net Year 1 placements so at that time the NCM for Year 1 placements is 950,000/1,680,000 or 56.5%

Twelve months after the end of Year 1 an additional $50,000 has been collected on net Year 1 placements so at that time the NCM for Year 1 placements is 1,000,000/1,680,000 or 59.5%

Twenty-four months after the end of Year 1 an additional $25,000 has been collected on net Year 1 placements so at that time the NCM for Year 1 placements is 1,025,000/1,680,000 or 61.0%

Net Cost of Collection Method
NCCM = (Amount Collected – Commissions Paid) / Total Dollars Placed

In Year 1, the total dollars placed was $1,800,000, the amount collected on Year 1 placements at the end of Year 1 was $700,000, and the commissions earned were $140,000. Therefore, at the end of Year 1, the NCCM for Year 1 placements is (700,000-140,000)/1,800,000 or 31.1%.

Six months after the end of Year 1 an additional $250,000 has been collected on Year 1 placements with additional commissions earned of $50,000. Therefore, at that time the NCCM for Year 1 placements is 760,000/1,800,000 or 42.2%

Twelve months after the end of Year 1 an additional $50,000 has been collected on Year 1 placements with additional commissions earned of $10,000. At that time, therefore, the NCCM for Year 1 placements is 800,000/1,800,000 or 44.4%

Twenty-four months after the end of Year 1 an additional $25,000 has been collected on Year 1 placements with additional commissions earned of $5,000. At that time, the NCCM for Year 1 placements is 820,000/1,800,000 or 45.6%

CONCLUSION

All of the methods described above provide a reasonable approach for evaluating collection agency performance as long as they are applied consistently. Consideration must also be given to open inventory at the time of evaluation. A percentage of the open accounts will still turn into dollars at some point. Given the historical 90-120-day lag on in-house collections as well as the overall backlog of the legal system that is often used in collection agency recovery efforts demonstrate that only evaluating collections in a single placement year at the end of that year, can produce a measure that does not truly represent agency performance. Our choice for the one which that most reflects true agency performance is the Net Collection Method, but no matter which method you choose, we feel recovery results for a specific period of time, such as annually, should be evaluated six, twelve, eighteen and 24 months after the end of that period. This will provide the best measure of agency performance short-term and over-all long-term. Given with most collection portfolios the majority of collections for placements made in the last quarter of a year will most likely occur in the first six months of the following year, if you only review results at the end of the year, this performance will be excluded from your analysis.

Additionally, evaluating an agency based on accounts that when placed are out of business or defunct corporations and are impossible to collect from is inherently unfair and will produce a biased comparative measure if different agencies are given placements with different percentages of uncollectible dollars.

Once again, you can look at this topic many ways and our goal in this blog post has been to shed some light on the difference approaches and how it may affect your agency review.

Sam Fensterstock is Vice President of AG Adjustments, CMA’s chosen collections partner. For over 40 years, AGA has been the most respected commercial collection agency in the nation. The company assists corporations with improving cash flow, while preserving a positive image with customers. It accomplishes this by employing the best and brightest talent in the industry, with low turnover and unparalleled tenure.

Talking Points For Speaking to Sales

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!

 

Communicating With Sales Regularly – Formally or Informally – is Always Important

Do you speak to your sales reps about what you’re doing in credit?

If you don’t, you should.

One of the most important roles of a credit exec is to constantly communicate credit’s role in your organization and how it relates to sales.

In a recent Credit Today listserv discussion, a member asked for suggestions on what she might include in an upcoming presentation to her company’s sales team. A number of great responses were received.

Lisa Childress, Corporate Credit Manager at Bison Building Materials, recommended covering the following topics with sales:

  1. How company profits are diminished the longer an invoice remains unpaid.
  2. What the cost of money (borrowing) is for your company. Also, are bank covenants you must adhere to?
  3. What their commission structures are. For example, are they on a “paid-when-paid” commission structure or do their commissions diminish as the account ages?
  4. How they and credit can maintain customer relations.
  5. Why you in credit absolutely recognize the importance of continued sales.

Cheryl, Fischer, CCP, credit manager at Barber Glass Industries, advised that the way you make your presentation with sales can make a big difference. “You have to communicate to them on their level, she wrote. “And that is definitely not a slight!” she clarified.

Visuals are Key

She’s learned over the years that sales reps in general are visual people and suggested very brief overhead computer visuals. “Graphs are always very helpful. Keep it short, sweet, and to the point with pictures and I don’t think you will find their eyes glazing over.”

And Jeff Borgens, CBA, Corporate Credit & QMS Manager at Aiphone Corporation, offered up some great suggestions as well.

First, he suggested, emphasize the principals of business partnership and mutual expectations. “It’s a partnership and we look for quality partners (customers) we can count on.”

Sales should also understand that credit will do what it says it will do and that “ongoing payments equal ongoing shipments.”

Second, make sure you “talk their language” when communicating with sales people. This means emphasizing customer needs and how you strive to meet those within the policies you’ve established. Talk to them about how you will help make the sale, rather than stop a sale if at all possible. And cover some of the tools you have to make that happen, such as guarantees, credit cards, letters of credit, or other security agreements. Make sure they know you’re not “sales prevention,” but are there to facilitate the sale, he wrote.

Finally, he suggested reminding sales that we need to be aware of the role our customers play with our product.

If you sell to someone else who is depending on delivery of “your” product, and that customer ends up on credit hold and hence can’t get the goods down thru the channel, it potentially puts your firm a bad light. “We need to be conscientious of those that buy thru the channel by making sure our business partners are reliable,” he wrote.
This article originally appeared in Credit Today, the leading publication for the credit professional.

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Nominations for 2018-2019 CMA Board of Directors Now Being Accepted

The CMA Nominating Committee is now accepting nominations and applications for service on the 2018-2019 Board of Directors. If you would like to nominate a candidate for service, or you are interested in applying for a Director position directly, please complete a Candidate Nomination or Application form and return it to CMA by February 1, 2018.

Click here to download the forms and for more information.

Tips For Setting Your Automatic Write-off Threshold

Editor’s note: The following article originally appeared in Credit Today, the leading publication for the credit professional, a CMA Partner. Click here for Special CMA Member $10 Trial!

Do you have an automatic write-off threshold for small balances left outstanding on your A/R?

Some companies can research every short payment that comes their way, but for many, it’s simply not practical to do that. To keep up, you must set a minimum threshold, under which you automatically write off everything.

The two key variables to consider when setting this limit are:

  1. The cost to you of researching a short payment, and
  2. The likelihood of receiving payment.

As to number 1, the cost is simple. It’s the manpower required, per deduction, to research. You’ll want to take a couple of weeks and come up with an overall average amount per deduction. Let’s say you come up with 15 minutes per deduction. Then multiply this by the hourly cost of the staff involved.

But your cost is only one part of the analysis in this situation. If you find that traditionally your customers are right 85 percent of the time when taking a deduction (which is the typical average), then you will collect only 15 cents out of every dollar deducted.

At what level does your research become profitable? Do the math. You might find it’s higher than you realized. But two words of caution:

  1. don’t let anyone in your customer base know that you do this, and
  2. periodically research balances lower than your threshold so you can spot abuses.

This article originally appeared in Credit Today, the leading publication for the credit professional.
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Why CMA Still and Always Will Matter to My Company and Me!  by Gent Culver, ICCE

With the turning of the calendar to the New Year, I always like to evaluate my relationships and reflect on the year that has just past. In doing that in 2018, I can’t help but think about the many ways that Credit Management Association (CMA) makes my job as a credit manager easier.

Here are some reasons that are important to me as a CMA member:

 

  • CMA continues to bring the credit community together via networking at Industry Credit Group meetings (my company and I are regular participants) and at educational events such as CreditScape and other webinars and programs.
  • CMA’s anscers.com website platform is unique in that it allows me to obtain past payment history of customers that also do business with other CMA member companies.
  • CMA also offers extremely competitive pricing on credit reporting contracts with the major credit bureaus. They also have a professional staff that can walk you through the best features of each report, enabling you to compare similar products so that you can choose the best ones for your company’s needs.
  • If your company supplies materials or labor for construction projects, CMA can make sure that your company’s lien rights are protected under the law through its construction lien filing department.

CMA is here to stay.  It has been providing high-end credit services and education to companies like yours throughout California and Nevada for over a century and it plans on continuing this service for years to come.   As CMA Chairman of the Board, I thank you for your continued support of CMA and its vision of a united credit community  and I would also like to thank the staff of CMA for their dedication to the members of CMA.

Thanks for reading!

 

Gent Culver

Experian Expands International Alerts

In this global economy, one of the biggest challenges for many businesses is being able to detect financial duress by monitoring companies’ whose headquarters are outside of the United States.

Early identification of negative activity helps your company prevent lost revenue and service interruptions, it also helps minimize reputational damage caused by doing business with a company in violation of U.S. laws. These early notifications can also help mitigate the effects of changing economic conditions while growing new business opportunities with lower risk.

Experian has announced that its commercial alerts now enable you to monitor more businesses in more countries with greater precision.

Experian now offers 25 alerts on 8 countries in Western Europe, with 8 more countries coming soon! These international alerts offer the ability to stay up to date on changes such as: change in ownership, business name and address, as well as changes in credit limit, balance sheet information, and company status and much more.

Proactive notifications empower you to act quickly and mitigate risk, collect on overdue amounts and retain your best customers.

Want to know more? Contact your CMA rep today at 818-972-5300 so we can start helping you reduce the risk in your growing business.

Supplier Risk Credit Group created to help manage your vendors, by Larry Convoy

During my time in credit management, I’ve often heard the following: “We can survive if a customer goes bad, we cannot survive if one of our primary or secondary vendors has an interruption in delivering product, raw materials or services to us. For that reason, we invest an equal amount of resources investigating our vendors.”

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

Responding to members requests, CMA has established the SUPPLIER RISK CREDIT GROUP for companies that have expanded the credit departments’ risk management role to include key suppliers. There has been a tremendous increase in companies evaluating the risk and cost of business disruption when vendors are unable to deliver goods for reasons ranging from economic to political.  Credit Managers deal in risk evaluation daily, they have the skill set necessary to transition from customer analysis to vendor.

This new group will help companies assess their exposure to vendor failure, develop, implement and maintain a process to evaluate risk and gather business intelligence more efficiently and cost effectively.

CMA invites you to attend a complimentary organizational meeting to explore the benefits and features of a Supplier Risk Credit Group.

RSVP to lconvoy@emailcma.org and we’ll save a seat — either virtually or in-person — for you.

We hope to see you there!

A New Way to Receive Your CMA Invoices, by Kim Lamberty, CAE

Throughout the past several years, CMA’s webinars and events have had the overwhelming theme of utilizing technology to bring efficiencies to businesses. Your CMA team is following this theme. As many of our members have gone through and will go through systems conversions to make their business operations more efficient, CMA is doing the same thing.

I’m happy to announce that our new association management system will be implemented in December to give our customers added convenience and bring CMA internal efficiencies.

Your December statement will be emailed with an electronic link to all primary CMA member contacts. For those members that have designated a billing contact that is different than our main contact, as the primary contact you will be able to set that contact and others up yourself, giving you better control of who should have access to your company details. Through this link, you’ll also be able to view your post-December 2017 billing history with CMA, with the ability to print and save statements and invoices electronically.

Subsequent to the implementation of our new AMS we will be implementing the ability to pay online and hope to have this completed in January. This will mean that members will not only be able to access their invoices, but they will be able to pay electronically.

We thank you for your continued trust and loyalty to CMA, and we look forward to continuing to listen to our members wants and needs. If you have any questions, please feel free to call me directly at 702-259-2622.

“The world hates change, yet it is the only thing that has brought progress.”
-Charles Kettering

Kim Lamberty, CAE, is Vice President of Operations for CMA. She can be reached at 702-259-2622 or klamberty@emailcma.org.

How to Assist Your Customers to Stay in Business After Natural Disaster, by Sam Fensterstock, AG Adjustments

The recent outbreak of natural disasters left certain areas of the country reeling. No power, no water, and blocked roads resulted in no way to distribute product or services, and no way to collect receivables. Businesses both large and small were in a panic. Why? No cash flow. How are they going to get paid? The answer is – they are not! At least not in the near term. Whether a customer is in collection or about to be, the problem is the same – they can’t pay their debts. As a vendor, your problem is how to help them stay in business so that you have a chance of getting your money – eventually!

HOW TO IMPROVE YOUR CHANCES OF GETTING PAID

Obviously, you are going to have to wait for your money, so making it formal by giving them a moratorium on payment is a good first step for alleviating some of your customer’s/debtor’s stress and it makes you look like a good guy and may put you at the head of the line when they are operating again. Of course to do this you need to communicate with them, which could be a problem if they have no power, but eventually you will get through and giving them an extra 45 to 60 days for meeting their obligation will be very welcome and improve their odds of staying in business.

However, planning is everything and the very best way that you can increase your customer’s chances of surviving a natural disaster is to convince accounts that are in potential disaster areas (Florida, Texas, Louisiana, Oklahoma, Kansas, and California are some localities, but they can also be affected if they are hundreds or even thousands of miles away) to plan in advance for its occurrence. Not a simple problem as most people are resistant to this type of suggestion, even if they know it’s for their own good.

If a business is forced to cease operations after a natural disaster they run a substantial risk of never opening their doors again. You can’t effect the probability of a natural disaster, but you can prepare for it. Having a well thought out disaster plan and sufficient insurance will help your customers recover when disaster strikes. The following are some of the things they need to do if they want to survive a natural disaster.

CRITICAL COMPONENTS OF A BUSINESS RECOVERY PLAN

They need to:

  • Create a detailed disaster response plan and make sure employees know whom to notify and what to do to limit employee casualties and property losses.
  • Practice the procedures set out in the disaster response plan on a regular basis.
  • Prepare a list of critical phone numbers and email addresses. They will want to get in touch with key people after a disaster. Include local and state emergency management agencies, major clients, contractors, suppliers, realtors, financial institutions, insurance agents and insurance company claim representatives.
  • Develop a strategy to communicate with customers to limit loss of business.
  • Develop answers to the following questions:
    While a natural disaster is occurring, will they need a back-up source of power and a back-up communications system?
    What impact will a natural disaster have on their employees’ ability to return to work and their customers to receive goods or services?
    What impact will a natural disaster have on their plant and equipment?
    If their business escapes the disaster, do they still have a risk of significant losses due to the inability of suppliers to deliver goods or services?
    What is the financial impact to their business if it shuts down as a result of a disaster for a day, a week or longer?
    Can they run their business at another location if they cannot afford to curtail operations?
  • Make sure they back-up computer files and critical systems every day and also maintain a copy off-premises (the cloud). Store copies of all critical records and documents in a safe deposit box and keep them current.

REVIEW THEIR INSURANCE COVERAGE

They need to sit down with their insurance broker and make sure their business is protected. They need to review their insurance policies to ensure there are no gaps in coverage and that every type of insurance they need to guarantee their business’ survival is in place. Make sure they are covered for business interruption and the cost of repair or rebuilding. If their policy does not cover flood or earthquake damage they may need to buy additional insurance. Other types of specialized insurance that may be pertinent to their business should be discussed. As insurance is not cheap, they’ll need to make some decisions on a risk – reward basis as to how much coverage they can afford.

CONCLUSION

We have covered some of the basics for preparing for a natural disaster with the expectation of hoping to help you improve the chances of your customers’ surviving. We recommend that you check out the internet for business continuity and disaster recovery templates that go into far more detail than we can in this short article and recommend to your customers that they review them and plan accordingly. If a natural disaster strikes some of your customers there is little you can do to help them if they haven’t planned ahead. If you want to improve your chances of ever collecting what they owe you they need to stay in business and anything you can do to reduce the likelihood of them failing is in your best interests.

Sam Fensterstock is Vice President of AG Adjustments, CMA’s chosen collections partner. For over 40 years, AGA has been the most respected commercial collection agency in the nation. The company assists corporations with improving cash flow, while preserving a positive image with customers. It accomplishes this by employing the best and brightest talent in the industry, with low turnover and unparalleled tenure.

How Credit Managers Can Help their Bankrupt Customers

Recent news that Sears Canada has failed in its efforts to compete an effective reorganization, and will be forced to liquidate through Canada’s equivalent of Chapter 7 bankruptcy, has brought to light a point often ignored in analyzing your strategy with respect to money owed to a customer in bankruptcy.

For example, pretend for a moment that you’re on the committee in the Sears case. You’re meeting with attorneys and discussing potential bids. Something seems strange about these bids and you’re unable to get behind the low prices being offered. Additionally, your attorney tells you that you’ll get more back on your claim through a liquidation. Well, this is obvious, right? Vote against the plan for a sale and go to liquidation.

Retail bankruptcies are throwing a huge wrench in the business landscape these days. Liquidations are becoming more and more tricky because buyers are becoming harder to find. With so many bankruptcies in one sector, valuations are inherently lowered. According to a recent article in the American Bankruptcy Institute, trade creditors reaching compromises in retail bankruptcies are causing a real positive impact on the road to recovery. If investment firms who are owed enormous amounts of debt liquidate, the recovery for trade creditors is very little. However, a meaningful reorganization means money coming back to the creditors’ companies in the form of settlements and continued business.

As a credit manager serving on a committee, one may be tempted to take the money and run as quickly as possible. However, as this article posits, sometimes it’s much better to have a long-term relationship that a small instant recovery. The over-leveraged company is more and more commonplace after nearly 10 years of interest-free money. Credit managers who take a more long-term view of the issue may end up with a better impact for their company than simply taking what a liquidation would allow. Next time you’re faced with this situation, feel free to call CMA Adjustments for more information on how a different view of your bankruptcy claim could provide a positive impact on your company in the long-term.

Hurricane Impacted Credit, By Wayne Muller

Houston, much of Florida, all of Puerto Rico. This has been a hurricane season for the ages. What do you do when, practically overnight, normally prosperous and prompt-paying customers are, at least temporarily, ruined by wind and water? This company shows the way.

Kichler Lighting got lucky this year. Few customers were affected by the hurricanes and even those did not suffer much damage. But back in 2005 when Katrina ravaged New Orleans it was a different story entirely. Several customers lost all or major parts of their businesses to the catastrophic flooding. Kichler pitched in to help immediately.

“First we delayed the due dates on their invoices and worked with them as to what they thought would be an appropriate time frame,” explains David Feigenbaum, CCE, Director of Corporate Credit. No one asked for anything outlandish, so they were all given what they asked for and assured that Kichler would be there ready to help with new shipments whenever they needed them.

One customer had two locations, both in the city. One was totally devastated, to the point where he never reopened it. Consolidating the stores and getting them operational took months. “We just worked with him and told him nothing would be due until he was ready to go,” says Feigenbaum. “The big thing these folks have to go through is insurance claims. They take months.

“We worked with a few customers who were out of business for months, carrying the debt until such time as they were back in business. Then they needed to restock because everything in their inventories was ruined. We worked out special terms to allow them longer payouts on the new goods so that it didn’t come due until they had the chance to sell it and turn it into cash.”

This year Kichler sent out an email to the sales force immediately after the storms in Texas, Florida and Puerto Rico. “We stressed that we wanted to help and did not want to be part of the problem,” he says. “The email stated that if any customers needed assistance they could either call us directly or go through them. On those occasions where we’ve been asked, that’s what we’ve done.”

A few have asked for some time beyond normal terms because their computers are down, but the requests have been few and far between.

“If someone comes to us and says, ‘My inventory is all wet. I need to restock. I’ve got my insurance check but it won’t cover my loss in full’ we’ll work with them to spread it out and make it fit their cash flow,” he says. “The last thing we want to do is have them have a huge bill come due when their cash flow isn’t healthy. All that will do is make a bad situation worse.”

All of Kichler’s customers in New Orleans eventually recovered and are now back to good health. But the city’s population has shrunk considerably. A lot of people left and never came back.

The son of one of the company’s New Orleans customers moved to Houston after Katrina and is now a very significant customer there. “So we ended up with a new customer in a new place,” notes Feigenbaum. “And the really good news is that he’s in a part of Houston that didn’t get hit by Irma.”

Addendum: At press time, just as we were about press “send” on this week’s tip, we learned that Kichler received the following note of appreciation from a customer:

“I wanted to thank you guys for helping us out on our cash flow issues that we’re in due to Harvey. Thankfully all our employees and myself were extremely fortunate in the storm. We had a couple employees that had minor flooding, one with less than an inch and one with about 6” of water. Our office was untouched and the majority of our customers got through it with very little damage. The biggest issue at the moment is the slowdown of business while everyone is getting back on their feet. Our billing was cut in half but we’re hoping it will bounce back in October.

“Again, thank you for everything you guys do for us. It’s never been over looked or gone unappreciated. We will be catching everything up ASAP.”

Hard to buy that kind of goodwill!

Copyright Credit Today Online. Reprinted with permission. www.CreditToday.net.

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When Talk is Not Cheap, by Larry Convoy

Larry Convoy, lead group facilitator

We have all heard the expression that “talk is cheap.” Here’s an instance when it’s not: whenever 2 or more competitors get together to discuss the terms of business. In that situation, the potential to cross over into prohibited topics could put all companies at risk. That is one of the main reasons that you have chosen to protect your company by joining an industry credit group facilitated by a representative from CMA.

Your CMA representative monitors all group discussions to ensure compliance with the three statements read at the beginning of each meeting, Anti-Trust, Confidentiality and Anti-Defamation. CMA Group Facilitators have all been trained, certified and are responsible during the meetings (and extending to those conversations in the parking lot) to assure that all members adhere to the guidelines set forth by the government. We listen for any suggestions to restrict free trade or for any attempt to try influencing another’s decision to sell or not to sell an account. If the conversation drifts in that direction, your CMA rep will shut it down.

Sharing historical, factual data on common customers is perfectly legal. We encourage group members to bring new credit applications, slow paying customers and accounts sent to legal to the meeting to alert other members, who will in turn share similar information about their customers with you. The trust built up between competitors allows them to participate honestly and share information in good faith as long as only historical and factual trade experiences are exchanged.

So the next time your attempt at humor is shot down by your group facilitator, think if the punchline falls into one of the 3 statements read prior to every meeting. If it does, he or she has steered your company away from litigation with fees far exceeding the cost of membership for years to come.

We, at CMA, know that your time is valuable, that you are probably wearing more hats then in previous years with a reduced staff. Wasting time is not an option. Our job is to provide a comfortable environment free of distractions for you to gain knowledge, network and to get you back to the office so you can process what you learned quickly, and in turn make quicker, educated credit decisions.

Without a governing body like CMA overseeing your monthly get together, talk could be very expensive.

Coming Together in Times of Tragedy

Tragedy has struck our nation yet again, in the wake of the senseless events in Las Vegas last night, our Las Vegas based team and I are encouraged by the outpouring of love and community support that is occurring. We all knew someone who had a loved one, friend, or acquaintance that was affected by the senseless shootings.

For those who want to help the victims, here are a couple of ways you can get involved:

Again, it’s amazing to see how communities come together in times of crisis. Thanks to everyone who sent their well wishes to our staff and our Vegas-based members, as we send our heartfelt condolences and prayers to the families of those who were affected by this senseless event.

Kim Lamberty
V.P. of Operations
Credit Management Association

Customer Receipts- 503(b)(9): New Ruling in In re ADI Liquidation casts further doubt on ability to recover goods from bankrupt customer, by Molly Froschauer

If your company sells to a customer and delivers goods within 20 days of the customer filing for bankruptcy, one may believe that your company may have an administrative (highest priority) claim for the value of those goods. As many credit managers know, however, the claim under 503(b)(9) of the bankruptcy code has many problematic caveats with the way we do business today.

Many companies use intermediaries like fulfillment houses to deliver goods to customers. This issue has been taken up several times but the recent case presents an interesting twist on the same issue.

The Debtor in this instance, was a billing and servicing platform through which its customers would order items. The manufacturer and distributor would deliver directly to the Debtor’s customers and the Debtor would remit payment for those goods minus its fee, to the manufacturer. The question in front of the court was whether a third-party partner who never possesses the goods, but who possesses the payments for goods recently delivered, constitutes a receipt by the debtor. The court held it does not.

“With continuing complexity in billing and delivery systems in business today, it’s important to consider the implications of third-party partnerships when delivering goods to a party that does not directly owe your company money.”

Current case law requires physical possession of the goods by the Debtor. With third-parties being utilized for help in distribution, billing, customer service and many other aspects of business today, it’s important to understand the impact of everyone in your value chain. At any point, one part of the chain could file for bankruptcy and despite the spirit of 503(b)(9)’s intent to compensate recently-delivered goods, the fact that the end-user doesn’t pay your company directly creates greater risk.

These issues are circling the appellate courts currently and further clarity is sure to develop. One can hope that the spirit of the statute, fairness to trade creditors, is once again respected in light of the complicated supply and distribution chains existing in today’s business climate.

Molly Froschauer is the General Manager of CMA Adjustments. She received her J.D. cum laude from Pepperdine University and her Bachelors from Claremont McKenna College. Before joining CMA, her practice was centered around bankruptcy and other out-of-court debt issues. She’s a member of the Bankruptcy Inn of Court, Los Angeles Bankruptcy Forum, and the Turnaround Management Association.

Ninth Circuit Court of Appeals Finally Hears the Credit Card Surcharging Argument, by Wanda Borges, esq.

By: Wanda Borges, Esq.
Borges & Associates, LLC

Those companies which are still following credit card anti-surcharging litigation know that the case of Italian Colors Restaurant v. Harris (as Attorney General of the State of California) has been sitting still before the 9th Circuit Court of Appeals for more than two years. The United States District Court for the Eastern District of California, on March 23, 2015 ruled against the California statute which prohibits the pass-through of credit card surcharging. The pertinent statute (California Civil Code section 1748.1) says: No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers.

The U.S. District Court found the statute to be unconstitutional and permanently enjoined its enforcement. The California Attorney General filed an appeal to the 9th Circuit Court of Appeals and there the case has sat. It is this writer’s impression that the 9th Circuit was waiting to see what would happen with the New York case of Expressions Hair Design which was to be heard by the United States Supreme Court.

On March 29, 2017, the U.S. Supreme Court vacated the decision of the 2nd Circuit Court of Appeals which left the New York statute to be deemed unconstitutional as District Court Judge Rakoff had determined. On August 17, 2017, the 9th Circuit Court of Appeals finally heard oral argument on the Italian Colors v. Becerra (the current Attorney General of California substituted for Harris). What was most interesting was the Attorney General’s statement that California permits dual pricing as long as it is clear and conspicuous. He said that the statute means a merchant cannot post a single price and then add on a surcharge.

A strict reading of the statute would not agree with that statement. The 9th Circuit panel often referred to the Supreme Court decision in the Expressions Hair Design case and seemed to be leaning towards mimicking the Supreme Court in declaring the California statute to be unconstitutional and allowing a surcharge to be added provided it is clearly and conspicuously noticed. It was also interesting to note that both sides consistently argued that the surcharge prohibitions exist to protect consumers. This supports the opinion that the passing through of credit card surcharges is perfectly permissible for business-to-business transactions. It may take several months for a decision to be handed down but at least the 9th Circuit has moved forward on this matter.

WANDA BORGES, ESQ. is the principal member of Borges & Associates, LLC, a law firm based in Syosset,
New York. For more than thirty years, Ms. Borges has concentrated her practice on commercial
litigation and creditors’ rights in bankruptcy matters, representing corporate clients and creditors’
committees throughout the United States in Chapter 11 proceedings, out of court settlements,
commercial transactions and preference litigation. She can be reached at 516-677-8200.

The Importance of Credit Applications

When starting to do business with a customer, it’s in any selling company’s best interest to be in control of the situation. For this reason, it’s important for a company to have their own well-constructed credit application and to take the time to create a form that allows them to dictate the terms of the business relationship. “If you accept their forms, you are bound by whatever legal terms they have,” said Greg Hesse of Hunton & Williams, LLP. “It’s much better to have them fill out your form and get the information you want.”

Hesse delivered a past CMA webinar entitled “The Importance of Credit Applications,” which offered attendees advice on how to properly use a credit application to get the information necessary to make a solid decision and to reduce legal exposure.

First, Hesse noted that it’s important for creditors to decide what they want their credit application to do. “You need to decide if you’re doing it just for informational purposes or also an agreement,” he said. This will determine what information you request from the customer on the application. “If the goal is to get specific information, you should focus the application and pare it down for that purpose,” he added.

Certain items are critical to the success of any credit application, like names, addresses and contacts for the officers of the organization and the company. While these items often go without saying, Hesse urged attendees not to take this information lightly, noting that creditors should require specific information, like the legal name of the customer, rather than just a “doing business as” name or a trade name, the state in which the organization is incorporated and also the customer’s type of organization, whether it’s a corporation, a partnership, an LLC, etc. All of these items help in instances of default and can provide creditors with quick access to information needed to better prepare them for legal action.

Hesse also offered suggestions on verifying the information received from a credit application and requiring, in the application, that customers alert a seller of any changes in ownership or location.

For more information about CMA’s education program, visit www.CreditManagementAssociation.org/events.

Credit Protection, Does It Guarantee Payment or Do You Need to Be “All-In”?, by Sam Fensterstock, AG Adjustments

“We have lien rights and we don’t need collection agency”. “We have credit insurance and we don’t need a collection agency”, “We factor our receivable, so we do not need a collection agency”. Are any of these statements 100% accurate? We hear these statements all the time and the answer is no.

Chasing debts can be a difficult and sometimes impossible job for any credit department regardless of your resources. As well as being time consuming, the problems associated with managing delinquent payment and writing off bad debt can be crippling to your company. At AGA, we believe in a proactive “all-in” approach using all the credit and collection management tool and services available to you that will help you avoid many of these complications.

Your perspective regarding how to manage the optimum credit department will shift and change depending on your company and industry. As with any career, your career in commercial credit is an evolution. I’d argue credit and collections is the ultimate onion profession, layered; Regardless of how long you’ve been in the credit profession the best of the best keep peeling back the onion learning more, trimming days.

For those in the construction trade it’s all about secured transactions and the lien and bond process. Are preliminary notices prepared timely and accurately, are deadlines being managed, liens filed correctly suits initiated on time? Some credit managers limit their focus to the collection efforts relating to the owner via his/her property as collateral or through a payment bond on a public job. We do not think you should limit yourself, think “all-in” with your credit tools. Obviously, you’ll need to maintain your rights efficiently in those construction situations where the dollars justify the expense, but what about putting pressure on your debtor? Think “all-in” and place the customer with a collection agency and pursue aggressive 3rd party collections in conjunction with the ladder of supply pressure. Even a personal guaranty, not typically used in construction credit, can assist your collection agency during their process.

The job is get the cash thru the door as quickly as possible. In the construction market, resolving your delinquencies from the bottom of the ladder of supply (debtor pressure from your 3rd party agency) in conjunction with pressure from the top of the ladder (serving your notice and filing your lien to engage the property owner and general contractor to force funds downward) can pay dividends. Save time and money, think “all-in” with the addition of 3rd party agency pressure being placed on your debtor simultaneously will typically help resolve your claim faster than simply serving and filing a notice or lien. In most cases, without the expense of filing suit against a payment bond or foreclosure, you won’t be giving up your rights to proceed should that need arise. Lastly, don’t assume your notices and liens are going to be 100% bullet proof, when it’s time to file a lien it’s time to place the account for collection. Of course, it’s important to work with an agency that understands construction credit.

Credit Insurance is another tool. It is commonly used to increase sales, increased borrowing availability, and help prevent catastrophic loss. The cost of credit insurance is based on the accounts that are subject to the insurance and their inherent risk. The cost for the policy will be a percent of your sales and depends on many variables, including trading history and historical debt loss of your company, your trade sector, and your customer portfolio.

Deductibles for credit insurance can also be an issue. The analysis of the solvency of your clients is followed by the setting up of limits carried out by the insurer. Credit insurance covers your company for loss of the credit insured, but rarely covers 100% of your accounts receivable, it’s usually up to a predetermined percentage. Depending on the risk category, the insured’s deductible can vary between 5% and 20%. The deductible is the amount that the insured must pay toward his own losses before he can recover from the insurer. Like any insurance submitting a claim can affect your premium therefore your “all-in” approach should include 3rd party collection efforts prior to submitting a claim to your carrier thereby reducing your need to submit the claim, paying the deductible and most importantly getting you paid faster.

Factoring is another tool that is used in many industries where extended terms are granted like apparel and furniture. However just because you have factored your receivables doesn’t mean that your fully protected. The most common type is Recourse Factoring where if your customer does not pay the factor on the factored invoices, you must repay the factor and collect your delinquent customer on your own. The other type is Non-Recourse Factoring where if your customer does not pay due to bankruptcy or insolvency you do not need to re-pay the factor. Given that Recourse Factoring is the most common, just because you have it doesn’t mean that you will never need to engage with a collection agency and sometimes you may have to go “all-in” and leverage every resource you can to help you collect what you are owed.

Conclusion

Waiting until customer’s invoices are past due is still a typical approach many credit & collection departments take to manage their accounts receivable, but this just creates problems and leads to a greater probability of incurring bad debt. Mitigating credit risk from the start, with an “all-in” strategy will enable you to better manage your accounts and prevent cash flow problems in the future.

Today, many organizations both large and small are taking a closer look at their credit & collection management process. Many have taken this analysis a step further by addressing all aspects of their credit process performance including efficiency, cycle times, available outside credit tools and their connection to performance. Understanding all the tools of your trade; To include credit applications, personal guarantees, credit reporting/monitoring, security and the utilization of a professional, methodical collection agency is the starting point then determining the combination that’s right for your business will have your department consistently in the best possible position to get paid, that’s “all-in”.

Sam Fensterstock is Vice President of AG Adjustments, CMA’s chosen collections partner. For over 40 years, AGA has been the most respected commercial collection agency in the nation. The company assists corporations with improving cash flow, while preserving a positive image with customers. It accomplishes this by employing the best and brightest talent in the industry, with low turnover and unparalleled tenure.

What is the Information in the Group Reports Not Telling Me?, by Larry Convoy

Larry Convoy, lead group facilitator

Having just completed a very informative Industry Credit Group call, I thought for a minute of the companies that did not participate on the call. Most of them contributed accounts to the monthly Past Due Report, many with considerable dollars in the 90-day past due column. That satisfied one part of their group responsibilities, yet by not attending, they lost out on valuable trade info about the accounts they had reported.

Had they been on the call or at the meeting, they would have heard two industry leaders give vital information on accounts they listed. They reported that they no longer sell to that account because of extreme slow pay, information not on the report but of great value. Had they been on the call or present at the meeting, they would have also heard about a major problem affecting payments on a large construction project that many suppliers are involved in or sell to a company who is. Again, this information was not on the report but of extreme importance. In fact, because the people on the call were major players in the industry, they knew something about most of the non-attendees reported accounts.

Numbers on a report do not always tell the entire story. Were you aware that there is a new A/P person at ABC Electric or that a Home Deport opened across from Acme Hardware causing a 60% drop in business? Did you know that a mutual customer is only cutting checks once a month or that Smith Food got hit with a large Tax lien? Information like this is routinely exchanged on these calls/meetings.

Only by attending the meeting/call can you be sure that you are getting the complete picture on the financial stability of your customers. The information is there for the taking. Insist on it by making it a priority to be at every group event and asking questions.

The answers might just save your company $$$ and you major headaches.

How to Spot Fraudulent Financial Statements

Evaluating a company’s financial statements can help credit professionals determine the creditworthiness of current or potential customers. However, sometimes fraud is committed within the highest company levels to deliberately alter these financial statements. That is why credit professionals need to be better educated at spotting distorted financial information on a company’s financial statement. This was the purpose of a past CMA webinar presented by Bruce Dubinsky, MST, CPA, CVA, CFE.

Dubinsky said credit professionals should ask one simple question when reviewing financial statements: “Does it make sense?” Dubinsky pointed out that certain information on a financial statement could send out a red flag that something is wrong. If that happens, a closer inspection of what went into the reporting of that information would be prudent. He said, “paper talks in different ways,” and offered tips on how to identify those things that should “jump out at you.” While some personnel may make some honest mistakes in preparing their company’s financial statements, Dubinsky noted that some company officials deliberately provide false information. When this occurs, it is fraud, which he defined as “one or more deliberate acts designed to deceive other persons and cause them financial loss.”

There are a number of ways people commit fraud. Some include the encouragement of investment through the sale of stock; demonstrating increased earnings per share or partnership profits interest thus allowing increased dividend/distribution payouts; covering the inability to generate cash flow; obtaining financing, or more favorable terms on existing financing; dispelling negative market perceptions; receiving higher purchase prices for acquisitions; demonstrating compliance with financing covenants; meeting company goals and objectives and receiving performance-related bonuses.

Financial statement fraud typically occurs through the overstatement of company assets and income and the understatement of liabilities and expenses, Dubinsky noted. Conversely, bankruptcy financial statement fraud typically occurs through the understatement of income and assets and the overstatement of company liabilities and expenses. For bankruptcy, the motive for committing fraud is to understate what the company is worth to its creditors. Therefore, it is important to determine the motives behind the presentation of a financial statement in order to figure out what type of fraud may exist on the statement. For example, overstating assets and income and understating liabilities and expenses could be designed to entice investors, to get bank loans, to obtain vendor credit and to get an inflated price in the sale of the business. The understating of assets and income and the overstating of liabilities and expenses could be motivated by a bankruptcy, divorce or, in shareholder disputes, as a way of reducing financial exposures. “Most times, fraudulent financial statements are used to deceive people to gain credit,” Dubinsky added. “Learning to understand the motive of why financial statements are submitted to you will give you a heads up of detecting fraud.”

Audited financial statements are no guarantee that the numbers haven’t been fraudulently manipulated. Dubinsky pointed to famous corporate financial fraud cases such as Worldcom and Enron that had audited financials. Audited financial statements are not designed to detect fraud, only verify that the numbers on the given financial statements add up correctly. He offered several examples of financial statements that could provide very different results by altering certain elements on the statements that are hard to verify without further investigation, such as the value of inventory or accounts receivables. For accounts receivables, Dubinsky recommended getting aging schedules for the end of the month for the last 12 months to determine any trends. If there is a sharp drop in accounts receivables, for example, he said this could be an indication of fraud. In order to provide protection from relying upon a possible fraudulent financial statement, he advised asking for a security interest in a particular asset that has appreciated, such as land. Another tip he offered was to pick out businesses listed on a financial statement and do a Google search on them to see if they really exist, to guard against fictitious companies providing fictitious receivables.

Other advice Dubinsky offered was to read audit qualifications carefully to learn more information about possible financial downturns of the company. He also recommended asking for the management letter of an audit. “There may be things in there to make you look at the financial statements differently. I would highly encourage you, if you’re granting a credit request for a high dollar amount to conduct a site visit,” he added. “When you’re doing a face-to-face meeting with someone, you’ll be surprised what they’ll tell you.” As a general piece of advice when evaluating financial statements Dubinsky said, “Put your level of professional skepticism as high as it can be without hindering the performance of your job.”

CMA has offered other webinars on this topic. To view a list of past and upcoming topics, visit www.CreditManagementAssociation.org/events

What You Need To Know To Protect Your Business From B2B Credit Fraud by Sam Fensterstock, AG Adjustments

INTRODUCTION

We usually associate credit fraud with the impact it has on individuals in the form of identity theft or phishing scams and the personal financial problems it causes, but what about businesses? What is the incidence of B2B credit fraud and is it a major problem?

Yes, it is a major problem. According to credit reporting agency, Experian, B2B fraud costs US businesses “more than $50 billion annually” and most analysts believe that that number is too conservative. It is also assumed that the incidence of fraud will continue to increase as the use of various electronic payment methods continues to grow.

HOW EXTENSIVE IS THE PROBLEM?

For an overview of the problem let’s take a look at some results from the Association of Financial Professionals (AFP) “Payments Fraud and Control Survey”, published in March 2015:

Some highlights from this survey are:

  • 62% of companies were subject to payments fraud in 2014.
  • The most-often targeted payment method by those committing fraud attacks are checks. Check fraud also accounts for the largest dollar amount of financial loss due to fraud.
  • The second most frequent targets of payments fraud are credit/debit cards.
  • 92% of survey respondents firmly believe EMV- enabled credit/debit cards will be effective in reducing point-of-sale (POS) fraud. EMV- Europay, MasterCard and Visa — is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions.
  • 61% of survey respondents believe that Chip-and-PIN validation will be most effective in preventing credit/debit card fraud.

Business fraud can devastate a company and as there are very few external protections it is up to the business to protect itself. A company must be aware of the various types of fraud that it may be subjected to and develop methods for protecting itself.

WHAT ARE SOME OF THE DIFFERENT TYPES OF B2B FRAUD?

There are many different B2B fraud schemes. Here are a few of them:

  • Account Takeover: This is similar to the phishing and telephone scams that affect personal identities. Here credit card or account information is intercepted and later used to place orders or otherwise defraud a legitimate business. This particular type of fraud accounts for a large percentage of B2B fraud occurrences.
  • Business Identity Theft: Here a scammer opens business accounts under the name of a legitimate business. The applicant acts as the business owner (or a representative) and utilizes their contact information to apply for credit or open accounts.
  • Commercial Bust-out: The culprit opens several lines of credit with the intention of eventually abandoning them once the credit limits have been reached. This requires that a good credit history be fabricated so that limits can be increased and maxed out right before the perpetrator disappears. This type of fraud results in millions of dollars of losses every year.
  • Never Payment: Here a business or individual opens a new account, by materially misrepresenting itself. They will obtain the maximum credit possible, but never make a payment.
  • Shell Companies: These are companies that are set up solely for the purpose of committing fraud. The entity will not sell a product or provide a service. Many times they are used to launder money. They rarely have a physical location, and if they do, it may be a storefront or offshore.
  • Bleed-outs: This method of committing fraud is similar to a bust-out. However, it is committed from within by insiders. Employees commit this type of fraud over a long period of time. They bleed out assets, leaving the company unable to pay its bills.

SOME CHARACTERISTICS THAT MAY INDICATE A POTENTIAL PROBLEM

Individuals and groups committing these types of frauds will often display many of the same characteristics. The following are some of the things you should look for:

  • Companies Without Long Histories: Typically, companies with longer track records are safer to do business with because they will have more credit history and references to check. The shorter the life of the company, the less you will have to work with.
  • Suspicious Changes in Ownership: A well-established company, with good credit, is taken over by a new group that tries to hide the change in ownership. This may signal a potential problem. It may be an indicator that members of the new owners are committing fraud.
  • Questionable Financial Statements: Mistakes or suspicious items on a company’s financial statements may be a harmless accounting error or signal a real problem. A detailed financial analysis is necessary before doing business with this company.
  • Fraudulent Credit References: False credit references on a credit application are a warning sign to forget about doing business with this applicant. Unless the applicant can prove it’s a clerical error and has other good references, doing business with this entity is an invitation to be scammed.
  • No Receivables: If a company’s financial statements do not list any receivables, assuming they are not a cash only business, they are probably a phony shell company that is not providing any goods or services to customers. Do not extend this company a line of credit.

HOW DO YOU PROTECT YOUR BUSINESS FROM B2B FRAUD?

Validate All Information

The easiest and most important step in B2B fraud prevention is to verify the information provided by companies that want to do business with you.

This means you need a credit application (see our blog on credit applications). All the information provided needs to be thoroughly reviewed and verified. Make sure everything on the application is accurate, and ask questions if it is not. Any material errors are a reason not to do business.

Additionally, if your business is contacted by a bank, credit card company, or government agency, don’t provide any sensitive information before verifying the legitimacy of their request.

Utilize External Credit Sources

A business can pull a credit report on another business to ensure that they are dealing with a credit worthy company. Unlike personal credit, which is protected by the Fair Credit Reporting Act (FCRA), anyone can pull a business’s credit report at any time without permission.

Utilize Fraud Detection Tools

Utilizing a fraud detection tool like Experian’s National Fraud Database allows you to compare credit applications and other information to current fraud records stored in a national database. If the applicant is in this database you want to be very careful about doing business with them. COD may be your only option.

Ongoing Transaction Review

Review your banking and credit accounts on a regular basis. Not doing so can leave you and your business a victim of fraud. Initially, transactions tied to fraud or illegitimate charges may not be large enough to indicate a problem, but by monitoring your accounts on a regular basis, you’ll be able to spot fraudulent transactions before real damage has been done.

Staff Education

Make sure you educate your employees on the various types of fraud and how to prevent it. You will sleep a lot better knowing your staff has the ability to protect your business against scammers and con artists.

CONCLUSION

B2B credit fraud is becoming more and more of a problem. Important business, financial and personal data are increasingly being compromised. Preventing and defending against B2B credit fraud is a challenge for companies. But you can limit your exposure and minimize losses due to such activity. Being aware of the problem is an outright necessity and implementing the protective measures described above will help reduce most of the risk of B2B credit fraud.

For over 40 years, AGA has been the most respected commercial collection agency in the nation. We assist corporations with improving cash flow, while preserving a positive image with customers. We accomplish this by employing the best and brightest talent in the industry, with low turnover and unparalleled tenure.

Why You Need a Good Credit Application, by Sam Fensterstock

 

As a commercial collection agency, the primary way AG Adjustments (AGA) helps our clients is through the collection of their seriously delinquent debt. One of the ways that our clients can aid in our collection efforts is by having their customers fill out a credit application that provides measures of protection and will increase the ultimate collectability of an account. We cannot emphasize enough how many times we have been successful in the recovery of our client past due monies because of their proactive approach in obtaining a well-drawn up credit application.

As a company working in the B2B space, the credit application is one of the primary tools available for controlling credit risk when extending credit to your customers and protecting your company. A credit application is a contract between the seller and the buyer. A good credit application will benefit the seller, a bad one the buyer. Therefore, it is important that your company be certain that your credit application, whether electronic or in paper form, contains all the safeguards and guarantees available to reduce customer risk. Securing a credit application, while certainly does not guarantee payment, is one of the more significant documents you can obtain in assisting in not only the credit decision but the ultimate collectability of your past due accounts receivable and collection fees. The adage that “the sale is not complete until the money is in the bank’ is as true today as ever. A good credit application will assist in getting your company to that point.

What Do You Need to Know to Control Credit Risk?

The credit application is your first step in gathering information about your potential customer. The more you know about them, the better off you are and the easier it will be to make a good decision and collect the necessary information to determine how much credit to extend them. You can never assume all the information on the application is correct and you will need to do your due diligence to help you verify the information provided you before you grant credit. Therefore, it is important that the sales department make sure that every customer fills out and signs the credit application prior to any goods or services being delivered.

A typical credit application requires that at least the following information be provided:

  • Name and address of the applicant
  • Name and address of any parent company
  • All contact information: I e: phone #’s, e-mail addresses etc.
  • Type of entity (i.e., corporation, partnership, proprietorship, etc.)
  • Names of principals/directors/officers
  • Bank references
  • Trade references -at least three
  • Tax ID and DUNS number
  • Availability of financial statements
  • Credit limit requested
  • Applicant’s agreement to payment terms
  • Applicant’s agreement to interest on past-due amounts
  • Applicant’s agreement to pay for legal and collection costs
  • Applicant’s personal guaranty(s) with spouses if possible and authorization to pull personal credit report with SS#.
  • Right to verify data on application from external sources (banks, trade references, credit bureaus, etc.)
  • Signer(s) is an officer or authorized to bind the buyer

The Most Important Things to Consider

A credit application serves two purposes: It is a data gathering tool and it is a contract. As a contract, it specifies the rights and obligations of both the customer and creditor. As you are writing the application, bear in mind that it’s a request for credit to be extended and should be written so that it provides your company an advantage if your business relationship fails, since we all know that “credit is not a right but a privilege.” The most important things to consider are:

  • The signer(s) must be able to legally bind the company. If the signer is not authorized to accept the terms and conditions of the credit application, they can’t sign the application.
  • If possible, make a personal guarantee part of your credit application. We would recommend that when extending credit to SMB’s that you get the owners and their spouses to sign a personal guarantee. While many personal guarantees have no value, it’s better to have one than to not and if a SMB owner is not willing to sign a personal guarantee, that might tell you something as well. You also want the social security number of the individual signing the personal guarantee so that if you must enforce it, you will have an easier time tracking them down in the event they abscond.
  • You want a stipulation that the customer will pay interest on past-due amounts and will pay any collection, legal fees and court costs that are incurred because of non-payment. If you do not have this detailed in your credit application, you will NOT be able to collect fees on your debt if placed with a collection agency. In the event of litigation, it is up to the local courts jurisdiction if collection fees, attorney fees and interest will be awarded
  • You want assurance that only the disputed portion of a past due amount will be withheld.
  • If you file suit over non-payment, you want it to be as convenient as possible. The choice of venue must be yours. While many creditors will request suit in their local jurisdiction, this is not necessarily in a creditors best interest. The customer’s assets are normally local to their whereabouts. Therefore, in the event post judgment remedies are needed the judgment must be recorded in a debtor’s local jurisdiction to attach assets.
  • You want authorization to obtain information from credit bureaus, banks and trade references both before authorizing credit and ongoing once they are a customer.
  • You want current financials and the ability to obtain financials in the future once they are a customer.

Verifying the Credit Application

Once you have the credit application in hand, you need to verify the information it contains. At least three trade creditor references should be contacted as well as their banks to verify the existence of their checking account. You should be sure that all their references are legitimate. If for some reason you can’t contact one, be sure at least that they exist. Any false information on the credit application is a valid reason for not doing business. If the buyer is looking for a substantial credit line, make sure you review their financials, especially a statement of cash flow. If they are operating in a negative cash position you need to be sure that they will have enough cash available to pay you. Limit their credit line or at the very least change their terms if it looks that they may have a cash flow problem.

Once They Are a Customer

Periodic credit reviews are a necessity. Major account defaults can come from existing long-term customers as well as the new ones. Customer credit limits should be reviewed periodically, at a minimum once a year. Get current financials from your accounts annually if possible. Make sure their cash position can support their business. CMA offers many solutions to help you check credit, from bureau reports to credit group meetings, trade references and more. Additionally, obtaining current credit bureau reports on your largest customers, annually, is a good idea. Stay on top of your accounts receivable aging. If a customer is always 60 to 90 days past-due on some part of their balance, they are only one period away from being a problem.

A sample credit application can be found by following the link below:

https://images.template.net/wp-content/uploads/2016/05/07061009/Sample-Credit-Application.jpg

 

Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

From Policy to Profit: The Value of Having an International Credit Policy and Procedures, by Eddy Sumar


Many believe that having a credit policy is very restrictive, while others say it is not needed because the world is constantly changing and it is difficult to keep up the pace. Yet a third group touts its value in a changing world. From these samplings of answers and beliefs, we can say that credit policies need to be put in the proper perspective and place.

What Policies and Procedures Are and Are Not

Policies and procedures are not a straightjacket. And if they are to be restrictive, it should be with a compelling reason and cause. In fact, they should act as a seat belt that can be expanded or contracted depending on the situation and circumstances. They should not be used as a platform to penalize and punish. They are not meant to be rigid, capricious and inflexible. Though they convey permanency, they are not permanent. Policies and procedures are set to facilitate, not debilitate, the business process. They are set to empower, not to enslave. Policies and procedures are dynamic and they should serve the company as well as the customer. They should be reviewed periodically to ensure that they reflect up-to-date requirements and the real business climate and environment.

When we look at credit policies and procedures from a wider perspective, we can clearly see that they serve an important purpose and a vital role in the health of the organization. They act as strategic guides that point to the direction and path that need to be followed. They spell the tactics that need to be employed, on a daily basis, to ensure control and compliance.

Policies and procedures should be used as guidelines and a platform to facilitate the company’s operations. They create a map that every member of the business enterprise can use to ensure the smooth handling of the tactical and day-to-day operations, as well as to gain insight into the strategic intent of Company. Policies and procedures, if conveyed properly to the sales team and the customer, could help all understand the why, why things happen in a certain fashion. Educating all stakeholders on the Company’s policies and procedures will ensure not only excellence in performance but will result in a more satisfied customer.

In short, policies and procedures are a NEED. Companies need them to safeguard their financial stability and prosperity.

The Five Cs

When a company constructs its policies and procedures, they need to build them on the Five C’s:

1. Compliance
2. Communication
3. Coaching
4. Consistency
5. Cashflow

Compliance: We live in a highly-regulated environment. And companies, both domestic and international, act and interact in this environment. Thus, they need to be aware and compliant with the demands and requirements that the environment presents. No company can afford to be found lacking and non-compliant. International Credit Managers perform strict due diligence on country and client. They ask their prospects and clients to fill out a credit application. They verify, inquire, investigate, obtain credit reports, perform non-financial and financial analysis, employ the AW Matrix, and they cross-check every C of credit before they make a credit-decision. In fact, credit decision makers must be well informed and up-to-date on every development in the environment.

Communication: Credit policies and procedures are a communication tool. Thus, they need to be clear, concise, relevant, and timely. They communicate the vision and mission of the organization and its departments. They are used to communicate with internal and external customers. They communicate goals, expectations, and KPIs. They explain processes and procedures step-by-step. In fact, credit decision makers should use their policies as a vehicle to communicate and build understanding, collaboration, and buy-ins.

Coaching: Because of the detailed nature of policies and procedures, credit professionals should use them as a coaching and training vehicle. They should use them as a tool for coaching and developing employees and clients. When used for coaching, they become easy to adopt and implement. Policies and procedures should be used as a vital component of training manuals and new hire orientation training. In fact, a credit policy and procedure manual should be a book that codifies the existing body of functional, technical, and experiential knowledge to preserve it and later transmit it when needed.

Consistency: A Credit policy, when shared with all stakeholders, pursued zealously, and followed closely should result in consistency and stability. A credit policy spells the path and the steps to be taken as well as provide the guides for well-informed decisions and common sense, intuitive decisions. When all follow the policy with common sense empowerment, then consistency will reign and goodwill will expand.

Cashflow: As the title of this article conveys, policies should lead to profit and expansion of profit. When a company follows its policy, and ensures compliance, it will protect itself from lawsuits and penalties. When a company follows its policy, and ensures that its communication is clear, concise, relevant and timely, then it can save time, efforts, and money in dealing with complaints and internal and external customer issues. When a company follows its policy, and uses it as a coaching tool, then it can save time and money in looking for new personnel and even new clients. Coaching helps training and retaining of employees and clients. When a company follows its policy, and ensures consistency, then it can save enormous amount of resources on reworks, defects, low morale, employee turn-over and loss of customers. And when a company follows its policy, and ensures it cashflow, it has indeed not only protected its profit, but actually realized it when cash was collected and deposited.

I know of a company that has a policy of reviewing its key accounts daily. Every member of the credit department as well as their sales team is daily involved in a debriefing on these key accounts. The consistent application of this policy helped the company reduce its bad debt account and expedite its collection results. Consistent application of policies and procedures PAYS!

In short, a credit policy is not a want or a desire, it is a need that can protect cashflow, realize profit, and create expansion.

Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is a frequent contributor for CMA, and a longtime speaker and educator on international credit related issues. He spoke at a recent International Best Practices Forum meeting, the recording of which is available on demand. He can be reached at 909-481-9869 or ealberto@aol.com.

Why do Businesses Need Third-Party Collection Agencies to Maximize Cash Flow and their Bottom Line

by Sam Fensterstock, AGA
“Cash is King,” and if you are not maximizing your cash flow, it can have serious repercussions on your operations and bottom line. Most companies, in particular SMBs, wait too long to aggressively go after their slow-paying accounts. It costs four times as much to bring on a new customer as it does to keep an existing one, so no one wants to lose a customer over collection tactics. However, once a customer on credit goes 90 to 120 days past due and is no longer ordering and paying down the old balance, it is going to become more and more difficult to collect these accounts with only internal resources. The effect of your customers owing your company money for too long can be significant.

HOW IMPORTANT IS CASH FLOW?

The difference between the beginning cash position and the ending cash position of a given period is called cash flow. If you take in more than you spend you have a positive cash flow, the reverse is a negative cash flow. Cash flow is one of the major indicators financial institutions use to evaluate financial health. Banks and financial institutions are not going to loan you money if they don’t think you can pay it back. Remember, when you borrow money for any purpose, you are going to pay it back with future cash flow. You can’t pay it back if you have a negative cash flow.

HOW CAN YOU DETERMINE IF YOUR CASH FLOW CAN BE IMPROVED?

Collecting your accounts receivable as quickly as possible is a major factor in having enough money to cover current operating needs and pay off your debt commitments. There are several credit and collection performance measures that can tell you whether you are collecting your accounts efficiently, or if you need some outside help to improve your cash flow. We will discuss two of the most popular ones:

Days Sales Outstanding (DSO)

DSO is a measure of the average time in days that receivables are outstanding. It can be used to compare your company to other organizations for identifying whether your company is converting receivables to cash efficiently. In most instances a DSO under 40 days is good assuming you are giving 30 day terms. A DSO from 34 to 38 indicates very good operating performance and a DSO over 45 indicates that you are not converting your receivables efficiently and that some outside help may be necessary. The formula for computing DSO is:

(Ending Total Receivables x Number of Days in Period)/(Credit Sales for Period Analyzed)

A sample calculation is:
Ending Receivables = 1,000,000
Credit Sales for Period = 750,000
Number of Days in Period = 31

DSO =(1,000,000 x 31)/(750,000) = 41.3 days

Collection Effectiveness Index (CEI)

This measure was developed by the Credit Research Foundation (CRF) and is thought to be a far better measure of collection effectiveness than DSO. It produces a percentage that measures the effectiveness of collection efforts over time. The maximum value is 100% and the closer you are to 100% the more effective you are. A CEI under 75% needs to be improved or your cash flow will eventually be negatively affected. The formula for computing CEI is:

(Beginning Receivables+(Credit Sales/N ) -Ending Total Receivables)/(Beginning Receivables+(Credit Sales/N )- Ending Current Receivables) x 100

N = Number of Months
A sample calculation is:
Beginning Receivables = 800,000
Credit Sales = 750,000
Ending Total Receivables = 1,000,000
Ending Current Receivables (all invoices not yet due) = 700,000
N = 1

CEI =(800,000+(750,000/1)-1,000,000)/(800,000+(750,000/1)-700,000) x 100 = 64.7%

Notice the difference in the results of the two calculations. The DSO is acceptable, but the CEI is not.
Realistically, whichever measure you use, it should be computed frequently (monthly if possible) and reviewed over time. If it’s trending downward, even if it is not yet unacceptable, you should consider bringing in outside help to stop the downward trend before your cash flow is seriously affected.

WHY USE A THIRD-PARTY COLLECTION AGENCY?

Any receivable not collected represents a loss and affects your bottom line. You have laid out money for goods produced or services rendered and not collected the money due your company. Your cost of sales has gone up, but your revenues haven’t. That’s a net loss and your bottom line has been reduced accordingly. For example, suppose your profit margin is 10%. In other words, on a $5,000 sale you make $500, or your cost of sales is $4,500. If you have to write off $50,000 of receivables in a year, you need an additional $450,000 in sales to make up for it. Sometimes not such an easy task.

There are at least three good reasons to use a collection agency to help collect past due accounts:

A collection agency will collect from accounts that you could not. Your past due accounts won’t talk to you but they will talk to an agency or the collection agency’s attorney. The agency knows that to collect they must make contact with the account and they won’t stop trying until they do. A good collection agency will make 10-15 attempts to reach your former customer in the first 30-45 days they have the file, typically about three times the number of attempts your internal staff will make. As their fee is based on what they collect and agency will be more persistent and assertive than your internal collectors are at this stage of the customer lifecycle. Just remember this, collection agencies don’t get paid unless they collect your money and collection agencies do not want to work for free.

Using an agency frees up the time and resources needed to manage your current active business. Collecting money is very time consuming. You need to send letters, emails, possibly make customer visits and make phone calls, lots of phone calls. This takes time away from the things you and your employees need to do to manage and run your business on a day to day basis.

A collection agency utilizes technology that you do not have. This makes them far more proficient at collecting money than their clients. They possess advanced tools that help them find and make contact with debtors. This technology is costly and unless you are in the collection business you won’t have it. Additionally, their personnel are professional debt collectors. That is what they do and they do it well.

CONCLUSION

According to Commercial Law League of America, the amount of money you are likely to collect from a past due account is directly correlated to the age of the account. Once the account is 90 days past due you will most likely collect only about 70% of the amount due, and after 6 months only about 50%, and the amount likely to be collected continues to go down rapidly from there.

If your customer has not paid you and they are more than 90 days past due, there are no new orders coming in the door and they are not responding to your request for payment you are probably not going to get paid on your own. For these types of accounts, it makes business sense to place them with a 3rd party collection agency now and at least get 30-40% of your money back. This will allow you to maximize your cash flow and minimize the negative effect on your bottom line.
About AGA

For over 40 years, AGA has been the most respected commercial collection agency in the nation. We assist corporations with improving cash flow, while preserving a positive image with customers. We accomplish this by employing the best and brightest talent in the industry, with low turnover and unparalleled tenure.

Why Are There No Pictures of Credit Managers, by Larry Convoy

As I travel around making visits at member companies, I am constantly amazed how many of the lobbies are shrines to the Salesperson of the Month or Regional or District Team of the Quarter, or some like group. Being in sales, I know how difficult it is to achieve and maintain some of these goals, so I certainly do not harbor any ill feelings for this recognition.

My question is, where are the pictures and accolades for those who open, investigate, monitor and routinely babysit the account so that the customer continues reordering and the sales team earns their plaques on the wall? Is management aware of the contribution you are making to this effort?

Do they know that information from CMA’s Group alerts prompted you to put the account on COD months before the BK, thus saving the company major dollars? Are they aware that knowledge picked up at a CMA Lien webinar or protection you gained by placing a lien through CMA’s lien services department showed you how to protect your rights and receive payment when others did not? Do they know that by analyzing credit reports, you were able to raise the credit limit and therefore assist the sales team in making their numbers?

It is not a violation of group confidentiality to inform senior management that their investment in CMA and the group has resulted in major savings or increased revenue. By informing them routinely how THEIR decision has benefitted the organization, you will have an easier sell at renewal time or when you wish to attend an educational event or possibly at your annual review. If you are not going to tell them, who will?

I look forward to seeing your picture prominently displayed as a valued member of the team.

Why it’s Important to Participate in CMA (and How You Should Participate), by Larry Convoy

Larry Convoy, lead group facilitator

If your Industry Credit Group is anything like some of our other groups, your participation has never been more vital to your company.

We are seeing the super stores (Costco, Home Depot, Walmart, etc.) taking a very substantial market share from the small- to medium-sized businesses. Amazon and other internet-based sites are making it easy for anyone to order any product regardless of where they are located. The days of neighborhood stores and reliable customer service are being replaced by free shipping and easy return policies.

The best way to stay ahead of this trend to protect your company is by participating daily in your industry credit group.

By posting alerts, you not only send out a warning, but it might trigger another member to look at their aging and see the same customer slowing and now a pattern develops. This is exactly the scenario that saved members of the Underwater Sports group from large losses when two major sporting goods companies filed BK in 2016. Post your alert at the first sign of slowness.

By requesting and responding to RFIs, you get a complete picture of the customer you are dealing with. Can the customer handle the total outstanding balance on the report? How is he paying his other suppliers?

The third advantage you have is the monthly meeting/ conference call. There is no other profession where companies share trade and Best Practices with their competitors for their mutual well-being. The meeting is about 90 minutes including lunch, the calls are usually half that time. There is no task that can be performed in that time span that could have a greater financial effect on your company.

There are some extraordinary people in CMA’s groups that know that if they pick up one piece of information at a meeting, on the call or through an alert/RFI, it is time well spent.

The date or call in number is located on your group home page on www.anscers.com. Plan on participating at your next meeting and throughout the year.

Future Dates Set for International Credit Best Practices Forum Meetings

The inaugural international credit best practices forum, which took place in January, was an overwhelming success amongst CMA members, as dozens listened in on the conversation led by international trade expert Gary Mendell of Meridian Finance. Based on the success of the meeting, CMA has scheduled the subsequent monthly meetings, which are listed below. Each meeting will address a to-be-determined different international topic, with a 20-to-30 minute discussion led by a thought leader, a question-and-answer session and open forum.

 

The dates (and links to register) are as follows:

These meetings, which are delivered in online webinar format, are subject to special pricing of $20 per meeting for members, while non CMA members will pay $30.

 

For more information about how you can get involved, contact Alan Dicker at adicker@emailcma.org or 323-573-0840.

Seven Signs That Your Customer Has a Problem and May Need to be Placed for Collection, by Sam Fensterstock

This is a common-sense approach to the problem of determining whether a customer is about to become a collection problem. Companies that have a cash flow problem must choose which vendors they will continue to satisfy and which vendors they will not. If a company has insufficient cash on hand to pay all of their vendors on a timely basis, some of their vendors are not going to get paid on time. This can be a one-time problem and things could get back to normal fairly soon, or it can be an endemic problem and if you don’t act promptly it may cost you.

When you first spot a problem, you are not going to know whether it’s a short-term thing or the customer is in financial difficulty. It behooves you to make a determination and act as quickly as possible. Some of the signs to look for are discussed below. Essentially, they represent behavioral changes in the account. The chances are that if the account is having financial problems more than one of them will be evident, but the occurrence of only one may still signify a real problem. In any event, once you make your determination, the quicker you turn the account over for collection, the more likely you are to realize a significant cash return. Here are the things to look for:

The Account is Over 90 Days Past Due

The customer has been a solid citizen and almost always paid on a timely basis. Now they are 90 days past due, and it seems they are struggling to not go to 120. They answer your calls, but promises to accelerate their payments and clean up the past due balance are not met. They may also be evidencing some of the behavior discussed below. The chances are you have a problem and turning them over for collection may save you some money and in many instances, save you a customer.

The Account is Not Returning Your Calls

This is a sure sign of a problem. They are past due and ducking you. If they won’t talk to you after repeated attempts to reach them, your collection agency may be your only solution. Collection agencies have trained recovery professionals that focus on working with these types of accounts and experience this problem as a normal course of their daily activity. They will get your customer to the table because it’s what they do for a living.

The Account Has Started Purchasing Erratically

Over time, the customer has always bought, even if it’s seasonal, a reasonably predictable amount of product. Your salesperson on the account can’t understand what’s going on. There are several possible reasons for erratic purchasing. It is possible that the demand for your product(s) has become highly variable and the customer is purchasing accordingly, or your customer is having financial trouble and is having difficulty staying current. If other customers are still purchasing the same products on a consistent basis than the chance that there is a demand problem is small. So, a financial problem may be the reason. This is something that needs to be checked out before it costs you money.

The Account Has Stopped Buying

If the account has stopped buying and owes you money, even if it’s not past due, you need to be on the alert. For whatever reason, if the account no longer needs you, they don’t have a reason to be prompt. If they go 90 days past due, you are probably going to need outside help to collect your money.

The Account Changes Bank Accounts Too Frequently

Good banking relations are vital to a company’s health. If your account is suddenly paying you from a different bank it may not signify a problem, but if they pay you from a different bank every time they send you a check, something’s wrong. This needs to be checked out. An updated credit check is called for, and if it doesn’t come out clean, you need to pay extra attention to the account because, if they are not overdue yet, the chances are great that they soon may be.

You Receive Negative Trade Information on an Account

As of now, the account is not past due, but you receive some negative trade information on the account at a recent credit group meeting or from a credit report. This needs to be checked carefully. When an account gets into trouble, they start allocating their available cash. The more important vendors may not see a problem, but the secondary vendors find the account is falling behind. For example, if the account is a supermarket, to be in the soda business they need Coke and Pepsi. The alternative soda brands will see a problem, but Coke and Pepsi will not until the company is ready to go belly-up.

The Account Has Several Unresolved Disputes

There are always disputes with customers. They received the wrong items, or the items were received damaged, or they were entitled to a discount are some of the reasons an account will not pay an invoice in-full. However, these types of disputes are easily settled if both parties are willing to compromise. But when an account refuses to settle and the dispute grows old, and additionally more invoices are disputed and they too age, you have a problem and it has nothing to do with the disputes. The account is holding on to cash and the disputes are a way of justifying their non-payment.
Final Thoughts

We recommend having a strategy in place to determine when to pull the trigger and place a customer with your collection partner. The warning signs listed above are usually evident during your internal collection efforts and the sooner you recognize them the better. We recommend being proactive with your internal efforts as soon as your customer is past due. If the customer is more than 90 days past due, you obviously have a problem and the account should be turned over for collection to maximize your cash flow.

But even if your customer is not 90 days past due, you may be about to have a problem. When an account evidences any of the behavior discussed above you need to get on their case sooner rather than later. Prompt action will save you money. If the account is behaving erratically you should turn them over as soon as they trigger the 90 days past due signal because in all probability things are not going to get better, only worse.
Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

Detecting Fraud: Basic Checks You Should Do Before Extending Business Credit

With the recent rise in bankruptcies, it is more important than ever before to have a handle on business to business (B2B) risk management. More and more fraudulent companies are emerging, as business lines are being blurred from start-up manufacturers operating from a garage, e-commerce “e-tailers” businesses that may or may not be legitimate. Because of this, it’s tough for credit managers and risk management professionals to tell the good companies from the “bad” ones.

So what’s a credit professional to do? Here are several activities you can do before you decide to extend B2B credit.

  • Validate their address. With Google maps, you can tell more about the location of a business than ever before. Does their address come up on Google maps? Does the satellite view (photo) show that they’re a residence or a business? Are they located in an area where it would be impossible to do business (i.e., a forest)? Answering these location questions ahead of time could alert you to red flags of fraud before you take them on as a client.
  • Make them fill out a credit application and check and confirm their credit references. When you call their list of references, are they companies who’ve done businesses with them recently? Are the phone numbers of their references valid? Are the numbers for all companies mobile phone numbers, leading to the conclusion that these are individual numbers not businesses? Are the references related to the potential client? If any of this data they provide sounds fishy, it could be another red flag.
  • Visit the customer’s website. There are many red flags that can be gained by visiting the site, including poor design, phone numbers not matching those given in the references, broken image links and other items that can cause you to question the validity of the business.
  • Utilize your Industry Credit Groups. Utilize the knowledge of your fellow industry credit managers by bringing up any suspicious companies during your Industry Credit Group meetings. As we see repeatedly in Credit Group meetings, fraudulent companies tend to go to multiple companies in a particular industry until they get what they need. Additionally, anscers RFIs and alerts can help you on an as-needed basis, and CMA members get unlimited access to these alerts and RFIs.
  • Use credit reports and decisioning data to help. CMA provides access to reports from the major reporting agencies and also offers the NACM National Trade Credit Report, which aggregates information submitted to all of the NACM affiliates that is not typically provided to the major credit reporting bureaus. And better yet, CMA members who contribute their A/R information receive 25 free NACM reports per year.
  • If you’re in the construction industry, consider using THE Construction Credit Report, providing access to public record data; title search (with live links to actual documents) on mechanics lien filing/release; notice of completion; notice of Lis Pendens (action/discharge); tax lien or judgment; active trade lines; credit analysis and score; collection agency and factoring company activities; and links to state Registrars Of Contractors. For more information on this unique report, click here.

If you consider doing these tasks before deciding to extend credit, you’ll help eliminate obvious fraud from occurring, protecting your company’s most valuable resource, its accounts receivable.

What processes does your company have in place to help protect from fraud? We’d love to get your input!

What Can You Expect When You Instruct Your Collection Agency to ‘Go Legal’ Against Your Former Customer, by Sam Fensterstock

Let’s say that you have placed your former customer for collection and your agency demands, as well as the local attorney, demands have not been successful. Your agency along with your attorney believe that litigation is your only option in hopes of being paid, provided that the amount due falls above your suit parameters. Had the former customer filed for bankruptcy, you can forget about a lawsuit and write off the receivable. In this situation, if you want to have any chance of collecting, your agency along with your attorney will review all documentation supplied along with a review of their internal efforts and investigation and make a recommendation to you regarding the filing of a lawsuit in the debtor’s locale.

SOME THINGS TO CONSIDER BEFORE FILING

Upon agreeing to litigate, your agency will then provide your attorney all of the information they have on your claim including amount due, principal and interest; debtor’s contact and phone number; nature of your business; details of any dispute and creditor’s response with copies of memos and correspondence. Additionally, they will provide the attorney with any documentation they have including: credit agreement; contracts, leases, personal guarantees, promissory notes, and NSF checks; purchase orders, delivery receipts, invoices, and statements of account; etc. The attorney will use this information during the legal demand process to try to bring the debtor to the table as well as use to substantiate their pleadings if suit is filed.

If the attorney has exhausted all their demands with no positive result, the next step is to consider a lawsuit. Before bringing a lawsuit, you want to be very sure that you have a good chance of winning. It is going to cost you some upfront money to file a lawsuit, and it would be silly to spend it if the debtor is out of business and you have no personal guarantee or if it is a highly contested debt and debtor has a good chance of successfully defending it. If you are going to file a lawsuit, you need to determine whether any of the following debtor defenses are possible:

• Could the debtor claim a prior payment?
• Is the amount due an offset?
• Does the debtor have a basis for a counterclaim?
• Is the debtor disputing the balance and has documentation to back it up?
• Is payment barred by the statute of limitations?
• Were the goods and/or services provided deemed inferior by the debtor?

If any of these defenses, and there are more, is possible then you may want to think twice before filing a lawsuit, because if you have to go to court the suit may become expensive, and there is a chance you might lose, thereby increasing your cost with no reward. Also remember, having a personal guarantee always helps. Furthermore, if a defense is expected, can you supply a witness at trial? Keep in mind the expense of travel as well as time your witness may need to be deposed or attend and testify at trial.

Many times a lawsuit will bring your debtor to the table to negotiate a payout or settlement. Also, keep in mind that at any time during the process, the debtor can file bankruptcy, which will immediately halt any legal proceedings or they can simply go out of business.

COURT COSTS AND FEES

Your agency will provide you with the attorney’s contingent fee requirement as well as any non-contingent fee requirement.

Court Costs

Filing a lawsuit costs money. Included in the suit costs will be:

• The cost of filing a summons and complaint

• The cost of serving the debtor

• Costs for various required attorney actions during the course of the lawsuit.

The attorney will require, in advance, their estimated costs for filing a suit and obtaining a judgment. The amount required will vary based upon jurisdiction and the venue where the lawsuit is filed. In addition, these fees are not negotiable as these costs are set by the courts.

These costs, however, most times are non-contingent and may not be lost. If you win, the court costs in connection with the lawsuit may be recovered from the debtor and you are entitled to a full return of the costs advanced if the debtor is required to pay costs as part of the judgment. .

Attorney Suit Fees

Essentially, these fall into two classes –contingent and non-contingent. Contingent suite fees, i.e., a fee based on the amount of the account as well as the amount collected. In addition to the contingency fees already applied to any monies collected, suit fees may also be charged. In essence, the suit fee is an additional fee the attorney earns for filing suit, no matter if you are successful in collecting.

The attorney may require a non-contingent fee to handle the case. This is a portion of the fee which attorney will earn upon the filing of suit. The non-contingent suit fees be applied towards the total suit fee the attorney earns which normally does not exceed a total of 10%.

HOW LONG WILL THE AVERAGE CASE TAKE?

If everything goes the attorney’s way and you get a default or no acceptable defense judgment, you can figure on six to nine months. However, every case is different and if the debtor puts up a fight it could take several years before a resolution is reached. The “wheels of justice move slowly” and creditors right litigation is no different.

COLLECTING A JUDGMENT

You have won your case and received a judgement from the court against your former customer, now all you have to do is collect the money due. If the debtor is located in the jurisdiction that the suit was filed then garnishments, marshal/sheriff levies, i.e., direct action against the debtor is possible. However, collecting a judgement can be a complicated matter. The lawsuit should always be filed in the jurisdiction where the debtors and their assets are located. Using a national agency that has the experience as well as database of local attorneys who specialize in collection litigation is a plus. A national collection agency has highly trained staff members who are familiar with the various laws of each state and their expertise affords them the opportunity to “quarterback” your attorney. Their goal is the same as yours, to conclude the matter as quickly and professionally as possible and maximize the money that is recovered. Some of the benefits of using your agency to handle your lawsuits:

• The agency can employ local attorneys who are bonded and insured to move the case as quickly and expeditiously as the local courts will allow.

• The agency can act as an effective conduit between you and the local attorney, thereby collecting the maximum amount in the shortest possible time while protecting your interests.

• The agency has more expertise, in collecting debtor judgments, in terms of volume of accounts and trained and available staff than any law firm. It is their business and their only business.

CONCLUSION

In the event that an account that you submit to your collection agency winds up with an attorney for litigation, before filing a lawsuit, carefully evaluate your chances of winning before you throw good money after bad. However, many times a lawsuit is your best and only chance of collecting.
Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

How CMA Supports Collaborative Learning and Leads Change in Credit Operations, by Mike Mitchell, CAE

CMA President and CEO Mike Mitchell
CMA President and CEO Mike Mitchell

Thanks to all the credit practitioners, industry experts, and industry partners who participated in the many valuable conversations at CMA’s recent CreditScape Summit. Our goal was to create an interactive, collaborative learning environment, and I was so pleased with the high level of sharing among all participants throughout the two-day event.

 

I was equally pleased with the audience response to facilitator Bob Shultz’s approach to process improvements within what he calls the Cash-to-Cash cycle. Also known as the cash conversion cycle, Shultz emphasized that the role of credit management extends beyond basic credit and collections processes. There is the opportunity to impact the company’s liquidity through good inventory and accounts payable management, in addition to traditional accounts receivable management. Collections trainer Bart Frankel recommended that credit people take responsibility for helping to resolve issues that arise out of these “other” departments, as they ultimately impact the credit department’s effectiveness in granting credit and collecting receivables.

 

Experienced credit practitioners and other credit industry experts shared specific examples of how they successfully influenced and improved processes across the Cash-to-Cash cycle and created more cash flow from operations.

 

Another example of how CMA is advocating for the expansion of the traditional role of credit within the enterprise is the suggestion that credit can support procurement in evaluating the risk of critical suppliers. Recently, I had the unique opportunity to participate as a panelist in the fourth annual Global Supply Chain Management Conference at USC’s Marshall School of Business. As panel moderator, CMA Member Alvin Moreno, Director of Global Supply Chain Credit Risk with Nestle USA, made the case that the credit department is best positioned to help the procurement department assess the financial stability of a company’s suppliers. In the wake of shipper Hanjin’s bankruptcy, supply chain disruption has continued to grow as a concern for companies that rely on critical suppliers, which gives credit the opportunity to add new value to the business.

 

As a panelist, I told the audience of supply chain professionals about how CMA has worked with Alvin, his team at Nestle USA, and other CMA Members to create a special credit group in which credit managers collaborate on processes and best practices in supplier risk evaluations. More information about that collaboration is here.

 

Clearly, we at CMA are big fans of process improvement through collaborative learning. But as I mentioned in my opening remarks at CreditScape last week, credit managers need to step up and become credit leaders if they are to be successful in driving the organizational changes necessary to make those process improvements a reality.

 

How are you leading change in your organization? I welcome your feedback.

Why Are Lien Waivers Important?, by Sergey Garanyants

Lien waivers and releases, which were once just a way for owners and general contractors to make sure they wouldn’t have to pay for the same work or material twice, are now became something much more broader affecting much more than just a mere mechanic’s lien rights.

Mechanic’s liens (a.k.a. construction liens) are designed to provide additional protection and way to ensure payment for contractors, subcontractors or suppliers for the work provided or material supplied. A mechanic’s lien essentially gives the person or company an interest in the property equal to the unpaid amount, affecting the owner’s ability to convey or transfer the property free and clear without paying the amount owed. While such laws aim to protect contractors and subcontractors, it also creates a risk for property owners and real estate developers of paying for the same work or material twice. In an attempt to protect themselves, developers, property owners and contractors are now increasingly insistent on the practice of obtaining a signed waiver or release of lien rights to the extent actually paid, as condition to furnish any payments to contractors and subcontractors working on the project. However, signing such waivers may directly or indirectly cause for contractors and subcontractors to “sign away” many of their rights to dispute contractual and related project issues.

Modern-day construction lien waivers and releases became much broader than simply addressing mechanic’s liens. In some instances, signing a release not only waives the right to file a mechanic’s lien, but also waives the ability to file claims for any other related issues, such as breach of obligations by a party to a contract, delays caused by mismanagement of the project, or additional expenses incurred. Contractors, subcontractors and suppliers should remember to preserve their own rights when executing any construction waivers or releases. For example, if a subcontractor is concerned about underpayment, it could refuse to accept payment until the general contractor has been paid in full, or the subcontractor could accept payment, but note on the release that it was reserving the right to make certain additional claims.

Many projects usually only have one general contractor, and each general contractor knows all of its subcontractors or suppliers, each of whom may be eligible to file a mechanic’s lien. However, many state construction lien laws are now allowing tier 2 and tier 3 subcontractors, including suppliers and others with whom the general contractor has no direct relationship, to file mechanic’s liens, thus creating a much larger and potentially unknown number of parties that are able to create liability on the project. That is why many general contractors require their subcontractors to acquire signed lien releases from all other subcontractors and suppliers on a periodic basis before issuing any payments. One of most common issues challenging the ability to secure signed lien releases on a monthly basis is the struggle of many companies to maintain enough cash flow to make all of their payment obligations in time. It can be easy for companies to find themselves in a difficult situation in which they can’t afford to pay their subcontractors or suppliers right away, and, in the same time, they can’t obtain payment from the general contractor or the owner without first providing a signed release stating in turn that they have already paid everyone.

It is vital that general contractors and subcontractors review the proposed contractual language carefully in order to ensure the appropriate cash flow and lines of credit, so they are able to fulfill their payment obligation when required. Carefully review the exact terms of any release or waiver you are expected to sign. Exercise care before accepting any payment, particularly if the payment is not for the full amount owed. Most importantly, always remember that lien waivers are separate obligations, and no matter how unfair the underlying result may be, courts are very likely to uphold provisions of signed waiver or release.

Source: Joshua R. Lorenz: “Mechanic’s Lien Waivers Place Burden on Contractors and Subcontractors; Construction Law”, the Legal Intelligencer (Online), September 6, 2016; Copyright 2016 ALM Media Properties, LLC.

Sergey Garanyants runs CMA’s Construction Forms Filing Services, helping CMA members in the construction industry protect their lien rights in all 50 U.S. states. For information about CMA’s construction forms filing services, visit http://creditmanagementassociation.org/services/construction-forms-filing/ 

How Did the Underwater Sports Credit Group Get Started, Keep its Original Objectives and Continue to Thrive?, by Larry Convoy

How does an industry credit group get started, keep its original objectives and thrive? Take the case of 55-year-old CMA Group Underwater Sports.

On July 12, 1961, representatives from Healthways, US Divers, Voit, Swimmaster and Sportsways held the first official meeting of the newly formed Underwater Sports Equipment Credit Group facilitated by Credit Management Association. These pioneers knew that in order for this industry to grow, manufacturers and retailers must establish guidelines for extending credit, investigating and monitoring new and existing accounts and have a governing body to oversee that all state and Federal laws regarding free trade were adhered to.

Fifty five years later, this group is still instrumental in the industry utilizing the most current technology to insure that the original mission statement, which emphasized “looking for the latest methods to expand the business and the sport of diving,” is applied to each transaction.

Over the last twenty to thirty years, we have seen a dramatic change in the industry. The ownership of retail diving stores has transitioned from the businessman to the hobbyist. Manufacturers have expanded their product lines to encompass other sports and seasons and the group has gone from manual and paper reporting to entirely electronic. Information that took days to distribute now is instantaneous through the click of a mouse.

What has not changed is the value of the group to all in the industry. For the manufactures, having an immediate resource to verify a retailers credit worthiness, to the “Good Paying Account,” an opportunity to have more product lines available through positive payment experiences and to the “slow paying account,” the ability to deal with their suppliers to work out any problems or issues in order to maintain the flow of product needed to sustain the business, are all reasons the members keep coming back.

The diving industry suffered a major hit losing two of this nation’s most respected sporting goods retailers in 2016. Through the exchange of information, the members of the Underwater Sports group were able to identify certain trends and reduce their exposure considerably. A look at the list of the 20 largest creditors reveals that many Non-Diving manufacturers were not as fortunate.

As we conclude another diving season, we invite those manufacturers not participating in the group to investigate the benefits. For further information, contact Larry Convoy at lconvoy@emailcma.org or 818-972-5323.

When a Group Can Safely Say “We Should Do This,” by Larry Convoy

The first word all Industry Credit Group facilitators are taught to listen for at a group meeting is WE, as in WE should all stop selling or WE should all put him on COD. This is the most severe of the Anti-Trust violations, and collusion like this can cost companies millions in lawsuits and fines.

However, there is a circumstance where the group can invoke the WE word as in WE, the members of the CMA Industry Credit Group, would like the CMA Adjustment Bureau to contact our mutual customer to assist them in dealing with creditors during a rough period. In this circumstance, the role of the Adjustment Bureau, group members and other creditors is to keep this business operational while it works on a plan to resolve the issues that caused the problem and propose a repayment schedule.

Under this arrangement, creditors put off any legal demands for payment, agree to keep selling the customer and with a CMA staff member supervising, monitor the affairs of the business to insure that everything possible is being done to satisfy all parties. The cost to the group is ZERO.

Sounds too good to be true? In some cases it is and there is no solution to save the business. CMA’s Adjustment Bureau can provide a service to liquidate the company and make sure that ALL creditors receive their pro-rata share of the proceeds.

Sometimes, through no fault of their own, good companies have rough times. You can choose to deal with them by revoking terms, placing them for collection and if enough do, guarantee that this business will fold and you will receive pennies on the dollar or you can work with CMA and the debtor to save the business, recover all or a significant portion of your old debt and continue to have a customer for years to come.

If you group has a situation like this or if you want further information on this process, call Molly Froschauer at 818-972-5315.

We can make a difference.

To Place or Not to Place, by Tracy Rosenbach, CCE

IMG_7974efHello everyone! I was thinking about an issue recently that affects all Credit and Collections professionals, when is the right time to place an account with a collection agency. Though I won’t be talking about Shakespeare (as the title of my blog suggests), I used the reference because I find myself pondering this question very frequently, and it is at times a tough decision.

Let’s face it: the profession we work in is in many ways a grey area. Our decisions can quickly change depending on the information we receive, even one bit of information can alter our course. What can we do about it? If you haven’t already, I believe that every company should develop a procedure for placing accounts for collection. Your policy should address such issues as timing (how long does your company generally allow an account to be past due), dollar amount (does your company treat an account differently depending on the dollar amount outstanding), account status (does your company view the customer as a key account) and customer cooperation (is the customer willing, but unable or are you getting the silent treatment). If your company already has a policy regarding placing an account in collections I suggest that you review it periodically so that it accurately reflects your company’s culture. Once you have a procedure in place you have a guideline to follow.

Next we look at what information we have. We as credit managers are amazing at gathering, processing and summarizing information. Information in this situation would include: customer payment history, customer financial information (if shared), a third party report (Dun & Bradstreet, Experian, Equifax, etc…), your own experience in handling the customer, your CMA industry credit group experience and perhaps information from sales. We process this information and summarize it. We compare the information we have on hand to our company’s policy and then make our recommendation.

How do you decide when to put an account in collections? How long should you wait? What are things I look for before I submit to collections? We weigh the information in a department discussion, review our guidelines and then make our decision.

CMA’s collection partner AG Adjustments suggests you wait until you have exhausted your internal efforts, the customer is 60-90 days past due, they are not communicating and there are no new orders and the customer is unresponsive before placing for collections. What do you think? I’m interested in your thoughts and methodology. Please leave your comments at the bottom of this blog.

Hope you have a good September. I’ll touch base in next month.

Tracy Rosenbach
CMA Chairperson 2016/2017

Evaluating Your Outside Collection Agency’s Performance, By Sam Fensterstock

At some point you were responsible for selecting a new outside collection agency (OCA) and started providing them with past due accounts for collection. Now, one of the executives in your company’s financial department wants to know how the OCA is doing. He wants you to justify your selection. What factors are you going to consider that will allow you to determine whether the OCA’s overall performance is meeting your expectations or they are falling short?

There Are Two Types of Factors to Consider – Objective and Subjective

In evaluating an OCA’s operation there are many factors that have to be considered. First you have to determine the period of time that you want to evaluate. Most OCA’s would recommend that you us e a minimum of 12 months of placements with the review being done 90 days after the last file is placed. Some can be measured directly, like recovery rate and collection fees. Some cannot, like quality of the paper place due to factors such as age of debt and if it is disputed or not. Other factors like OCA personnel interaction with both you and your accounts. All are vitally important with respect to the OCA’s response to your needs and their results. So, let’s take a look at both types of factors that we need information on, under the assumption that once the information is gathered and evaluated, you will be able to justify about how well the OCA is performing and how your decision to use them has benefited your company.

Objective Factors

The prime objective factor that can be easily measured in the collection industry is the recovery percentage. How much you have turned over vs how much the OCA have collected. How is the OCA doing in collecting the accounts you have given them? What can they tell you about how they are doing it? You want complete transparency. Does your OCA have a web based platform that is available 24/7 that can provide you with detailed information? Can you easily obtain overall gross and net recovery rates? Can you view down to the individual account level all the way up to summary information on your total portfolio, over any period of time you require?

Additionally, is the platform easy to access and navigate for you to get this objective information? The web platform should be easy to use and provide you with all if the information you need to evaluate and track your OCA’s performance. You should also be able to query your data by account, by date, or range of dates, etc. Can you review all collector notes and communications? Do you have the ability to communicate with the collector if you have questions on an account? Can you export the data into any format you want such as Excel or PDF so that you can perform further analysis or use the data for in-house reporting?

What do you need to know?
• What is the quality of the paper that you have been sending to your OCA, how old is the debt and is the customer still open and operating? It’s almost impossible for an OCA to collect from a company that is out of business or in bankruptcy so strong consideration needs to be placed on the accounts being sent to your OCA and are they remotely collectable.

• For the accounts that are collectable, for the total time you have been doing business with the OCA, and by year and by month, and by account, what is their gross and net recovery returns (net is after adjustment for bankruptcies, uncollectable accounts, etc.)? This is an important number as it allows you to compare their results to published national averages as well as industry averages.

• Where does your OCA stand with your accounts today? You need a status report that lets you know how they are doing right now. What does your current portfolio look like, how much has been collected so far, in total, and by account. To the extent status codes and descriptors are used, what is the status of each account and what future activity anticipated.

• You need a payment history that shows the time to recovery from turnover to your receiving a check. Can you compute average recovery time so that you can do some cash forecasting based on the age of your portfolio?

• For auditing purposes, you need a track record of remittances sent to remittances received. You need to be able to verify that all payments the OCA has sent you have been received and deposited.

• All of the information should be exportable and sortable in to multiple formats. Can you sort a report by field from high to low, from low to high, or alphabetically, or by range of dates or by status code or by a combination of fields?

• You might also want your OCAs to provide any of their reports based on a specific subset of your accounts, such as by period of time the OCA has had the claim, by customer type, or by age past due at the time of placement. Any breakdown for a subset of accounts should be possible as long as you can extract accounts from the portfolio by some defined characteristic and then prepare a specific report just from the extracted accounts. Do they have ad-hoc query capability?

• Can you drill down to the individual account level and see in detail, how any individual account is being handled? Are the collector’s notes available and easy to understand? Can you use the account level report to easily access the collector either by email or by phone?

• Can you listen to recording of collectors calls on your files?

This is just some of the objective information you need to properly evaluate an OCA. If they can’t give you most of it, you might want to look for somebody that can.

Subjective Factors

These are qualitative items that can’t be measured with a number, but are just as important as the objective factors in evaluating an OCA’s performance. These are feel good items that measure your comfort level with the OCA, and if you are not comfortable with the objective factors regardless of how good they are, he OCA may not be sufficient for you to want to continue to do business with them.

What Subjective Factors Are Important?

• How they treat your accounts is critical. How does the OCA represent your brand? If they are too aggressive they may be making it impossible for you ever to do business with a customer again. Every once in a while an account may suffer a business downturn, so you don’t want to let an infrequent problem eliminate your chance of ever doing business with the customer again. And you certainly do not want to hear from the account’s lawyer that your OCA may be in violation of fair collection practices.

• Is this a professional outfit? If you do not feel you are being treated with respect, you may have a problem. The OCA needs to respond promptly to your emails or telephone calls. If you need some particular service, do they provide it without a hassle?

• Is the OCA easy to do business with? Are they flexible and do they have the ability to meet your needs, no matter those needs are? Working with and OCA many times is the last thing on your mind, but as you need them to manage a portion of your AR are they easy to work with?

• Do you like doing business with them? Do you like the people at the OCA? After all, collections is a “people business” and personal relationships are very important as they allow for far better communication and it’s easier to work with somebody you like than somebody you don’t. The chances of an OCA meeting your needs are far better if the parties get along than if they do not.

• Can they provide you with professional advice that can improve your in-house operations? An OCA should be able to give you an independent evaluation of your internal operations. While making you more efficient may cost them some short-term cash flow, it should guarantee your relationship for the long-term.

• Can you utilize advice from your OCA and their alliances to assist in your daily routines? Can you maximize your relationship and obtain information provided to protect your company from unexpected loses?

In Summary

As you can see, the review of your OCA’s performance is both objective and subjective. If you place business with your partners, both areas really need to be evaluated and should be on a consistent basis. While write-offs at most companies are insignificant, although expected, every dollar your OCA returns to you puts cash back to the bottom line. This further promotes the fact that the credit department can be more of a profit center, not just a cost center.

Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

Commercial Bankruptcy Filings Climb 29 Percent for the First Half of 2016

According to the American Bankruptcy Institute (ABI) data that was provided by Epiq Systems Inc. , total commercial filings during the first six months of the year (Jan. 1-June 30) increased 29 percent to 19,470 over the 15,071 total commercial filings during the same period in 2015. Commercial Chapter 11 filings also rose during the first half of 2016 as the 3,220 filings represented a 25 percent increase over the 2,575 commercial chapter 11 filings during the first six months of 2015.

“Data like this underscores the importance of regularly attending Industry Credit Group meetings and keeping up on alerts and RFIs on anscers,” said CMA President and CEO Mike Mitchell. “Our members have identified the trouble signs of companies big and small and have taken steps to regularly discuss troubled or slow-paying customers and have repeatedly had the upper hand on some of these accounts months before they filed.”

Fortunately, the members of one of our industry trade groups saw some warning signs several months ago and took action. They made this account a permanent one for meeting review, meaning it showed up as an RFI every month automatically. They monitored newspaper stories and internet reports and had their group facilitator distribute. They made it a regular account clearance on all conference calls, shared any information they received and individually took action to reduce their company’s exposure. A conservative estimate shows them being 3-5 months ahead in identifying trends than non-members.

“The business insolvency world has been slow for awhile, with sporadic, larger bankruptcies affecting our members,” said Molly Froschauer, general manager of CMA’s Adjustment Bureau, which provides innovative alternative solutions to creditors and distressed businesses. “At CMA Adjustments, we’re seeing business pick up but don’t yet know if the historically slow bankruptcy numbers are going to return to the normal level or if it’s a market blip. As we see businesses shutting their doors, our members’ rights should be protected and, whether it’s to put you in touch with an experienced bankruptcy attorney or to give you simple advice, we’re here for our members and to offer guidance should businesses begin to file many more bankruptcies.”

For more information on the study, click here.

You Want me to Tell My Competitors WHAT?, by Larry Convoy

Finding companies that would fit in your industry credit group is not a difficult task. There are trade publications, mailing lists, associations and websites where you can input a company name and receive a list of that company’s competitors. The challenge is convincing an owner who has never been involved in a group to allow his credit manager to sit down with the competition and discuss their customers’ paying habits. To an “old school” individual, this is against every business principle they know. So how do we (and I am including officers and
current members) communicate the advantages when this would involve working with the enemy?

One method is waiting for the opportune time. Recently, a group approached a company owner that lost a great deal of money by not knowing that a bankruptcy was approaching. His pain was magnified when he learned that his competitors were aware of the problem months before and reduced their exposure. They will join the group if they survive.

Another method is owner-to-owner direct contact. Chances are, some member of the group has an owner or executive who knows the right person at the prospect company. A phone call explaining how the group has saved them $$$, reduced money spent on report contracts, lowered write-offs and improved their credit departments efficiency through the Best Practices exchange, carries a great deal of weight.

Finding, vetting and securing new members is a task requiring group members and the group facilitator working together. Keep in mind the selling points that convinced your company to join and apply them to any potential prospects.

The whole of Group participation is far greater than simply the sum of its parts. In your next Group meeting, let us know who we’re missing.

Thanks so much!

Larry Convoy
Lead Group Facilitator

Goodbye to Another Old Friend, by Larry Convoy

It seems that each month, a different industry feels the pain of losing one or more of their big players. It started in the Electronics industry a few years with Circuit City, moved over to the Grocery chains, department stores and last month it hit the Sporting Goods industry with 2 majors closing their doors. Besides having an impact on those who are losing their jobs, the amount of revenue these Big Box dealers generated may have been the only thing keeping some manufacturers profitable.

Fortunately, the members of one of our industry trade groups saw some warning signs several months ago and took action. They made this account a permanent one for meeting review, meaning it showed up as an RFI every month automatically. They monitored newspaper stories and internet reports and had their group facilitator distribute. They made it a regular account clearance on all conference calls, shared any information they received and individually took action to reduce their company’s exposure. A conservative estimate shows them being 3-5 months ahead in identifying trends than non-members.

As a result, they are in a better position to absorb any potential loss, certainly in a better position than some non-group members who have large exposures because they were not involved in the discussions over the last several months.

Many times when we approach a potential group member, their response is: “I only extend credit to Fortune 500 companies.” I am sure that those dealing with A&P, Haggens Food, Circuit City, Sport Chalet, Sports Authority, Blockbuster, Borders and Radio Shack to name a few all felt that they had a good handle on it.

We congratulate our industry group that identified a potential problem and took steps early to reduce their pain. The small financial investment they made in joining and participating in a group has paid off handsomely.

As we start a new “group year” with our new fiscal year beginning May 1, we encourage you to use all the tools CMA has to make sure you have the most current information on your customers, large and small.

Thanks for reading!

Here’s to the Unsung Credit Heroes, by Tracy Rosenbach, CCE

Greetings! I hope everyone is having a good month. I was at an Industry Credit group meeting recently where I was thinking, nowadays everyone is concerned with saving money, minimizing expenses, etc…, so I decided to write this month’s blog on “How you can be a hero to your company.” As credit managers, we have the responsibility of reviewing our credit reporting services periodically for better pricing and enhancements to the products, similar to you obtaining car insurance quotes in your personal life when your insurance comes up for renewal. Whether you decide to change services or not, it’s always a good idea to be aware of what’s available in the marketplace today.

Here are some questions to ask: Do the reports you currently use include the best information you need to make informed credit decisions? Is there additional data that you’d like to see on the reports you’re using?

CMA is here to help. I encourage you to contact Terry Campos at CMA to help guide you through the process. She is a brand-neutral resource, with 44 years of experience working with NACM and the three major commercial credit reporting bureaus. If you are not happy with the service you are currently using, she will work with you to find another solution so that you don’t have to do this on your own.

I also recommend you participate in CMA’s free webinar series on credit reporting, which begins June 9th. You’ll be able to hear from Terry and reps from the credit bureaus as they talk about what’s new and provide an overview of their products. Sign up at www.creditmanagementassociation.org/events, I believe it will be well worth your time.

You can be a hero by saving your company money and making your job easier by being able to access quality credit information that helps you make sound credit decisions.

I look forward to seeing you at Credit Congress in June!

Tracy Rosenbach

Tracy Rosenbach, CCE, is the Financial Services Manager at Silgan Containers LLC and Chairperson of the CMA Board of Directors. She can be reached at 818-710-3729.

CMA Promotes Credit Management to the Next Generation at UCLA Career Fair

In an effort to explain credit management to the next generation, CMA’s partner Quote 2 Cash Solutions LLC, represented by Robert Shultz (Partner) took part in a panel discussion and career fair at the UCLA Extension campus on May 14. Titled “Career Success in Accounting and Finance,” Shultz, one of three Panelists, emphasized the importance of the credit function, fielded questions and later spoke privately to students interested in learning more about opportunities in this field.

“CMA believes it is imperative to attract young talent to the credit management profession. In talking to some of these students at the event, I am encouraged about the future generations of credit managers,” CMA President and CEO Mike Mitchell, who addressed questions at the CMA booth, said. “Our goal is to help ensure that there are plenty of great new credit management candidates for CMA members to hire.”

Shultz commented, “my most interesting take away was the one hand raised, out of the eighty or so attendees, when I asked how many understood the functions of a corporate credit department. This sort of outreach is an invaluable step to increasing interest and awareness of the credit profession.”

Here are a few photos from the event.

IMG_0842 IMG_0858 IMG_0864 IMG_0867

Prevailing Wage…for Material Suppliers???!!!, by Christopher Ng, Esq.

Christopher Ng, esq.Last week, I came back from the American Bar Association Forum on Construction Law Annual Meeting in Nashville, Tennessee. On my last night there, my wife and I went to the Grand Ole Opry. One of the featured country artists that night asked the audience, “You know what happens when you play a country music record backwards? You get your truck back, you get your dog back, you get your wife back…” Well, after discussing California’s new Labor Code section 1720.9 (which goes into effect on July 1, 2016) with some of my colleagues from around the country, I couldn’t help but wonder if we here in California are headed backwards when it comes to making our prevailing wage law less cumbersome and taxpayer-funded construction projects less expensive.

California law has traditionally drawn a distinction between the performance of on-site construction labor and the supply of construction materials. AB 219 added new Labor Code section 1720.9, signaling the extension of a legislative trend adding significant complexity, risk and cost for contractors and material suppliers on public works of improvement.

Specifically, AB 219 abrogates and supersedes conflicting case law and a prior (non-precedential) coverage determination by the California Department of Industrial Relations that the delivery of ready-mix concrete to a public job does not constitute a public work subject to prevailing wage laws. As of July 1, 2016, the hauling and delivery of ready-mix concrete from a commercial plant to a public works job will be subject to California’s prevailing wage law.

The “hauling and delivery of ready-mixed concrete to carry out a public works contract” means the job duties for a ready mixer driver and includes receiving the concrete at the factory or batching plant and the return trip to the factory or batching plant. While AB 219 is specific to concrete suppliers, some believe that this is just the tip of the iceberg and that the co-sponsors of the new law (i.e., The California Teamsters Public Affairs Council, The State Building and Construction Trades Council, The California Labor Federation AFL-CIO) will push for additional legislation that could require prevailing wage for other material suppliers. What logical and legal justification exists for excluding the delivery of steel, lumber, paint, fuel, plumbing supplies, electrical components and even port-a-potties?

In the face of vociferous opposition from Associated General Contractors (AGC) and other industry associations, the labor organizations behind AB 219 convinced the legislature and Governor Brown that the new law was merely a logical expansion of prevailing wage law. Specifically, these advocates argued that concrete delivery was already subject to prevailing wage law if delivered by the project direct contractor or a subcontractor, but just not by a material supplier.

So what’s the big deal and what could possibly go wrong? Here are some highlights of the new law which apply to all public projects awarded after July 1, 2016:

  • The cost of almost every public construction project in California will increase; in fact, according to the AGC of California: (1) ready-mix producers estimate that the cost of concrete for projects under AB 219 would increase by 30 to 40 percent; (2) state agencies indicated that the fiscal impact of the new law will exceed $35,000,000; and (3) Caltrans estimated $1 million annually in administrative costs to administer
    the law.
  • Ready-mix haulers and entities that deliver ready-mixed concrete to public works projects will be considered public works contractors under California Labor Code section 1722.1 and must register with the Department of Industrial Relations as set forth in Labor Code section 1725.5.
  • Ready-mix suppliers must develop an accounting and payroll infrastructure capable of processing, submitting and maintaining certified payroll records.
  • Because the material is perishable, a driver’s routine may last just 90 minutes or less (i.e., take load from the plant to the job, wait for truck to be unloaded and return to the plant) and a typical work day will often include deliveries to both public and private works of improvement; therefore, companies must implement a system that can divvy up each driver’s records on an hourly basis to separate private and public work pay records.
  • Before furnishing concrete to a public works job, a ready-mix supplier must enter into a written agreement with its contractor customers, which specifically requires compliance with prevailing wage law (can a standard credit agreement and subsequent exchange of a written quotation, purchase order and/or invoice ever suffice???).
  • Within three working days after their drivers have been paid for the prevailing wage work, ready-mix suppliers must submit certified payroll records to their contractor customers and each project’s direct contractor (if that’s a different entity), accompanied by a written time record certified by the individual driver(s).
  • As with other subcontractors subject to prevailing wage laws, contractors are ultimately responsible for unpaid prevailing wages and unpaid penalties resulting from improper wage payment or improper certified payroll record submission; as such, public works contractors assume more risk as their ready-mix supply “subcontractors” attempt to abide by these new requirements after July 1, 2016.

Without a doubt, California has further complicated its already cumbersome regulatory scheme for public works. Ready-mix suppliers must now gear up to navigate the complexities California prevailing wage law and contractors should double-check their standard form contracts to ensure they contemplate and properly allocated the new risks imposed by AB 219. For additional information and for F.A.Q., see the AB 219 Fact Sheet at http://www.calcima.org/pdf/AB219FactSheet.pdf

For more information contact: Christopher, E. Ng, esq., (310)552.3400 or cng@gibbsgiden.com

The content contained herein is published online by Gibbs Giden Locher Turner Senet & Wittbrodt LLP (“Gibbs Giden”) for informational purposes only, may not reflect the most current legal developments, verdicts or settlements, and does not constitute legal advice. Do not act on the information contained herein without seeking the advice of licensed counsel. Copyright 2016 Gibbs Giden Locher Turner Senet & Wittbrodt LLP ©
www.gibbsgiden.com 

Opt-Out Litigation Settlement Against Visa and MasterCard: Clarity for a Supplier’s Right to Surcharge?, by Scott Blakeley, esq.

Customers using credit cards to pay suppliers’ invoices continue to increase, whether driven by principal’s self-interest in points miles, corporate customer’s interest in improving cash flow through additional float, or card networks pressuring customers to use cards to pay suppliers.

But credit cards are the most expensive payment channel because the interchange fees imposed by card companies erode the profitability of the sale.

While the strategy of surcharging is attractive for suppliers to offset the majority of this expense, suppliers are challenged to adopt the recently minted right-to-surcharge given the uncertainty surrounding all of the credit card litigation, especially the litigation pursued by national retailers against the card networks. The recent settlement between CVS and Visa and MasterCard may provide further clarity and comfort that card litigation will not bar supplier’s rolling out a surcharge.

Historically, the credit card networks (Visa, MasterCard and AmEx) have prohibited suppliers from surcharging customers. In 2004, several national retailers and trade associations (including the national drug store chain CVS Pharmacy) filed multiple lawsuits against Visa and MasterCard, accusing the card companies of conspiring to fix artificially-high interchange fees in violation of the Sherman Antitrust Act. The suits were consolidated and certified as a class in the U.S. District Court. After eight years of litigation, a federal judge in New York gave final approval of the Visa/MasterCard class action settlement. Under the class action rules, class claimants, primarily retailers, were given the option to either opt in or opt out of the class and the corresponding settlement with the card companies.

A number of retailers, including CVS Pharmacy, opted out of settlement, complaining it was not adequate. In particular, the retailers noted they would not surcharge their customers, consumers, as they would lose business.

In early 2014, CVS, and several other retailers, filed suit against Visa and MasterCard asserting similar accusations as the previous suit. CVS and Visa and MasterCard have settled their litigation.

What Does the CVS Settlement Mean for Suppliers’ Ability to Surcharge?

For suppliers seeking indicators that their right to surcharge is cemented, given all of the retailer litigation against Visa and MasterCard challenging their interchange pricing, the CVS settlement provides some certainty and guidance. It is expected that CVS is the first of many national retailers that will settle with Visa and MasterCard. These settlements reaffirm that Visa and MasterCard are determined to resolve the interchange pricing litigation which ensures that the supplier’s newly minted right to surcharge sticks.

Scott Blakeley, Esq., is a founder of BlakeleyLLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at seb@blakeleyllp.com.

Attendees and Vendors Agree: CreditScape Spring Summit and Annual Meeting Was a Success

The CreditScape Spring Summit and Annual Meeting, Powered by United TranzActions, an interactive learning seminar and workshop which took place March 24-25 at the Island Hotel Newport Beach, was a huge success, according to preliminary survey results that were tabulated after the event.

With the common theme of “the elements of an efficient digital credit department,” attendees commented that the sessions gave them insights on how to approach their superiors to update their credit departments, help with evaluating vendors, and how to take their credit applications digital. They also overwhelmingly liked the panel discussions led by their peers who have implemented the technology, and their success (and failure) stories in implementing it.

Said one sponsor: “The audience at CreditScape was the most intelligent one we’ve seen at an event. Lots of great questions were asked, and we feel the attendees got a lot out of it. I can’t wait to participate in the next one.”

Mike Puccinelli of Equinix addresses the crowd at the opening session of the Spring 2016 CreditScape.
Mike Puccinelli of Equinix addresses the crowd at the opening session of the Spring 2016 CreditScape.

Additionally, every person who submitted a survey said they’d recommend CreditScape to a colleague.

Plans are already underway for a 2016 Fall CreditScape, September 22-23, 2016 in Sonoma, Calif. Details about the event are forthcoming.

Thanks again to our event sponsors United TranzActions, Dade Systems, Vantiv, Bectran, Skyminder, eMagia / TheCreditApplication.com, Ansonia Credit Data, TermSync, AG Adjustments and Dun & Bradstreet, and to all who attended the event!

President’s Blog: How do CMA members leverage technology?, by Mike Mitchell

CMA President and CEO Mike Mitchell
CMA President and CEO Mike Mitchell

CMA is proud to host the CreditScape Spring Summit 2016 next week in Newport Beach, with a significant focus on how technology can be leveraged to improve the efficiency and effectiveness of credit operations. Regardless of whether you are attending the event, we’d like to get a baseline for how much automation is being utilized across our member base today.

Click here for a short survey that will ask you about your challenges, where you are with automation and where you’d like to be. We’ve also got several questions about the time spent and value of some of the most common activities in the credit department. By helping us to better understand your challenges regarding automation and technology, we’ll be better able to craft conferences, webinars and presentations, and even alliances with technology providers, throughout the year that help support your goals.

We’ll be asking these same questions on a periodic basis to see how quickly our membership is adopting technology. We’ll also want to understand how else we can support your needs in this area and how well our efforts result in concrete improvements and reduction of manual labor at the member level.

The results of this survey are only available to CreditScape attendees and those who complete it – so please take a few minutes to tell us about your process. We’ll discuss the results at CreditScape next week!

Here is a link to the survey.

See you in Newport Beach!

Mike Mitchell

CMA Chairman’s Blog: Advancing your Career through CMA by Michael W. Fenner, CBA

Year after year, as we go through our careers, we are always looking for ways to improve ourselves and advance in our professions. I know for me, I got complacent with my job and quite frankly I didn’t know where to go and or who to turn to. My luck changed when I ran into Mike Mitchell, CAE President of CMA at the Las Vegas airport in 2008 after attending a Western Region Credit Conference. I mentioned to him that I was looking for more in my career and he said to me, “You are already being considered.” I wasn’t entirely sure what he meant by that at that moment, but shortly thereafter I received a phone call to join CMA’s Board of Directors. I thought it was a great opportunity to be able to volunteer and help our association, understand more about how a business works, as well as work with my peers from all different companies and credit backgrounds. The rest is history…

Let’s take a look at some of the platforms that have assisted me through my career:

  • Professional Credit Certification – It’s never too late to get your designation or move to the next level. Here are the available designations.
    • Certified Credit and Risk Analyst (CCRA) – For analysis and interpretation of financial statements.
    • Credit Business Associate (CBA) – This includes three credit courses basic financial accounting, business credit principles and introduction to financial statement analysis.
    • Credit Business Fellow (CBF) – The lessons include business law and credit law.
    • Certified Credit Executive (CCE) – You must be proficient at accounting, finance, domestic and international credit concepts, management and law.
    • Professional Development Programs – CMA offers a variety of courses in person and online. The anscers.com website (on the education tab) is constantly being updated with the latest information for all of us. As an example some of our options today include (but not limited to) the Spring and Fall CreditScape Summits, NACM’s annual Credit Congress, numerous lien law seminars in many states, a course on alternative for financing the sale of goods, and credit risk and risk mitigation techniques. Please go check them out and see which one can assist you in your career.
  • Board and Committee Service – By volunteering my time on the CMA Board of Directors and serving on board committees it has allowed me to grow as a person and become a more of a diverse credit manager and move up in my career. I have been able to make lifelong friends as well as expand my credit knowledge to move forward in my field just by participating in discussions and working with my associates.
  • Industry Credit Groups (ICG’s) – My ICG helped assist me in my credit decision process to run a more thorough credit department. Currently we have 60 diverse groups. They network with each other, share factual information timely, and you get responses promptly from your group members so you can make educated decisions with your new accounts and or your current A/R. Feel free to contact Diana Escobar directly at (818) 972-5342 for more information about groups that pertain to your industry.

We all know how important it is to stay up-to-date with our education. And finding the time to go to events or take classes can be a challenge. Things won’t change unless we change them. Invest in yourself and your teams, and challenge them to improve and grow.

Make sure you encourage your teams to support CMA which is your association. It is important to always network with your colleagues and make some new friends as you go through this process. Make sure you always bring back your experiences to incorporate them into your jobs.

Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Manager of Corporate Credit Operations for Beacon Roofing Supply, Inc. He can be reached at 714-321-8187, or mfenner@becn.com.

CMA Member of the Month, February 2016: Alexis Scott, CBF, Maltby Electric

Alexis Scott, Maltby Electric
Alexis Scott, Maltby Electric

An active participant in an Industry Credit Group is someone who attends meetings, shares best practices for the good of those in the group, submits their reports and gets useful information out of the meetings that they can take back to the office and make informed business decisions based on that information. Active participation is contagious, and the folks who tell us that they get the most out of the meetings are the ones who actively participate.

The February CMA Member of the Month is someone who personifies the term “ACTIVE PARTICIPANT,” whose involvement inspires others to continue to contribute to the Groups as well as the other educational offerings from CMA.

An active member of the Northern California Electric Group, Alexis Scott, CBF, of Maltby Electric has been active in the Group for more than six years.

She takes it upon herself to mentor others in the group, commonly sharing best practices with the Group whenever appropriate. In fact, several from that group approached CMA staff privately to commend her for doing that.

Alexis uses CMA’s construction forms filing services and other CMA services, and is a strong advocate for CMA’s educational programs and services, as she is a huge supporter of CMA.

On behalf of CMA, we thank Alexis for her participation, and we look forward to her continued support.

Members of the Month are nominated by CMA members, Group members, volunteers and CMA staff to highlight those members (or member companies) whose engagement with CMA has helped improve the overall credit profession for others.

For more information on how you can participate in any of the areas mentioned within this article, or to nominate any members for this honor, contact Diana Escobar at descobar@emailcma.org or 818-972-5300.

Easy-to-Implement Technology That Can Make a Credit Manager’s Job Easier, by Michelle Herman

Yesterday I mentioned that I’d be listing several technologies I use that make my job easier. These are all things that I don’t have to call the I.T. department to install for me. These tech tools are easy to learn, easy to use, super helpful in the credit and collection department, make you look good, and best of all, are FREE!

Free Conference Call/Webinar/Video Chat tool
Free Conference Call.com
www.freeconferencecall.com
Yes – it really is free! You get assigned a phone number and code that is static and is yours to use whenever you need to have a conference call. You can even do free webinars (and record them) with all the standard tools that pricey tools like WebEx offer. Now they even offer video chat!

Free Online Large File Management Tool
Dropbox
www.dropbox.com
Large files are often rejected, or never make it out of your own server. Dropbox solves this issue by allowing you to convert any document into a link that is easily shared and can be password protected. You can store or send pictures, PowerPoint’s, excel files, etc. This product comes with a basic level of storage than can be incrementally increased through a variety of actions.

TheCreditApplication.com
eMagia Software
www.thecreditapplication.com
Another great new product from our friends at Emagia that provides you with an online credit application that you customize – for FREE! You re-create your credit app online, no tech support from your company necessary. You can export data into excel or your ERP, it is integrated with credit sources like the NACM National Trade Credit Report and even Yahoo financials.

Low-to-No-Cost Productivity Tools
Your Nerdy Best Friend
www.yournerdybestfriend.com
If you missed seeing Beth Ziesenis, known as “Your Nerdy Best Friend,” at last year’s Western Region conference in Portland, you don’t want to miss seeing her at Credit Congress. Visit her site to get comprehensive reviews on super productivity tools that touch virtually every area of your department. You are sure to find something that will change your life – personally and professionally.

Multi-Bureau anscersX Commercial Credit Report
CMA
www.anscers.com
Ok, this one isn’t really free, but it is one of the easiest and most cost effective ways to get data from the leading commercial credit bureaus all in one place. The AnscersX report provided by CMA, gives you the greatest hits from D&B, Experian and Equifax all in one easy to read report. No contracts, no minimums, no hassle.

Use anyone of these tools and you’ve got some instant sizzle. You instantly up your professionalism and your image. All of these tools have impressive graphical reporting features to help you share the results with your boss, making you and your team, look great. The key is to take one step at a time, start with simple low- or no-cost options for some of the most basic productivity tools, and generate some good looking reports that tell a story. Just pick one and sign up. Didn’t see one that floats your boat? There are hundreds of these types of tools, and just starting with one and seeing immediate real success – the sizzle- is what you need to keep going. Track me down at CreditScape and I’ll give you a live demo of how easy these tools are and how they may your life easier and make you look sharp.

Ok, we get it. You’re busy, overworked, underpaid. And probably under-valued. If that is your reality, and your perception, it’s time to take action to change it. We know it is hard to get out of the office, but if you’re not viewed by management as you’d really like to be, take the time, learn a few new tricks. Generate some sizzle. See you at CreditScape!

CreditScape
This is just a surface view of one of the topics that will be discussed in detail at the upcoming CreditScape Summit and Annual Meeting in Newport Beach, CA on March 24-25, 2016. Come to CreditScape, learn from experts and peers who have done this, share you own experiences with others. For more information, visit www.CreditScapeConference.com.

Michelle Herman is a business development manager at NACM. She will also be moderating several of the panel discussions and workshops at CreditScape.

Read the other posts in this series here:

So Your Software or Automation Initiative Has Been Approved, What Do I Do Now?, by Robert S. Shultz

Define the Project Purpose and Scope? It is Not all about the Technology

Any software or automation improvement addresses defined business objectives that impact multiple areas within the company. In order to pull off these changes effectively all stakeholders affected should be aware of and involved in the coming changes. Depending on the project and the company, the target audience may differ. As an example: You can’t consider changes in credit and collection software without involving such areas as sales, customer service/order administration, project managers, operations and IT, while keeping senior management informed. Every project has a defined mission that requires cross-functional buy in. Realistic objectives and timelines have to be agreed to. Roles have to be defined.

This takes planning and cross-functional communication. If you are heading the implementation team you will need a clear vision on how the changes will support company goals and performance expectations. Processes, policies and procedures may need changes and streamlining to best leverage the new tools.

Ready Fire Aim… Don’t get bogged down with long term major system implementations. They are hopes and dreams.

A solution provider will have to be vetted that meets your company’s requirements. This will involve a well thought out selection process where both you and the provider understand each other’s business needs, strengths and weaknesses. You will need a basis for your selection. Try to make this as objective as possible, looking at each potential provider with the same criteria. A well rounded score card that lists and weights your critical needs. The selection process should provide all the stakeholders involved an opportunity to participate. If you get buy in at this stage, there will be much less push back later.

No system is perfect or addresses all the needs of all the users. Often it is best to reduce expectations in order to actually get the basics in a reasonable time-frame. Credit and collections are tactical issues: The needs are immediate and have to be addressed today. Complex ERP implementations are strategic in nature. By the time the specialized needs of a Credit Manager are addressed, too much time is lost, the department fails to gain efficiency and results have not improved.

Making the Choice Between an ERP and a Specialized Solution

ERP solutions are robust and have many company-wide advantages. They are also complex, expensive and have long implementation cycles. Let’s face facts. Credit Departments typically have fewer headcount that other areas supported by an ERP. The value in spending research and development dollars for a minimal number of users isn’t in the cards.

Companies specializing in credit and collection software, billing automation, document management and cash administration, address the issues you are trying to resolve on a full-time basis. Credit and collections is not an after-thought, it is their market and revenue stream. They continually focus on user needs and spend R&D dollars to improve their product. Many have user groups you can participate in, that have a real impact on the next release. Implementations are easier and of shorter duration. Cloud based solutions require minimal use of your internal IT resources. Costs are surprisingly low.

Many are faced with this obstacle, “Oh we are putting in or upgrading our ERP next year. It will do fine for you. We don’t want to do any other projects in this area until after the ERP is up and running. We are going to implement the ERP straight vanilla. Anything you need will be in Phase 2 (i.e.: Never)” If that is the case, push hard for incremental improvements and results in a relatively short time-frame.

A Credit Manager has a strong position. You should illustrate a good return on the investment. Show how other departments and most importantly, your customers will benefit. An interim fix with a decent ROI will pay for itself before the ERP initiative is complete.

When the day comes and the ERP vs an interim solution is looming, do a gap analysis between the interim solution and the ERP. You are likely to be surprised by what you already have.

At the upcoming CreditScape Summit and Annual Meeting, you will be able to discuss how to choose a solution provider. Expert Panelists will give you insight on their experiences, victories and losses. You will have ample time to ask questions and network with others who are, or who have faced, the same technology challenges you have. This is definitely a good use of your time.

CreditScape
This is just a surface view of what it takes to convince management an automation initiative should be approved. Each of these points and more will be discussed in-depth at the upcoming CreditScape meeting in Newport Beach, CA on March 24-25 2016. Come to CreditScape, learn from experts and peers who have done this, share you own experiences with others. For more information, visit www.CreditScapeConference.com.

Robert S. Shultz is a Partner at Quote to Cash Solutions (Q2C) LLC. He will also be moderating several of the panel discussions and workshops at CreditScape.

Read the other posts in this series here:

CMA’s Supplier Risk Credit Group to Establish Procedures for Vetting Vendors

Last year, under the leadership of Alvin Moreno of Nestle Inc., CMA launched the Supplier Risk Credit Group, a Best Practices industry exchange group for those who have been assigned the task of vetting their vendors or for those credit managers who wished to enhance their position at their company by learning this job. Who better than a credit manager to evaluate RISK from the vendor side of the chain?

The Group has had four informative discussions and has attracted members such as PepsiCo to the meetings.

On Wednesday, January 27, we are taking the information gathered at these meetings and beginning to build the platform establishing policies and procedures for those assigned this task.

If you have an interest in this or would like to pass it on to the appropriate person at your company, we would be delighted to have them join us in person in Burbank or through web conferencing.

Here is a partial agenda for the meeting:

REVIEW OF LAST MEETING
1. Members describe any enhancements they have made to their vetting process or roadblocks encountered
2. Groundwork and Decisions Required Prior to Establishing Process (including 80/20 Rule-Which vendors will you include in your process?, Has a budget been discussed and approved?, Has Staffing been arranged?, Identify critical vendors, single, sole source vendors outside of 80/20 rule, Has an acceptable chain of command been established?, Has a workable timeline to roll out, review and assess been established?)

VENDOR ONBOARDING PROCESS BEGINS
1. Receive request for NEW vendor investigation
2. Vendor fills out company questionnaire (Provide quality, safety and financial information)
3. Initiate Vendor Qualification process
4. Vendor Financial Information uploaded
5. Evaluation Process Begins (Credit investigation; Relationship: Critical, single, sole; Demographic, government, industry)
6. Vendor Approval, review schedule set
7. Q & A

Please let us know if you would like to be a guest at this meeting by contacting Larry Convoy at lconvoy@emailcma.org.

Mission, Values, and CreditScape, by Mike Mitchell

MMitchell2Like many of you, I made a number of New Year’s resolutions, and like many of you, I’ve already broken several (perhaps a 5-day-a-week commitment to go to the gym when it opens at 5 am was overly ambitious). At CMA, we have resolved to make mission and values a priority for this year and moving forward. Of course we have a mission and values, but we don’t spend enough time communicating them to our staff and to our members. Like many organizations, CMA revisits these mantras every few years at Board and staff retreats, but we don’t keep the spirit alive in the years between those manic word-smithing sessions. Many organizations and functional departments are guilty of this. Therefore, we at CMA resolve to make mission and values the reasons why we exist and why we do what we do.

Regardless of the actual words we will use to communicate our mission, it will stand for the idea that CMA is here to help credit professionals do their jobs more effectively and efficiently, which hopefully means making it easier to do more with less, and with greater speed and accuracy. There are many ways CMA can support credit professionals and credit operations – knowledge aggregated from the thousands of credit professionals who share their experiences through networking and publications, trade data from credit bureaus and credit group members, a variety of other third-party services, and professional education and training.

That last component of support, professional education and training, represents one of CMA’s deeply held values – a dedication to life-long learning. This is a value I wrote about before we launched our first CreditScape Summit last Fall. I am revisiting this value because we truly believe that continual education on basic and emerging credit topics, and regular training on skills related to day-to-day credit tasks, will keep credit operations sharp and well-oiled. Ultimately, any operating department within a company should focus on one thing, improving performance. How ever your company and department measures performance, you have to make changes to get better results (remember the definition of insanity?). We all know the reality of making change – it’s uncomfortable, it’s time consuming, it’s expensive – but if we are going to pay more than lip service to performance improvement, we have to take an honest look at our operations and determine where we can improve processes that will make a difference in performance.

We have designed the CreditScape Spring Summit and Annual Meeting, powered by UTA, to give our members an opportunity to get away from the daily distractions of the credit operation to focus on learning from other members who have successfully driven change within their credit operations that lead to improved performance. Many of the process improvements that will be discussed are related to technology solutions that have helped drive efficiency and accuracy by automating certain processes. During the opening address, attendees will hear from Michael Puccinelli, CCE, who has made a career out of process improvement by investing in his team (he requires that everyone be trained and NACM Certified) and investing in technology. At his last two companies, VeriSign and now Equinix, Michael has successfully leveraged a highly trained staff and technology to create what he refers to as systemic solutions to drive efficiencies and high performance throughout a global credit operation. It’s work like this that earned him the first annual NACM OD Glaus Credit Executive of Distinction Award and we know that he will have some valuable advice for CreditScape participants, regardless of company or credit department size or industry.

During the CMA Annual Meeting Luncheon on Day 2 of CreditScape, we will recognize and celebrate those credit professionals like Michael Puccinelli who have made significant contributions to their companies and to the credit profession through their dedication to process and performance improvement. To register, visit www.creditscapeconference.com. Hope to see you there.

Now that’s one resolution you can keep!

Selling outside the U.S.? What risks should you look for?, by Mike Lindenmuth

Consider this scenario: your boss tells you, the credit manager, that he/she’s just sold a palletload of your company’s widgets to a customer in a foreign country, and that you need to just “make it work and collect the money.” Sound familiar? We hear examples like that one over and over from our clients. So what are the risks that you should look out for? There are three major country factors that we look for that determine foreign risk: economic, political and terrorism.

Economic Risk

In a global economy, some countries are connected in a virtual domino effect, some obviously and others not. For example, imagine that your boss asks you to do business with an Australian company. At the same time, you are aware of the political unrest in Greece. If Greece defaults, Germany would be impacted as they are a major economic trading partner and major debt holder. This could impact the company you’re doing business with, as Germany is a major trading partner with Australia. Therefore, if you’re doing business in Australia, you could be impacted by the situation in Greece, even though Greece isn’t a major trading partner with Australia.

Regional country risk could also be a factor. For instance, Venezuela literally has no cash available to pay its creditors, and this would impact your company’s ability to get paid.

Finally, you still need to assess the company risk, based on a number of factors including capacity and character. Some of this information can be obtained through reports and assessments from companies like Skyminder.

Political Risk

Imagine this scenario: You have an agreement in place with a foreign customer, and then a revolution breaks out in their country. Despite their best efforts and intentions, the deal is off, and they may not be able to ship out or pay for those products. Similarly, in other countries, governments have the ability to take over private companies, and there’s very little the owner can do to stop it.

Another political factor is the type and structure of the government. For instance, look at the current stock market in China. Dictatorship controls the market and valuation of yen. Which could be strong (or weaK) compared to U.S. dollars at the time of the transaction. Could your company be left holding the proverbial “bag?”

Finally, the U.S. government could be a factor. In the case of Russia invading Ukraine, will our Congress impose sanctions? If so, is your company prepared?

Terrorism

In a post 9/11 world, terrorism is a huge (and self-explanatory) factor.

How can you make an informed decision?

With all of the uncertainty I’ve been talking about in this blog post, how can you make an informed decision? There are a couple of resources that I can recommend.

  • FCIB is an excellent source for country reports, political risk and credit and collections surveys.
  • For company risk, no one should use a single source for business information reports. Effective risk management requires access to multiple sources. The preferred solution is to look to providers who can aggregate information from multiple sources. My company, SkyMinder, is able to provide freshly investigated reports for any company in any country in the world.

Mike Lindenmuth is Vice President of SkyMinder, a provider of global company and domestic credit reports. He can be reached at 813-636-0981 ext. 237, m.lindenmuth@c3bizinfo.com, or at www.c3bizinfo.com.

Now Accepting Nominations and Applications for CMA Board of Directors

The CMA Nominating Committee is now accepting nominations and applications for service on the 2016-2017 Board of Directors. If you would like to nominate a candidate for service, or you are interested in applying for a Director position directly, please complete a Candidate Nomination or Application form and return it to CMA by January 29, 2016. Click here to download the forms.

Board of Directors Qualifications and Responsibilities

As provided by the Bylaws of CMA, the Board of Directors oversees the general operation and sets policy for the Association. It is, therefore, essential that members of the Board understand their responsibilities and be willing to commit the time and effort necessary to do justice to this great organization.

The responsibilities and qualifications of a member of the Board are as follows:

1. Read and be familiar with the Bylaws of the Corporation.

2. A Board member must be the authorized representative of his/her company to CMA.

3. Attend the Annual Meeting and Installation of Officers and Directors, March 24-25, 2016.

4. Attend regular Board meetings, four times per year.

5. Attend the Annual Board Retreat (two days in February).

6. Review and accept financial and operating statements of the Association.

7. Review and approve reports of committees and project teams.

8. Serve on various committees of the Association as assigned by the Chair of the Board.

9. Show support for the Association and its programs by participating in CMA’s member services and by attending educational and networking functions, and promote CMA’s services to other members and prospective members at every opportunity.

10. When possible, attend the annual NACM Credit Congress held each May or June, and/or CMA’s CreditScape Summits (Spring and Fall).

The Twelve Days of Christmas, Industry Credit Group Style, by Larry Convoy

Over the last 5 years, I have written approximately 55 newsletters preaching the value of Industry Credit Groups and encouraging your participation. I do this because I believe that a credit group is the single most valuable resource a credit manager can have. In the spirit of giving, Groups give you valuable data that many times you can only get from the Industry Credit Groups (and more importantly, being engaged in them). As you prepare for the holidays, think about these tips on how you and your company can reap the benefits of this modified Christmas Carole, THE 12 DAYS OF CHRISTMAS

  • 1st day … Mark all of your group’s meeting days for the year on your 2016 calendar so that time is locked in
  • 2nd day…Make sure that you and all of your credit staff is registered on www.anscers.com. If they aren’t familiar with the site (and all of its resources), call CMA’s Lisa Wong for training
  • 3rd day … Discuss benefits of A/R contributions with your boss if you’re not already contributing
  • 4th day …  Look at credit references received for potential new group members and offer to call
  • 5th day… Make sure all RFIs have been responded to
  • 6th day… Check aging for any unusual slowness and enter those accounts as alerts
  • 7th day … Contact CMA to inquire about volunteering to assist any committees needing new people and new ideas
  • 8th day… Lead discussion regarding what peripheral industries or companies might fit in group due to common customers and let us help get them to join the group
  • 9th day… Participate in the meetings. Group membership usually pays for itself 10 times over due to advance knowledge of risky accounts. We encourage you to become engaged in your Group!
  • 10th day… If you’re not currently in group, call CMA to see if one exists in your industry
  • 11th day… If no group exists, gather a list of competitors and offer to assist in contacting
  • 12th day… Take a break, you have earned it

Have the Happiest of Holiday Seasons and a Healthy New Year
Larry Convoy

Lien Laws and Construction-Related Webinar/Seminar Series Coming in 2016

For construction-related businesses, filing preliminary notices, intent to liens and mechanics liens, and more, can be a necessary, but tedious and time-intensive process. CMA’s Construction Forms Filing Service offers assistance with helping companies ensure future mechanics liens rights. In order to showcase some of these services and inform our customers, we invite you to join CMA’s Amber Jackson, who has 10+ years of expertise in construction forms filing, as she reviews a myriad of tools available through CMA’s Construction Forms Filing Service, and the many tools that CMA offers for companies in the construction industry in a free webinar on January 26.

Additionally, there will be a number of additional webinars and seminars, hosted by licensed attorneys, which will cover state-specific lien law provisions and procedures that will help as well, beginning with California basic lien law on February 4. More states will be added to our education program soon.

To sign up for these sessions, click here.

The Price is Right for Industry Credit Group Membership, by Larry Convoy

There’s a lot that’s bundled in the $99 a month Industry Credit Group dues that group members pay. But, for sake of argument, let’s pretend for a moment that CMA unbundled those items and that you had to pay for each of those benefits separately.

Many service providers, including CMA, have weighed the advantages of an unbundled price structure versus a bundled one; to charge for each item or service as opposed to a monthly fee. I have devised the following pricelist and an approximate cost for a typical month in most groups to see what that $99 a month really gets you.

INDUSTRY GROUP STATEMENT FOR COMPANY XYZ FOR OCTOBER, 2015

  • Received 10 RFIs in month @ $22.50(cost of average Experian or Dun & Bradstreet, most groups use double that amount)
  • 12 NSF check notifications @ $5 each
  • 4 placed for collection notices @$50 each
  • 1 change of owner announcement -NO CHARGE
  • 1 Chapter 7 bankruptcy alerts @ $500
  • 2 “business is closed” alerts @ $250 each
  • 1 mechanic’s lien filed @ $300
  • 4 clearances at group meeting @ $5 each
  • Educated by group member on various topics-PRICELESS
  • Recommendation NOT TO BUY computer system or software package by member-$10,000
  • Informed of new A/P contact at customer’s or owner’s cell phone #- NO CHARGE

This adds up to $11,805 for one month, considerably higher than the bundled price of $99/month now charged to most groups. This does not include a Past Due list or Meeting Review reports.

While I do not think this will ever become the standard, it does make you realize how cost effective participation in a group is. The more RFIs submitted and alerts posted, the Return on Investment becomes even greater.

With the holidays upon us, make sure you set aside time to attend the meetings and submit your reports. The survival of many businesses will be determined in the next 2 months.

Have a great November,

Larry Convoy

What creates the need for financing international growth, by Brent Hoots

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

As a consultant, NaviTrade is approached by companies on a regular basis asking for our assistance in developing and implementing financing programs for their international business. Sometimes companies are frustrated about and even confused as to the need for financing. In fact, we often times see the need for foreign receivables financing as a natural outcome of successful international growth strategies that in part define a company headed in the right direction. To gain a better understanding of this issue, it’s productive to consider the many views of key management team members at typical small to medium-sized companies, including the following:

VP of International Sales – often times tasked with growing a business globally, a VP in this position may find several very attractive overseas markets. To succeed in these markets, the best strategies may require relationships with strategic partners in certain markets – often distributors – that can lead the company to successful market penetrations and substantial sales.

What does it take to make a relationship with an overseas distributor work? Many things, of course, including some level of understanding of the financing constraints facing the distributor. Overseas distributors are often thinly capitalized (i.e., they don’t have much money to work with!) and are looking for substantial open account terms to match their cash flow cycle. Distributor cash flow cycle means what? Let’s say the overseas distributor places an order with your company, it takes 30 days to receive the goods, they spend 30 days getting the product out into the market, then they get paid by the retailer 30 days after that – we would call this a 90 day “distributor cash flow cycle” from the point of view of the U.S. company. But wait! Isn’t the 90 day distributor cash flow cycle the distributor’s problem – not ours?! Right?! No – this is very much the U.S. company’s problem too!

If this topic is of interest to you, I invite you to join me for a free 45-minute Webinar on December 2 at 9am PST to delve deeper into this issue, take a further look at the views of the Credit Manager, CFO, and CEO, and investigate how this all relates to and where we ultimately find a financing solution!

Brent Hoots is president of NaviTrade Structured Finance LLC (NaviTrade), a financial advisory and brokerage firm that specializes in helping U.S. and overseas companies and financial institutions finance international transactions, better manage overseas risks and marketing related issues, and achieve their global potential. He can be reached at (720) 841-6371 or by email at bhoots@navitrade.com.

A Comparison of Credit Risk Mitigation Tools, by Buddy Baker

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

Most CMA members don’t know me. I don’t make it to many CMA activities because I live in Chicago. But about a year ago, I joined CMA as a vendor member who provides credit-related services to CMA members.

I’d like to invite you to a short webinar I’ll be conducting on December 3. I think you’ll find the information to be useful and maybe even compelling. The webinar will be a review of multiple techniques for managing credit risk. Maybe you are familiar with all of them but never compared them side by side. I’ve attached a chart that should give you an idea of what I’ll be talking about.

You can sign up for the webinar here. http://www.anscers.com/upcomingevents.aspx?eventId=1840

Then, in January, I am planning to be in Los Angeles to conduct some classroom-style seminars on these techniques. If the webinar makes you decide you’d like to understand some of these techniques better or get some classroom practice at matching risks with risk-mitigation techniques, I hope you’ll come to one or more of these seminars. In addition to risk mitigation, one will be on structures for arranging financing for your domestic and international sales (much of which is built on the risk mitigation techniques). These seminars are not limited to CMA members, but CMA members will get a discount.

My objective is to provide education to Credit Managers. Information you can use. My experience-35 years of it-is as a banker and a credit insurer. I’m an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. Please feel free to call me whenever you have a question about letters of credit or credit insurance or foreign exchange contracts.

And I look forward to getting to Los Angeles, and out of Chicago, in January.

Buddy Baker

Buddy Baker is president of Global Trade Risk Management Strategies, LLC, a consulting firm that specializes in providing education content to Credit Managers. Baker has 35 years of experience as a banker and a credit insurer, and is an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. He can be reached at (847) 830-3038, or by email at buddy.baker@gtrisk.com.

How to Achieve Procurement from Using Foreign Trade Zones, by David Harlow

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

A Foreign-Trade Zone is a secure, access-restricted, Customs & Border Protection privileged area in or near a U.S. port of entry where merchandise both foreign and domestic may be admitted, stored, exhibited, manipulated, temporarily removed, manufactured, or destroyed duty-free! Duties, certain user fees and taxes are only assessed on products that are transferred out of the FTZ and imported into the United States for consumption. Products that are transferred out of the FTZ and exported abroad are exempt from any duty, user fees or taxes

Benefits:
1. Duty Deferral – Duties are only paid when imported merchandise is entered into the U.S. Customs territory.

2. Duty Avoidance – There are no duties paid on merchandise that is exported from a FTZ, transferred to another zone or destroyed. This eliminates the need to manage costly and time-consuming Duty Drawback programs.

3. Weekly Entry – Customs allow for a weekly entry processing, which benefits importers because the Merchandise Processing Fees are capped at $485 on a weekly basis, versus per shipment basis.

4. Fee Deferral – Harbor Maintenance Fee is paid quarterly and in a single payment.

5. Enhanced Security – By using a FTZ, the “internal controls” requirements of section 404 of the Sarbanes-Oxley Act are met. Participants in the Customs Trade Partnership Against Terrorism (C-TPAT) program are eligible for additional benefits provided by Customs.

6. Expedited Logistics – relocating CHB to your facility and expedite the delivery to your facility without customs clearance. Potential savings is up to two days.

7. Ease of Paperwork – through automation of the FTZ, the paperwork submitted for receiving and the weekly entry program is greatly diminished with all parties and the processes for approval are expedited dramatically.

8. Manipulation – all manipulations are authorized and completed without physical Customs supervision. Goods are allowed to enter an FTZ and have the following manipulations: clean, repair, fix, improve in value, amend, exhibit, pick & pack, and many other functions.

If you’re interested in this topic, I encourage you to join me on December 1, 2015 for a free webinar on how you can use these trade zones to your company’s advantage. Register here: http://www.anscers.com/upcomingevents.aspx?eventId=1843

david harlow

David Harlow represents four of the nine Grantees in Southern California and assists regions, cities, and businesses with the implementation and oversight of the FTZ Program. Additionally, ITC provides services in eight different states while continuing to grow. ITC was founded in 2002 as an International Trade Consulting Firm and a second generation National Corporate Custom House Broker. ITC provides a unique blend of international trade related services to importers, exporters, manufacturers, distributors, public utilities, and local government, focusing on CBP and the Foreign Trade Zone. 

New International-Themed Webinar Series Announced to Help Members Think Global

Several international-themed webinars have been scheduled for early December in an effort to get CMA members to think globally.

The webinars, which will run 30 minutes each and are free for CMA members to attend, will take place December 1-3 at 9:00 AM PST. Descriptions for the webinars (and registration information) can be found at www.creditmanagementassociation.org/events.

  • December 1, 2015: How to Achieve Procurement From Using Foreign Trade Zones (Speaker: David Harlow, ITC-Diligence)
  • December 2, 2015: Financing Foreign Receivables (Speaker: Brent Hoots, NaviTrade)
  • December 3, 2015: Comparison of Credit Risk Mitigation Tools (Speaker: Buddy Baker, Global Trade Risk Management Strategies)

To echo the value of international education and resources to our members, CMA president and CEO Mike Mitchell dedicated his November blog to the topic.

For more information about these webinars or the CMA education program, contact Lisa Wong, CMA Member Relations Associate, at lwong@emailcma.org.

Fraud Tips – Don’t be a target this season, by Michael W. Fenner, CBA

Wow…it’s hard to believe the holidays are just around the corner. We all know this time of the year we need to be more vigilant in regard to protecting our assets. I wanted to take a few minutes and list some bullet points to think about so you can share with your teams. I don’t have all of the answers so feel free to share your experience as well. You know if we close any potential loop holes now we will save our companies some money and hopefully minimize any possible theft this holiday season. Let’s make sure we all review our credit policies with our team members today.

Below are some tips about accepting checks and or credit cards:

  • Know your customer. – Have you dealt with this person before? If not, it might be a sign.
  • Avoid taking credit card payments over the phone from customers you don’t know. – It’s hard to verify the identity of the person on the phone. Have them come in to verify them and swipe the card.
  • The customer won’t show their ID. – Call the company number on the check to verify the person, call the bank to see if the account is open or closed. Chances are something will come out of the additional questions you are asking.
  • Is the driver’s license preprinted on the check or prewritten on the check already? – Still take the time to review and verify the customer’s identification. They could be trying to slip one by you.
  • Is a rental truck picking up the material? – Notify your yard personnel to keep an eye out for customers loading material into rental trucks. This is a very common sign.
  • Are they not from your area? – Is there ID from San Diego but they are purchasing from you in Los Angeles? They may have a job in your area but keep an eye out for this one.
  • How is the customer acting, are they nervous? – Are they avoiding eye contact, are they acting suspicious, being pushy after a very simple request?
  • Does the e-mail address match up with the company name? – Double check to see if the e-mail address matches up with the information on the check and or credit card authorization form.
  • An out of the area phone number. – Do they have an area code that isn’t from your area. Take a second look and confirm.
  • If it doesn’t feel right it probably isn’t. – We all have that gut feeling at times. Have your teams contact your credit department if they are feeling uncomfortable.
  • Did I mention know your customer? – Always make sure you know who you are dealing with.

Fraud can hit us many different ways, but it always bites us. They are always persistent and unyielding and it doesn’t matter where you are from New York to California. At times they are highly organized and very sophisticated. And other times they are by themselves looking for an easy target. Don’t be an easy target. As always keep your eyes and ears open.

Thank you for taking a few minutes out of your busy schedule to read my blog.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support. I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Theme, Hotel Registration Announced for CreditScape Spring Summit and Annual Meeting

CreditScape Spring Summit
CreditScape Spring Summit

Attendees of the 2016 Spring CreditScape Summit and Annual Meeting, which takes place March 24-25, 2016 at the Island Hotel in Newport Beach, will learn about the efficient digital credit department, according to CMA president and CEO Mike Mitchell. “We listened to feedback from Fall CreditScape attendees and members, and the survey results overwhelmingly suggested the topic should resonate with most credit managers today.”

While the session and speaker lineup is currently being developed, attendees can reserve their hotel rooms now at www.creditscapeconference.com.

More information about the event will be announced in a few weeks.

President’s Blog: It’s Time to Start Thinking Globally, By Mike Mitchell, President & CEO

How can you play and get paid in the global marketplace? Over the last two years, CMA has been exploring how member companies can grow export sales using a variety of credit and trade finance resources to mitigate the risk of selling into other countries.

Today, I am attending Discover Global Markets, a two-day export conference hosted by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration (http://export.gov/discoverglobalmarkets). I am looking for information and insights I can bring back to the CMA membership.

In the meantime, we have many other resources that can help you sell into the global marketplace. CMA established a strategic alliance with the U.S. DOC’s Commercial Services because its trade professionals in over 100 U.S. cities and in more than 75 countries help U.S. companies get started in exporting or increase sales to new global markets (http://www.trade.gov/cs). Regional Director Richard Swanson recently participated in a panel discussion on international collections at CMA’s Fall CreditScape Summit, and he has provided CMA members with guidance on how to access U.S. government export resources in many other countries. You can also find all the basics at www.export.gov.

When you conduct international credit investigations, CMA recommends long-time partner Skyminder which offers reliable, up-to date information on millions of public and private companies worldwide. Details on how to find them are here.

CMA has three upcoming webinars before the end of the year that will give you more tools for exporting your products and securing your receivables.

  • December 1, 2015: How to Achieve Procurement Using Foreign Trade Zones (Free Webinar) 9:00 AM PST
  • December 2, 2015: Financing Foreign Receivables (Free Webinar) 9:00 AM PST
  • December 3, 2015: Comparison of Credit Risk Mitigation Tools (Free Webinar) 9:00 AM PST

Details on these can be found at http://www.anscers.com/upcomingevents.aspx

Is your company missing out on the other 95% of the world market? Stay tuned.

Outsourcing Your Order to Cash Functions: Eight Challenges to Consider, by Robert Shultz

This is part 2 of a 2-part series on Order to Cash functions. Part 1 of the series can be seen here.

Part 2

 Outsourcing is not easy. It requires planning and tight partnering between the provider and the client. To be successful critical challenges must be overcome. All the processes related to the outsourced functions must be considered and satisfied.  The quote to cash process must be managed holistically looking at performance measures and Service Level Agreements illustrating joint accountability for the desired outcomes. The impact on your customers should be positive.

Your company may be dependent on the provider’s technology.  Make sure it is robust and secure.  Your users and management should have complete transparency to day to day account management and performance results.  Integration of all documentation with easy access to materials for research, collections and legal purposes should be embedded in the provider’s process.

  1. Requires Significant Pre-Implementation Preparation

Prepare your company for changes with thorough up front planning.  By doing so, as a client you can expect to see the efficiency, support and the hoped for return on the outsource investment.

Prior to engaging an outsource provider it is essential to define the scope of the engagement, expected results and be comfortable with the anticipated return on investment.

This requires input and participation by all internal stakeholders affected by the new arrangement.

  • Metrics: Both parties must agree on specific Service Level Agreement (SLA) metrics. These will be incorporated into the outsource engagement agreement.
  • Communication plan: Require the outsource provider to report to and meet with internal clients routinely.
  • Pre-engagement due diligence: The provider must have a thorough understanding of the client’s policies, processes, customers, pre-engagement performance issues and trends, backlogs, systems, workflows. The due diligence should also include an assessment of the needs and capabilities of stakeholder functions outside the scope of the engagement where there are mutual concerns. Doing this is essential and will definitely keep the noise level down once the change is underway.
  • Provider’s staff and management: Understand the provider’s staff qualifications and management structure, tenure and turnover history.  Nothing is worse than handing over key functions to a third party, particularly in a remote location, when the individuals assigned the work are not trained, do not have the requisite experience and are not managed by someone with experience in a similar engagement.
  1. Potential Loss of Managerial Control

Whether you sign a contract to have another company replace an entire function or department or single task, you are turning the management and control of that function over to another company. It is imperative to set specific expectations for performance and transparancy at the outset of the engagement.  This is how a client manages the provider.

Identify the SLA’s that represent the service levels you are looking for.  Try to integrate linked functions with common targets.  There are lots of possibilities.  For example, Dispute reduction targets could link Sales, Customer Service and Credit.  Other departments like pricing or returns control could share a target for deduction reduction, resolution turnaround and deduction write offs.  Require constant monitoring and periodic reporting of results.

If the outsource provider beats expectations, build an incentive into the agreement, if expectations are missed assess a penalty until performance gets back on track.

Remember, at the end of the day both you and your outsource partner must find the relationship profitable.  A poorly planned implementation with few or inappropriate expectations is likely to be a financial loser for both parties and end poorly.

 

  1. Hidden Costs

Beware of hidden costs as you negotiate the outsource agreement.

  • Extra fees and charges may result from a request by the client not covered in the contract.
  • Consider legal fees and the cost of ongoing liaison and communication with the outsource provider in determining your real costs.
  • Regardless how effective and efficient an outsource provider is, an internal dedicated resource is essential for day to day liaison. This individual will be responsible for coordination between the internal stakeholders, management and the outsource provider. Responsibilities should include: Coordinating inquiries from the outsource provider related to problem transactions, monitoring service level agreement metrics, reviewing performance reports and keeping management informed.

 

  1. Threat to Security and Confidentiality

Evaluate the outsourcing company carefully. Understand how they maintain data integrity and security. What is acceptable down time, recovery time, are they keeping redundant files in a safe location?  You contract should have a penalty clause for any breach in security or confidentiality. If your company is required to comply with Sarbanes Oxley confirm the provider is SAS compliant.

 

  1. Quality Problems

The outsourcing company is motivated by profit. There is nothing wrong with that but this is a key reason to set expectations upfront. As previously stated define SLA’s carefully. Make it financially painful for the provider to miss expectations. The real objective is to reduce provider errors and delays affecting your business. Require the provider to report shortfalls in expected results, the driving reasons and the action plan to get back to acceptable performance. Often the client finds their own internal operation is to blame. Use the provider’s feedback to fix the root cause internally.

Businesses grow, retract, enter new markets and face changing competitive landscapes.  Be comfortable before making a provider choice that the provider will be able to rapidly respond to changes in the business environment.

 

  1. Tied to the Financial Well-Being of the Provider

Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. Do a thorough risk assessment up front. Make sure you periodically review the outsourcer’s financial stability and standing in the marketplace.

 

  1. Employee Attitude and Morale

The word “outsourcing” can have negative connotations for your internal workforce, especially those left behind. Be sure your key individuals are part of the outsourcing engagement early in the process. They must be kept aware of the engagement’s scope and intent. Open and frequent communication is key.

 

  1. Compare the Service Level and ROI Between Outsourcing and Developing Internal Capability

Before deciding to outsource key functions take a look at what it would take to develop your own internal capability.

  • Is it cost effective to simply automate a process that is currently labor intensive?
  • Would process integration between departments reduce costly delays and exceptions?
  • If there were coherent measurements, performance tracking, accountability and reporting timeliness and transparency, would costs go down and customer service improve?
  • Lastly, what is the value of your company’s “intellectual equity”? By outsourcing entire functions with no one left internally with the knowledge and expertise needed to perform those functions, a client becomes increasingly dependent on the provider.  At some point it becomes an overwhelming and possibly an insurmountable task to bring the functions back in house.  No one is there capable of the handoff.

 

Bottom line, the grass is not always greener…..

 

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

Outsourcing Your Order to Cash Functions, by Robert Shultz

This is part 1 of a 2-part series on this topic. Read part 2 here.
Part 1: Seven Advantages to Consider

Overview: Many companies consider outsourcing all or part of the order-to-cash process as a cost-effective alternative to retaining internal staff and infrastructure improvements. This is not a decision to be taken lightly. It requires a thorough evaluation of choices.

I like to look at the entire process from beginning to the end. Start with the development of a price and terms quote. Understand how the decision will impact all the steps leading to good funds sitting in your company’s bank account. All the steps in between are interconnected. In short you have to consider the quote to cash process in total. Ensure all the stakeholders are working in concert to provide your company with efficient support and your customers excellent service.

Any decision to outsource should consider the impact on all elements of the quote-to-cash process. The project leader must take in to account how the decision affects the other stakeholders involved. Senior management, sales, customer service, operations, project management, etc. all either feed into the affected processes or are impacted by the performance results. To ensure success, involve these other stakeholders from the beginning. Their perspective and involvement is critical. Remember, customer service considerations should take a priority seat.

There are numerous factors you need to consider when deciding if outsourcing or improvement of internal operations through automation is best for your company. You will notice many of the decision factors go beyond just the potential money savings.

When done for the right reasons and in the right way, outsourcing can, in fact, help your company grow and save money. Just make sure the decision is deliberate and well thought out.

Advantages:

1. Focus On Core Activities
In periods of rapid growth or, as with many companies in recent years, a reduction in business activity, back-office operations must expand or contract as the business changes. If the back office does not keep pace with the business activity, it can consume resources (human and financial) at the expense of the core activities that have made your company successful. Outsourcing functions like order entry, credit control, collections, dispute management and cash administration can provide opportunity. Remaining internal resources can be refocused onto priority business activities without sacrificing quality or service in the back office.

2. Cost And Efficiency Savings
Back-office functions may be complex and require a level of sophistication in both human and system resources. As your company grows and internal operations expand, management may be faced with a choice: make sizable investments to keep up with the growth, or find a third party capable of taking the hand off. Without the needed improvements, the company may not be able to perform at an acceptable level of accuracy or speed at a consistent and reasonable cost.

3. Potential to Reduce Overhead
Overhead costs can easily run higher than expected. If functions can be moved to an alternative location or partnered with an automation provider, there will be a significant cost savings realized on total overhead.

4. Operational Control
Operations that have costs are running out of control are prime candidates for outsourcing. There is often a lack of compliance control, fuzzy objectives and performance tracking in accounts receivable departments at many organizations, and these are situations where an outsource provider may bring more up-to-date and effective skills than are currently available within the struggling company’s staffing budget.

5. Staffing Flexibility
Outsourcing will allow operations that have seasonal, cyclical or special project demands to bring in additional resources when needed. Excess staff can be released when the need diminishes.

6. Continuity & Risk Management
Periods of high employee turnover can add uncertainty and inconsistency to any operation. Outsourcing Q2C functions may provide the continuity needed to reduce the risk of substandard performance.

7. Dedication of Internal Staff to “High Priority” Core Functions
Critical strategic customers need to be adequately supported. Outsourcing low priority functions and, at the same time, lowering cost will enable highly skilled internal staffers to focus on critical priorities and major accounts.

In Part 2 of this series (which will be posted tomorrow), we will examine preparing for an outsource engagement and the challenges outsourcing Q2C can present. You will learn which factors to consider in weighing an internal vs. an outsourced Q2C solution.

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

I Am CMA, by Jim Morrow, Davis Wholesale Electric

Jim Morrow - I AM CMA

“As a longtime CMA member, there are two services that I really value. The monthly credit exchange meetings from the Industry Credit Groups provide very valuable information. The accounts discussed may not be on your radar the day of the meeting but down the road a day, a week, or a month, you will have use for what was discussed at the meeting.

In addition to the information gained at the monthly credit exchange, I find the information on the ancsers group reports very valuable in day-to-day decisionmaking. You won’t find that information anywhere else.”

“I Am CMA” is a Membership Committee driven initiative to allow members to share the most valuable aspects of their membership with CMA members. The monthly series explores CMA’s different programs and services and how they have helped members. With a full range of business credit services from Industry Credit Groups to credit reporting to construction forms filing services to collections to business insolvency, we hope the series will inspire you to utilize CMA more to help provide information to reduce your company’s overall risk.

For more information on the blogs, or to be featured, contact CMA Communications Manager Alan Dicker at 323-573-0840 or adicker@emailcma.org.

President’s Blog: 2016: What’s in your budget?, by Mike Mitchell

All too often our members tell us that they want to take advantage of benefits offered by CMA, but they are not in the budget. For companies on a calendar fiscal year, here’s your opportunity to begin thinking about those budgetworthy benefits for 2016. Even if your next fiscal year extends well into 2016, it’s never too early to start your wish list.

Above all, budget for CMA membership and if your company participates in a credit group, include group membership ($1665 total). Credit groups are still one of the best ways to maximize the value of your CMA membership because the unique combination of industry trade data, insider knowledge about common customers, and industry best practices often pays for your membership fees many times over in helping you grow revenue, reduce bad debt losses, and saves you valuable time in conducting due diligence. One of CMA’s newest groups focuses on developing processes to help the credit department evaluate supplier risk. If your company faces significant exposure from the risk of critical suppliers failing to perform on time (or at all if they go out of business), consider budgeting for membership in the Supplier Risk Credit Group ($1200).

CMA has already scheduled the next CreditScape Summit for March 24-25, 2016, and will soon schedule the Fall 2016 CreditScape, so be thinking about adding one or both events to your budget (CMA members pay $499 per person per event). CreditScape is a unique event focusing on process improvement for the credit department, providing the tools to allow you to act more proactively.

CMA will offer NACM Certification Courses for the CBA and CBF Designations starting in January. These will be offered once a year only, unless there is sufficient participation for additional classes, so if you plan to get certified in 2016 or early 2017, plan to register for the Certification Courses now and budget accordingly ($3000 for all courses per designation per person). Information for all professional development events can be found on CMA’s website and on anscers.com on the Education tab.

Before you budget for your credit information, consider whether you are getting the best value for your budget. Let CMA help you analyze your current credit reporting products– we might be able to save you money by suggesting a more cost-effective reporting strategy (pricing varies by report volume). CMA’s anscersX multi-bureau report combines proprietary scores and data elements from all three major credit bureaus (Dun & Bradstreet, Experian, Equifax) to give you a comprehensive look at the payment history of your customer or prospect ($65 (or less) per report). Budget for some anscersX reports to supplement your existing credit reports.

If you are a construction supplier, consider how using CMA’s Forms Filing Service can save you time and money. With services ranging from preliminary notices to lien warning notices, mechanics liens, bond claims and stop notices, CMA’s Form Filing Services often provide the lowest pricing and best service in the marketplace. You might also be interested in CMA’s new Construction Credit Report, providing title data, public record data, active trade lines, credit analysis and scores, collection agency activity and links to state contractor information, the only all-inclusive report of its type, at $29.95 per report.

Finally, CMA’s collections partner, AG Adjustments, offers third-party collection services at competitive rates on a contingency basis.

We hope this list is helpful as you consider your needs for 2016.

Save the Date: Credit Management Association Announces CreditScape Spring Summit and Annual Meeting

— Expanded Two-Day Education Summit will be held March 24-25, 2016 in Newport Beach–

On the heels of its successful inaugural CreditScape Fall Summit in Las Vegas, Credit Management Association (CMA) has announced plans for an expanded Annual Meeting, which will include two days of focused credit management best practices training and workshops to help increase cash flow while reducing your company’s overall risk.

The CreditScape Spring Summit and Annual Meeting, March 24-25, 2016 at The Island hotel in Newport Beach, will feature two days of workshop training, expert practical and legal advice, and networking with other credit professionals.

“The Fall CreditScape event was born out of feedback from members who asked us for help with their collections processes. Survey results from the recent Fall event show that members appreciated learning from subject matter experts and seasoned credit professionals who shared their experiences through panel discussions and interactive workshops. We plan to take that feedback and build an even better program for the Spring,” said CMA President and CEO Mike Mitchell.

“CMA members are always looking for better ways to manage and maximize recovery of their receivables. We are weighing several options for the overall theme of the event, which the educational content will focus around,” Mitchell added. “And as we did in the Fall, we will incorporate the latest techniques in content delivery for adult learners to create a thought-provoking and practical meeting experience that produces valuable take-aways and sustained value for participants and their credit departments.”

Credit Management Association is currently developing the programming for the event, which is designed to propose best practices and methods to help companies increase their cash flow and reduce losses from their customers. Details about the program will be announced later this Fall.

In addition to the increased educational offerings at CreditScape, the event will also recognize the CMA Mentor of the Year, Student of the Year and Credit Executive of the Year.

The event will be preceded by the Credit Executive Symposium on March 23 at The Island Hotel. The one-day event for senior credit executives of national and global companies, offers facilitated discussions and workshops on the high-level and trending topics in credit management.

CreditScape Summits are offered in the Fall and in the Spring, focusing on different aspects of the Credit Management landscape. It is one in a series of in-person educational opportunities offered by Credit Management Association. To learn more about the other sessions and topics, visit www.creditmanagementassociation.org/events or call 800-541-2622.

Attendees Agree: CreditScape Fall Summit Was a Success

The CreditScape Fall Summit, an interactive learning seminar and workshop which took place September 17-18 at the Tropicana Las Vegas, was a success, according to preliminary survey results that were tabulated after the event.

Among the feedback received: “What key takeaways did I get? There were too many to list. There were takeaways from every single speaker.” Another attendee said, “I learned we need to use automation much more. We can start by using metrics.” Several other attendees mentioned that they’ve already recommended this event to a colleague.

Plans are already underway for a 2016 Spring CreditScape and Annual Meeting, March 24-25, 2016 at the Island Hotel in Newport Beach. Details about the event are forthcoming.

Thanks again to all who attended the event!

"Speed networking" event allowed attendees to discover services that can help them "prevent collections" at the 2015 CreditScape Fall Summit.
“Speed networking” event allowed attendees to discover services that can help them “prevent collections” at the 2015 CreditScape Fall Summit.

The power of “WE” (not just “ME”) submitting your company’s full A/R, by Michael W. Fenner, CBA

Submitting your company’s full A/R has been talked about quite a bit this summer. There is a reason for that…it’s important. I wanted to take a minute to point out the value and personally ask for your support in this request. You know, the more companies that contribute, the more people that will benefit. If you contribute, your company will have an advantage. Besides, with today’s web-based technology, it’s very simple, fast, and secure to do. Let’s all support Credit Management Association and contribute our full A/R’s so we can all make better business decisions.

Below are a few bullet points as to the value of submitting your full A/R:

  • Reference Information – Trade experience will be available to you right away. No need to wait for faxes any longer.
  • Supports CMA – This contribution will support the members at Credit Management Association.
  • Easy to Contribute – Most of us already submit to our Industry Trade Groups. You can use the same format such as Excel to contribute your full A/R and send it right off to CMA.
  • Informed Decisions – You will be able to approve credit applications in a timely manner with current up-to-date information. This will also help you with updating accounts, when those big orders come in at the 11 hour. This happens to all of us.
  • Supports Well Established Customers – Members will be able to support their good paying customers and everyone will know who is consistently paying on time.
  • No Need to Respond to RFI or Group Lists – This will save time and money as contributors’ information will automatically be added to the Anscers database. This is a nice feature. Additionally, this will also strengthen your Industry Credit Group.
  • Reports Delinquent Customers – Members will know who isn’t paying regularly month in and month out.

And, as always, Credit Management Association is here for YOU! Make sure you talk to your leaders to see if you can take advantage of this benefit. You can’t go wrong. Thank you for taking a few minutes out of your busy schedule to read this blog.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support. I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

CMA Launches New “I Am CMA” Blog Series

CMA, through the input of its Membership Committee, has launched a new campaign to allow members to share the most valuable aspects of their membership with CMA members.

Titled “I Am CMA,” the series will explore CMA’s different programs and services and how they have helped members. The first blog will appear at CreditManagementAssociation.org in October.

With business credit services ranging from Industry Credit Groups to credit reporting to construction forms filing services to collections to business insolvency, we hope the series will inspire you to utilize CMA more to help provide information to reduce your company’s overall risk.

For more information on the blogs, or to be featured, contact CMA Communications Manager Alan Dicker at 323-573-0840 or adicker@emailcma.org. We hope you enjoy the series.

10 Negotiating Tips You Need To Know, by Robert S. Shultz

Negotiation is not a contest to see who can prevail. It is the “art” of getting to the point where two parties can agree on critical concerns. It encompasses employing core negotiation principles, the use of applicable strategies addressing the situation, focus on specific objectives, having a fallback position and, if all else fails, knowing when to walk.

Following are 10 considerations creditors can use to improve negotiation results. This is not complete list by any means. However, these points are critical for a successful negotiation outcome.

1. Don’t alienate the other party: In an effective negotiation, both sides must have the desire to reach a conclusion without alienating the other side. In the end, both sides should be satisfied with the result. If your counterpart seems unwilling to reach a desirable outcome, find points that will gain support and acceptance. Effective negotiation requires knowing how to satisfy a customer’s needs and amicably resolve differences. By being skilled in negotiating you will be able to collect more dollars, improve overall performance, and improve customer satisfaction.

2. Practice effective communication: Successful negotiation involves effective communication between the parties. To eliminate communications roadblocks, consider the following:
• Listen first. Pick up on what is said to clarify or modify your position.
• Find a basis for common understanding.
• Clearly state your case and what you want.
• Recognize the style of the other side and communicate in a fashion they can relate to. Don’t be intimidated or overwhelmed by aggressive behavior coming from the other side. Keep focused on your objectives and remain calm. If things become unprofessional with no change of behavior in sight, be prepared to walk.
• Deal with the decision maker. Invest your time with someone who can make a decision.
• Ask probing questions that cannot be answered with a “Yes” or a “No” and make the other side explain the answer.

3. Avoid elevating issues into a conflict:
• Find common ground: Both parties should have a strong understanding of one another’s needs.
• Break down issues into manageable/understandable pieces: Sometimes an impasse can be avoided by breaking the issues down. Start with what you can agree on. Attack the easiest issues first. You may find when the easy issues are resolved most, if not all, of the big issues have evaporated.
• Build a track record of trust: Once you have agreed on issues where some give and take was possible, a trust develops between the parties

4. Practice the “Four C’s” of negotiating: These points describe an approach. Not everyone you come up against will use this approach.
• Caring: Be sincere. Listen to the other party and be interested in their issues.
• Calm: This is a tactic that will encourage the other side to state their position and objections without undo emotion. When they are excited and you are calm, it tends to bring them down.
• Clear: Confirm the other party heard you and clearly understands your position. To avoid misunderstanding, restate what you hear. Repeat what is said and keep repeating until you get it right. It may take several tries.
• Comprehensive: Prepare yourself as best you can under the circumstances, time constraints and information available. Think about: Possible “What Ifs” and “What Nots.”

5. Prepare yourself in advance of a negotiation:
• Do your homework and learn everything you can about the other side. Try to understand their motives and objectives. Determine what you want to accomplish. In face-to-face meetings, have an agenda handout or an executive summary.
• When the negotiation starts, have all the necessary documentation in front of you. Have a plan for your initial position and your final position.
• Have a primary and secondary goal: A primary goal is a necessary outcome. A secondary goal is what you can accept and still meet your company’s needs.

6. Understand your “Best Alternative to a Negotiated Agreement” (BATNA): This is the course of action you will take if the current negotiations fail and an agreement cannot be reached. This is different than your “walk away” point. Very often if a win-win cannot be achieved, going for a “no deal” could be the best answer. You can’t win every time. There may be business factors that override a negotiated settlement if one cannot be reached.

7. Define the negotiation scope and approach: This will depend on several factors, each of which must be considered as you enter any negotiation with a customer.
• What are the key issues or obstacles that need to be addressed? Is it payment? Does the other party need additional information to meet your request?
• What are your restrictions? (Time, costs, etc.) Are you up against a deadline?
• Is this a major issue or a priority for your company? Should you spend a little or a lot of time dealing with this?
• Can you trade on an issue that you feel has limited importance to win on a major one?

8. Know who you will be negotiating with: What is their negotiating style? Determine how you expect them to approach a negotiation? Work to establish a rapport at the outset of the negotiation. Separate people from the problem. Remember, negotiators are people first. In most supplier/customer negotiations, the negotiator has two basic interests: The issues at hand, and a desire for a continuing relationship between the parties.

9. Understand the business and future relationship potential: Is this customer of strategic importance to your company? Review your company’s historical relationship with this customer. Is the issue at hand an anomaly, or is it a repetitive issue? What is the revenue and profit potential in the future? Is the relationship worth saving?

10. Be culturally sensitive:
• Don’t Apply the Golden Rule: “Do unto others as you would have them do unto you.” Use the “Platinum Rule” – “Do unto others as they would have done unto themselves.”
• Understand what is offensive: You might be comfortable looking someone straight in the eye, introducing yourself with a firm handshake, being direct and open and getting right to business. Other cultures encourage other behaviors.
• Be sensitive to the appropriate sequence of business and negotiation: It is not appropriate in some cultures to first do business and then develop a relationship. You are expected to develop a relationship and then do business. You need to understand what goes first.
• Understand the “real” message: Cultures vary in the way they communicate their message. You must be sensitive to these differences to understand what they are telling you and react effectively.

Effective negotiation is truly a combination of art and science. It takes planning and effort to reach a result acceptable to both parties. In doing so, business between the parties can continue. As a supplier, you can collect more cash and keep more customers.

Robert S. Shultz is a founding partner at Quote to Cash Solutions (Q2C) LLC, a consulting firm that focuses on delivering quality solutions that improve client revenue opportunities, cash flow, operational efficiency and customer retention and satisfaction and when needed, management and staff training. He can be reached at (805) 520-7880. For more information, visit Q2C’s website at www.quotetocash.com.

Pepsico joins Supplier Risk Group

Pepsico

Pepsico is the latest company to join CMA’s Supplier Risk Management Group.

The Group, which is one of 60 Industry Credit Groups that CMA offers, provides resources for learning the best practices and techniques to evaluate your suppliers.

Pepsico joins other participants in the group including Nestle USA, Aryzta, Ventura Foods, Silgan Containers, and others.

For more information about joining, and the types of conversations that happen in the group, contact Larry Convoy at 818-972-5323 or lconvoy@emailcma.org.

Suppliers Accepting Credit Card-Present Payments Take Heed To Adopt New Technology By October 1, 2015 Or Bear Risk Of Fraud Loss, By Scott Blakeley

The Wall Street Journal reports that credit card use in the B2B space continues to increase as a preferred payment channel for customers. Suppliers accepting cards in the B2B space commonly receive payment through card not present forms, whether through payment portal, email, fax or over the phone. For those suppliers that accept cards in the cardholder’s presence, card issuers are changing card acceptance rules to give cardholders greater protections from identity theft.

“Chip and pin” or “smart cards” are credit or debit cards that store data on integrated circuits rather than on traditional magnetic stripes. The transition to “chip and pin” or “smart card” technology is now largely underway in the United States. The transition is being assisted by the shift in liability for card-present fraud that will be implemented on October 1, 2015.

Currently, if an in-store transaction is conducted using a card obtained fraudulently, cardholder losses from that transaction lie with the payment processor or issuing bank. From October onwards, that liability will shift to the supplier that has not changed its system to accept chip technology. If a customer uses a chip card, the failure to update the card reader may permit a counterfeit card to be successfully used. In that scenario, the supplier will bear the cost of the fraud. Again, the supplier will only be responsible for the cost of the fraud if the fraudulent transaction is a card-present transaction.

The major benefit of using a “chip and pin” payment card, and what compelled the US to migrate its cardholders to the new generation of cards, is improved security and fraud reduction. Whereas magnetic stripe card transactions rely on the holder’s signature and visual inspection of the card, the use of a PIN and cryptographic algorithms provide authentication of the card to the processing terminal and the card issuer’s host system.

The identity of the cardholder is confirmed by requiring the entry of a personal identification number (PIN) rather than signing a paper receipt. Unlike magnetic-stripe cards, every time a smart card is used for payment, the card chip creates a unique transaction code that cannot be used again. This eliminates the possibility of card duplication fraud as the transaction code becomes obsolete and cannot be used in further transactions.

While much of the rest of the world has already been using “chip and pin” cards for several years, the US is now committing to migrate its credit card use to this more secure format. There is a historical viewpoint regarding the reason for this delay by the US in updating its credit card technology standards. In the past, fraud was much more prominent in markets outside of the US. What has happened, especially over the course of the past few years, is that since other markets have migrated to “chip and pin” cards and become more secure, fraudsters have moved their focus to the US market. Essentially, they came to the US market because they were looking for less secure networks from which to steal fraudulent credit card information.

For suppliers in card-present transactions, the switch to this technology means adding new in-store technology and internal processing systems, and complying with new liability rules. For cardholders, it means activating new cards and learning new payment processes. And for the supplier and cardholder, it means a more secure form of payment by credit card, and fewer opportunities for fraud to occur. As the credit team is responsible for managing risk, including risk of fraud with payment channels, the credit team must prioritize compliance with this new technology within the organization for card-present transactions.
Scott Blakeley is a principal with Blakeley LLP, where he practices creditors’ rights and bankruptcy. His e-mail is: seb@blakeleyllp.com.

What Credit & Collections Professionals Can Learn from Football Coaches, by Mark Wilson

With the NFL season officially underway, let’s take a moment to explore what Accounts Receivable departments can learn from coaches, especially when it comes to the season’s biggest game changer: analytics.

As a credit and collections professional, take a look at the metrics you’re currently tracking. Throughout my years as a consultative resource for AR departments, I’ve found that most companies spend most of their time focusing on DSO and maybe how much they wrote off as uncollectible. Don’t get me wrong, tracking how fast you get paid is important. If collecting money was a game, DSO would be the score. But if that’s all you’re measuring, you’re not properly leading your team.

Let’s think about this from the perspective of a football coach. When evaluating a team’s performance, coaches look at many other stats beyond the final score. Tracking things like rushing yards, turnovers, quarterback ratings, third-down efficiency, help identify areas that need to be improved upon as well as potential opportunities. All of these ultimately feed into the final score and the overall success of the season.

Within accounts receivable, we need to go beyond DSO. Tracking underlying metrics allows companies to evaluate individual performance, uncover potential process improvements, gain valuable insights, and of course leads to an improvement in DSO.

If you’re interested in diving deeper to improve your team’s performance but are unsure of what metrics to track, this AR Analytics Playbook can provide some insight on six simple, yet effective metrics that every financial executive should be tracking. By leveraging these metrics, your company is guaranteed to improve customer relations, reduce administrative costs, and get paid faster.

I encourage you to learn more by downloading the AR Analytics Playbook today.

Mark Wilson, a former CFO, is the President of TermSync, a cloud-based accounts receivable software company owned by Esker, Inc.

We Saw it Coming, by Larry Convoy

Recently, one of my Industry Credit Groups experienced 3 bankruptcies in less than 48 hours. One of these was an East Coast account that only 2 members were selling with minimal exposure so their losses were small. The other 2 were long-established accounts.

Since I always preach that the 1st alert posted should never be the BK notice, I decided to do some research to see if my words had made an impact. Over the last 5 months, the following alerts were posted on one of the BK accounts:

1. 5 months ago: slowing, now 60-90, $32K past due
2. 4 months ago: customer states they are waiting for Bank Loan
3. 3.5 months ago: customer not returning calls, changed to cod
4. 2 months ago: placed for collection, have personnel guarantee
5. This week: company filed chapter 11,

The alerts must have worked because the anscers report over that period of time showed the other suppliers reacting to these postings and dramatically reducing their exposure.

Group members were given advanced warning on the second BK with postings such as a Mechanics Lien filed, shop account closed, contractor removed from job. Again, you could see the exposure trending down over that period as members reacted to the alerts.

Years ago, group members were mailed pink reports every 2 weeks listing the NSF checks and other pertinent news. It seemed efficient then. Today, the group can be notified in seconds of any problem with a customer.

The only flaw in the system is that members must be pro-active. Most groups have a small but dedicated group of individuals that seem to provide 90% of the alerts. To prevent losses, you need every member looking for opportunities to report a change in payment habits. Encourage your group to utilize this service.

Somewhere, there is an alert waiting to be posted that will save your company $$$$ and help you manage risk. Let’s be sure you see it.

Larry Convoy
Lead Group Facilitator

Does your credit department need a Tune-up? By Michael W. Fenner, CBA

As August winds down and your teams are returning from their summer vacations hopefully, things are returning back to normal. This may now give you the opportunity to review the services you currently use in your credit departments today.

As our vehicles need tune-ups so do our credit departments from time to time. As an example, are you taking advantage of your industry credit group (ICG)? Is there not a specific ICG for you and you would like to start one? Is your current collection agency “getting it done for you”? Do you have the need to file preliminary notices in your industry? Would you like to get started and or continue on with your professional credit certification? How about adding an additional credit report to your credit approval process? What can the business insolvency service do for you? Do you even know CMA offers payment services and deduction management? You may be looking for an association to do it all for you, replace an existing service and or supplement the current services you use today. Either way Credit Management Association is here for YOU!

Below is a quick look at what Credit Management Association has to offer:

  • Industry Credit Groups – With 60 current groups’ network and share factual information timely and get responses promptly with other group members so you can make educated decisions with your new accounts and or your current A/R.
  • Business Insolvency – Let CMA help your customers with other alternatives other than filing for bankruptcy with less publicity, cost and time.
  • AGA Collections – AGA offers nationwide service, reasonable rates, excellent communication and they collect the money too.
  • Business Credit Reports – They offer the AnscersX commercial report, NACM national trade report, as well as DNBi, Equifax and Experian. Additionally, they offer consumer reports and international reports as well.
  • Construction Forms Filing – Accurate and cost effective construction forms filing in all 50 states.
  • Education (Professional Development) – quite a few options from the CreditScape fall summit, online courses, live and recorded webinars, and the ability to get your Professional Credit Certification all in one place.
  • Payment Services – Through United TranzActions…check guarantee, ACH processing (including Canada), online bill pay, credit card merchant services, virtual lockbox and more.
  • Deduction Management – With IBA Solutions expertise they will be able to assist you with your deduction and A/R management.

Add the Anscers website to stay on top of all of your services and now have it all. You can’t go wrong. Please take a few minutes to logon to the CMA website to see all that is available to you http://creditmanagementassociation.org/ look under the services tab to get details for the bullet points above.

Please remember we need you to support “your” credit association when you can and as always “thank you” for your support and I encourage you to send in any ideas to improve your credit association. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Why A/R Analytics Matter, by Mark Wilson

In today’s business world, virtually every department in every company uses analytics to create efficiencies, make better decisions, and improve results. For example, a sales manager is no longer basing the sales team’s success solely on the number of sales made—that person is utilizing technology that looks at a number of metrics beyond those final sales. Why? For multiple reasons. Analytics can provide any business area with information that helps them stay competitive, streamline processes, hold their team accountable, and keep their customers satisfied.

Credit and collections teams should be utilizing this same type of technology to track metrics relating to their business area, however two obstacles often arise: (1) many credit professionals don’t know this technology even exists, and (2) those that do know it exists assume that implementation is an expensive and grueling process that requires a lot of IT support.

So, what if you had an easy way to go beyond DSO and track metrics that will transform your company’s A/R into a strategic and value-driven operation? Would you be interested? What metrics would matter? What if there was a free trial of a software that would let you do this so that you could decide if this was a valuable tool?

My company, TermSync, offers a cost-effective accounts receivable software, that is easy to integrate and use. By offering a program exclusive to CMA members, we’d like to make it even easier for you to track important AR metrics. CMA members can use TermSync for FREE until the end of 2015 if you sign up before September 30.

As a Preferred Partner with NACM National, the TermSync team has come to realize how innovative NACM members are and how much they really care about improving their credit and collection processes, especially those in the CMA chapter.

If you’re interested in learning more, join our free webinar on Thursday, September 10, at 9am PST surrounding The 6 Metrics You Should Be Tracking to Guarantee Success. Register here!

Mark Wilson, a former CFO, is the President of TermSync, a cloud-based accounts receivable software company owned by Esker, Inc. Mark will present this topic at his webinar on September 10. Register here.

How Antitrust Laws Affect Your Credit Functions, by Michael C. Dennis

Penalties for violations of applicable federal or state antitrust laws can include fines, imprisonment, and liability for up to triple damages. How do antitrust laws affect day-to-day credit decision making and business activities? To what extent is pricing and payment terms subject to U.S. antitrust laws? Is it a violation of one or more antitrust laws to offer Customer A payment terms of Net 30 days and a direct competitor of Company A payment terms of Net 60 day? Are cash discounts an element of price? In other words, if we offer a 2% early payment discount to Company A, must we offer that same discount to its competitors?

It’s time to do a self quiz. I think the answer to one or more of these questions may surprise you. Did they? As always, I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

What to Do When You’ve Reviewed and Rejected a Request For Open Account Terms, by Michael C. Dennis

Let’s assume you have received and reviewed and rejected a request for open account terms from an applicant company. What would you do if that applicant called and demanded to know the specific reason for your decision? Would you:

  • Ignore the request, or
  • Might you offer a response such as this: “Your company does not meet our credit granting criteria”, or
  • Would you provide a more detailed explanation (and if so what information would you provide)

I think the answer is in part an internal policy issue, and in part a legal question based on relevant federal and state laws. I assume each of us has a process for handling this question from an angry applicant. I would be interested to know your process and your rationale for it.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 408-204-0129.

It’s a Wonderful Credit Group, by Larry Convoy

Some of you remember the great Jimmy Stewart movie, “It’s a Wonderful Life,” in which he envisions what life would have been like if he wasn’t born and its effect on his loved ones. At the conclusion, he is thrilled that it was only a dream and realized how good he actually had it.

Consider what your life would be if Industry Credit Groups did not exist and its effect on your company’s bottom line. You can put any music or special effect to signify that a dream sequence is next.

Without an Industry Credit Group, how would you know?

• If your new customer came to you because of your product and not because everyone else in the industry has taken him legal
• If there was changes in management or key personnel
• If they are ignoring phone calls from other suppliers or passing bad checks
• How high in dollars and far in days are they are extended with others in your industry
• Who controls the checkbook, or who to really contact for payment,
• Recommendations for software, service providers, legal experts
• If they filed BK, had liens placed, or worse, if they are GONE

You can relax. If you are a member of a credit group, you have access to all this information. You can enter alerts and respond to RFIs (or contribute your A/R). You can network with your peers and exchange the latest Best Practices. Hopefully, your management’s support allows attending the meeting/conference call a priority.

Relax, This was just a dream.

Larry Convoy
Credit Management Association
Lead Group Facilitator

What a Collections Professional Should Know Before Picking Up the Phone, by Michael C. Dennis

Debt collections fall broadly into two categories: Consumer collections, and Commercial collections. Consumer collections involve collection activities between a business and a consumer. Consumer collections are highly regulated. These laws are intended to protect consumers from overly aggressive or deceptive practices used against inexperienced and unsophisticated consumers.

Commercial collection deals with debts owed by one business to another. Commercial collection is largely regulated. Why? Because it is assumed that businesses are sophisticated enough to understand their rights when dealing with a creditor.

The laws, rules and regulations governing credit and collection activities change dramatically based on whether the debtor is (a) a consumer or (b) a customer. In my opinion, the collector must have a thorough understanding of the regulations and laws governing debt collection activities before ever picking up the phone.
Are your activities in full compliance with state and local laws? If you sell internationally, are your collection efforts permissible or unlawful in the countries in which your company sells products? Do you know what laws govern your collection activities? I look forward to your comments.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.

Thank you, Dina Amadril!

CMA management and staff would like to say “Thank You” to longtime Credit Management Association staff member Dina Amadril for her 25-plus years of service with CMA. Dina recently left CMA to pursue her passion, making ice cream at her new business, the Long Beach Creamery in Long Beach, CA.

During her time at CMA, she has worked in collections, customer service, technology management and marketing, and for the past 10 years she’s served as the association’s Director of Marketing. Among her countless contributions to CMA and its members is the anscers.com website, which she was instrumental in building from its inception, along with many takeaways and activities at CMA events, other websites such as EncyclopediaofCredit.com and CreditManagementAssociation.org, and interactions with countless members at CMA functions and group meetings.

Thanks again for everything, Dina, and best wishes in your new business.

Dina Amadril dina 3-5 dina 4-5 dina and jodi 2004 dina get on track IMG_8100e

Why It’s Worth Leaving the Office to Attend the CreditScape Fall Summit, by Michael W. Fenner, CBA

As we are all busy at our desks this summer with increased sales, dealing with coverage issues due to family summer vacations, etc., let’s take a minute to think about where we are all at with our current positions. Don’t we all want to stay up-to-date with the latest best practices in collections? Or maybe you have a new employee just starting out in credit who needs to learn the collection basics. How about that one person in your department that’s been around for awhile and needs to brush up on their skills. I might suggest that you and your credit team take advantage of attending the CreditScape Fall Summit, hosted by AG Adjustments and Credit Management Association.

This is something new and different this year. Let’s take a look at some of the items that stood out to me:

  • All Levels of Expertise Welcome – Good for beginners to experts in your department.
  • Roundtable Experience – This will not be a classroom setup as usual; it will be a roundtable interactive workshop (with limited participants) so you all can look each other in the eye and share valuable insights.
  • Focusing on Collections – This Summit will be all about collections. techniques, third-party processes, best practices, fraud prevention, collection results, strategies, international collections to name a few.
  • Convenient Location – This will be at the Tropicana Hotel in Las Vegas, well priced to save on flight and hotel costs.

The event information is as follows:

Date: September 17-18 2015 (from 10:30 am Thursday through 2:00 pm Friday afternoon)…Location: Tropicana Hotel 3801 South Las Vegas Blvd. Las Vegas NV 89109 (discount rates available)…Cost: $495 for CMA members and $595 for non-members… To register go to www.creditscapeconference.com

We all know how it is important to stay up-to-date with our education. And finding the time to go to these events can be hard too. Invest in your team, and challenge them to improve and grow. This program will be packed with information and has many excellent speakers too. I would highly recommend it.

Please take a few minutes to read through the program highlights to answer all of your questions.

Make sure you encourage your teams, support CMA your association, and network with old friends and make some new ones too. Team up with your colleagues and learn together. Then bring back your experiences to incorporate into your jobs. Let me know your thoughts. I’d love to hear your feedback.

Michael W. Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

The Advantages (and Disadvantages) of Accepting Credit Card Payments, by Scott Blakeley, Esq.

Customers in the B2B space are increasingly using credit cards to pay supplier invoices. The upside for the cardholder and paying customer is the 30 extra days to pay the cardholder statement that includes the supplier’s invoice. Cards also reduce paperwork and allow the customer to eliminate the time and cost of processing A/P checks. The upside for suppliers is that payment by credit card means near immediate remittance, reduced credit approval and collection activities, reduced credit and bankruptcy risk, and new sales channels (attracting customers who otherwise may not qualify for terms). Further, by accepting cards only when the order is placed, the supplier also enjoys increased cash flow, improved DSO and reduced A/R.

Still, there are complications involved with accepting credit cards in the B2B space. One area where suppliers may have particular legal questions surrounding their policy concerning credit cards is in collections, particularly in suppliers using credit cards as a collection strategy on past-due accounts.

As a speaker at the upcoming CreditScape Fall Summit in Las Vegas, I will address the use of credit cards as a supplier collection strategy in scenarios where the customer has failed to pay. I will cover the rules of the supplier accepting credit card payments on past due invoices from a customer who cannot pay. The discussion will also include the possibility of a surcharge rollout, and the legal issues associated with surcharging the credit card using customer, including how handle the 2-4% interchange fee that credit card companies charge their customers.

Join me as we cover this topic in much more detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.
Scott Blakeley, Esq., is founder of Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He will be speaking at the upcoming CreditScape Fall Summit, and can be reached at seb@blakeleyllp.com.

To Cash or Not to Cash? How to Handle “Payment-in-Full” Checks, by Christopher Eric Ng, Esq.

What should you do when you receive a check from a customer for an amount less than your total claim, but the check is marked with a “payment in full” or similar restrictive notation? Should you return the check to the debtor? Or can you simply cross out the “payment in full” language, deposit the check and pursue the unpaid balance? And what if you use a lockbox to handle the numerous checks you receive and those checks are deposited before you see them?

The answer to this question depends on what state law applies to your customer’s account. In the vast majority of states, if you are not willing to accept the amount of a “payment in full” check, the only safe action is to return the unnegotiated check. If you have accidentally negotiated a restricted check, many state laws give you a period of time (e.g., 90 days) to return the funds to the debtor to avoid an “accord and satisfaction” (the acceptance of a certain sum as payment for the entire disputed amount) of the claim. Finally, even if you have negotiated a “payment in full” check, you may be able to avoid waiving your right to pursue the balance if the debt was undisputed, or if the debtor did not act in good faith.

Creditors that want to expansively address the problem of inadvertently accepting “payments in full,” resulting in an unintended accord and satisfaction, can create and conspicuously designate a “debt dispute office” in credit agreements and invoices to customers. If such a debt dispute office procedure is appropriately implemented, an accord and satisfaction will not be established unless a person who is charged with the responsibility of dealing with such issues makes a knowing, affirmative decision to accept the partial payment. If such a procedure is not established, creditors should implement an alternative process to identify all partial payments made by a customer that could result in an inadvertent accord and satisfaction within 90 days from the date payment is received.

It goes without saying that it is imperative that you understand the applicable state law, consider including a favorable governing law provision in your credit and sales agreements and consult with an experienced commercial attorney regarding your particular situation. If this topic has piqued your interest and you want more information, please read Christopher Ng’s complete LinkedIn blog post at https://www.linkedin.com/pulse/cash-cashhow-handle-payment-full-check-christopher-ng?

Join me as we cover this topic in much more detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Christopher Eric Ng, Esq. is a Partner of Gibbs Giden, Los Angeles, CA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at cng@gibbsgiden.com.

International Business — How Understanding Culture Will Help You Get Paid, by Eddy Sumar

When someone signs a contract to do business with your company, you allow them to do so with the expectation that they will pay you. In the U.S., there are laws that help protect your assets to ensure that the contract is enforceable, but what happens when you’re dealing with foreign nations? Are there resources (like the government) that can help when your customer doesn’t pay?

In this global economy, there are ingredients to succeeding in getting paid internationally. One of the key factors that I always recommend to my clients is to make sure you understand the culture of any company you’re selling to overseas. For instance, there are many cultures that have a strong family element to them. In some of those cultures, it is probable that the person who answers the phone is a daughter/son/spouse of the company owner. If that person has a negative experience with you (even if it’s perceived), you may never get to talk to the owner to enforce your contract and get paid.

There are plenty of other resources that can help as well. Join me as we cover this topic in detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is also the director of education and community outreach for CMA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at 909-481-9869 or ealberto@aol.com.

Using Predictive Analysis to Create Collection Management Strategies, by Christopher Rios

Traditionally, debt collection involved little more than picking up the phone and convincing the debtor why they need to pay for the products/services sooner rather than later. Today, credit and collection professionals are being asked to adopt more sophisticated techniques. One of the newer techniques utilizes predictive analytics to create collection management strategies. Predictive analytics permits creditors to identify at-risk A/R and focuses collection efforts on those customers with the greatest propensity for paying slow. This combination of historical AR data and predictive attributes will allow creditor companies to review and optimize their resource allocation, provide improved customer service, and to accelerate cash inflows. By doing so, creditor companies potentially reduce unnecessary costs across the credit to cash cycle and accelerate payments from high risk customers.

Inevitably, even the best collection strategies fall short at times. An organization’s fail-safe shouldn’t be to write off uncollectible receivables against its bad debt provision and move on. What is sometimes overlooked is the need for and the benefit of having a robust third party process for dealing with debtors that cannot or will not pay. Third party strategies should include bankruptcy administration, pre-litigation, litigation and mediation strategies.

Establishing a solid process that provides prescriptive treatment for dealing with non-paying, financially distressed customers will help creditor companies maximize the benefits of the third party services being provided. Ensuring you’re maximizing your return on investment and increasing the chances of recovering unpaid accounts receivable are two benefits of partnering with the right service provider.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas as I lead the discussion on creating a robust third-party collections process. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Christopher Rios is the Group Leader – Finance Operations for Dun & Bradstreet. He will be speaking at the CreditScape Fall Summit, September 17-18, at the Tropicana in Las Vegas.

Phone Power: “The Psychological Advantage” to Improved Collections, by Bart Frankel

In my 20+ year career as a collector, I’ve learned that there are psychological advantages you have collecting your past dues that can separate you from the hundreds of other collectors trying to collect money from a delinquent account. From experience, I’ve developed a six-step process to improve my own collection techniques that does not follow the conventional thinking on collection but allows for “out of the box thinking” and is relevant for all levels of collectors covering from the “rookie collector” to a top collection expert.

Some of those steps involves a “partnership” with a delinquent account to eventually having them paying on time. Through this partnership/six step process, for example, (1) I never ask for money. I make my collection statement and wait for an open-ended statement from the delinquent account. (2) I also ensure professional office conduct before, during and after making the collection phone call.

I’ll be one of the speakers at the upcoming CreditScape Fall Summit, September 17-18, 2015 at the Tropicana in Las Vegas, where I’ll be discussing the full six-step process that has worked for me, and for dozens of other credit managers who I’ve shown the method to.

If you have any question please contact me at 860 668 2297 EST or email me at bnfrankel@cox.net

I look forward to meeting you in Las Vegas.

Bart Frankel, who was Manager of Financial Service for the Pratt & Whitney Division of United Technologies for over 20 years, has been responsible for a $7 billion Order-to-Cash process. He will be speaking at the CreditScape Fall Summit, September 17-18, 2015 at the Tropicana in Las Vegas. For more information on the event, visit www.creditscapeconference.com

Can Anyone’s Signature Make a Credit Application Enforceable?, by Michael C. Dennis

Can anyone sign a contract? Most people agree the answer to this question is No. For example, most people acknowledge that a Minor [someone under 18] cannot sign a valid, enforceable contract. So… who can sign a valid, enforceable contract on behalf of a customer? More specifically, who can sign a valid credit application on behalf of a business?

There are several requirements for creating a valid legal contract. One of the most important to credit professionals involves the idea of contractual authority. To be enforceable, the person signing the credit application must have authority to do so. What constitutes authority to do so? This question can be answered this way: Credit professionals often need to rely on the concept of ‘apparent authority.’ Why? Because creditors don’t know who has actual authority to sign the credit application on behalf of the applicant.

The intent of the legal concept of apparent authority is to protect third parties [such as creditors] who might otherwise incur losses if the signature received did not bind the debtor company. Basically, apparent authority means this: If a reasonable person [such as a creditor] believes the person signing the contract has the authority to do so, that signature is binding on the applicant company.

So, what do I look for? I look for the title of the person signing the application. I expect to see that an Officer or a business owner has signed the credit agreement. Do you agree? Do you disagree? I think this is worth discussing this with your attorney.

This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas when I moderate the panel discussion on collection compliance and best practices. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.

 

Discussions You’ll Have at the CreditScape Fall Summit, by Mike Mitchell

At CMA, we are so excited about the CreditScape program we’ve got planned for you, we wanted to give everyone a sneak peak at what you’ll be talking about. All next week, CMA will publish a series of briefs from thought leaders who will be featured at the Summit — Chris Rios, Bart Frankel, Scott Blakeley, Chris Ng, Eddy Sumar, Michael Dennis, and more.

When I spoke with Chris Rios, Director of Finance Operations for Dun & Bradstreet, about the whole collections process, he spoke about the importance of treating collections like sales, because you are “selling” customers on why they should pay their bills. The key to success is building and maintaining good relationships with your customers. He also stresses the importance of being “forward looking” and strategic in your approach to collections – using data and analytics to drive collection effectiveness.

Bart Frankel has been a member favorite with his “Phone Power” Collection Webinars over the years, and we’ve asked him to share the collection techniques he developed for the $7 Billion Order-to-Cash process for the Pratt & Whitney Division of United Technologies. Bart will be the first to tell you that collections starts with the sales call and he stresses the importance of getting the upfront process right the first time so you don’t have so many issues on the back end.

What if you are exporting and trying to collect from customers in foreign countries? Eddy Sumar, CCE, CICE, has plenty to share about his experiences collecting money from all over the globe, and he’ll be the first to tell you, collections starts with an understanding of the 6th C of Credit — Culture.

Join us next week in hearing from these, and our other thought leaders, who will be driving the workshops and discussions that you care about at CreditScape. You can read their contributions on our blog page.

It’s Almost Time for the EMV Liability Shift, Changing the Way Businesses Accept Card Payments

by Matt Fluegge, Vantiv

You may have heard there’s a change coming to the way many businesses accept card payments. The U.S. is in the process of transitioning away from the magnetic stripe cards we’re all familiar with, and moving toward installing small microchips into the cards – also known as chip-and-sign. If you’ve already upgraded your terminals or Point of Sale System to accept these new cards, which are inserted into a slot and not swiped, then you’re ahead of the game. If not or if you’ve never heard about this switch, then you’re not alone – but time is winding down.

It’s called EMV, short for Europay, MasterCard and Visa, the three companies that created the standard. It’s the system the majority of the world uses at their point-of-sale terminals. Chip-enabled credit and debit cards are more secure, by electronically storing data so it’s harder for criminals to steal the payment information and create fraudulent cards. So why the change? For starters, nearly half of all the credit card fraud worldwide occurs in the U.S., even though America accounts for only a quarter of the global card volume. As for why should you make the upgrade, other than helping to ensure that your loyal customer’s financial information is more secure, there’s a legal initiative as well.

Come October 1, 2015, liability for fraudulent transactions will shift to whichever party – the card issuer or the merchant – hasn’t made the switch to EMV. So if your company isn’t accepting EMV payments, your organization will be responsible for the fallout from any fraudulent transactions processed there. The liability shift applies to face-to-face payments and not Card Not Present payments.

There are a few factors to consider and several things for employees to familiarize themselves with before making the move to EMV, as the new terminals are likely to support a broad range of payment methods. This includes contactless EMV, such as a contactless credit card, and NFC mobile applications like Apple Pay and Android Pay. Knowing the difference and how they operate will help answer questions from customers and speed up transactions.

One way to be prepared is to talk to a payments provider about your questions and to discuss your options. Vantiv is an excellent resource to learn more about the liability shift and payment processing solutions tailored to the needs of NACM Members. Vantiv and United TranzActions have been the CMA endorsed payment processing providers for over 16 years. Contact me at matt.fluegge@vantiv.com for answers to your EMV questions or for help moving to EMV and chip-enabled payments.

 

Matt Fluegge is the Manager of the CMA Credit Card Acceptance Program at Vantiv. He can be reached at matt.fluegge@vantiv.com or 608-834-2539.

Full Schedule Announced for 2015 Fall CreditScape Summit

The CreditScape Fall Summit, September 17-18, 2015 at Tropicana Las Vegas, offers a 360-degree look into the entire collections process, focusing on best practices and real-world case studies with the best and brightest practitioners in credit and collections.

Here are some highlights of the sessions and workshops at the Summit. The full schedule, along with descriptions, is posted at www.creditscapeconference.com

  • Phone Power: 6 Steps to Collection Success (Speaker: Bart Frankel).
  • Using Credit Cards for Collection Strategy (Speaker: Scott Blakeley, Esq.)
  • Hire and Retain the Best Collectors (Speakers: Bob Daniel, Professional Recruiter, and Joe Lucas, VP & Chief Credit Officer, SRS Distribution)
  • Effective Collection Communication Strategies
  • Leverage Automation for Better Collection Results
  • The “Collection Prevention” Department
  • Collection Compliance & Best Practices
  • Developing a Third-Party Collection Process
  • Advanced Collection Techniques
  • International Collections
  • …and more!

If you’re serious about evaluating the collections processes at your company, or learning the latest best practices in collections techniques, then you must attend this event.

Learn more at http://www.creditscapeconference.com

 

Collections in the Digital Age: Technology, Outsourcing, and Compliance, by Eddy Sumar

‘Collections,’ ‘collectors,’ ‘collection agencies,’ ‘collection attorneys’: words that evoke strong emotions, sometimes even terror, in the hearts of uninformed debtors. Robocalls, automatic dialers, dialing for money, calling centers, SMS, texting, e-mailing, invoicing, phone calls, and personal visits—some of the avenues that companies pursue to collect their precious asset known as accounts receivable. When we look at the landscape of debt collection, we can see three things that beckon our attention: technology, outsourcing, and compliance.

These three areas have a great impact on people on all sides, creditors, intermediaries or third parties, and debtors. Let us look at each of these three areas separately.

Technology: Technology is a blessing, but it has side effects. When technology is employed, people lose their jobs. Technology leads to higher productivity at the beginning of the process, but it has long-term negative consequences. Digital technology, machines and robocalls do not satisfy the desires for human interaction. The fact is that technology should enhance the human factor, not diminish it. Technology should help us humans to produce more so we can have more time to interact and build the goodwill and loyalty. So the short-term need is to curb the negative effects of the technological factor in collection.

Outsourcing: Another factor that complicates collection is the outsourcing of debt collection to companies that do not understand the power of customer service and preserving customer and debtor goodwill. The calling-center mentality in collections is unempowered. It follows a certain script and cannot deviate from it. This railroad track mentality usually leads to derailment. The short-term benefits to the bottom-line will ultimately lead to long-term consequences that both eat the top-line and erode the bottom-line.

Compliance: As highlighted in the recent reports from the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), consumers are being hounded by unethical collectors and unscrupulous collection agencies. These dial for money at all cost, intimidating the debtors with lawsuits and other methods that convey the thought of threatening their livelihood and dignity. To them, it is the money that counts, not the individual. To them, the debtor is totally at fault and they approach the debtor in a manner not fit for human dignity. The result is that the reputation of collectors and the agencies they work for are negatively affected. They become something to fear and avoid. The good news is: the collection industry is still filled with good law-abiding collectors. But unfortunately, it’s the bad apple that corrupts the whole bunch; the little poison that makes the refreshing glass of water on a sweltering day undrinkable. With technology the offense could easily be amplified. Bad collectors tend to hide behind their technological gadgets and screens, thinking that they can never be found in cyberspace. This new digital landscape allows bad collectors to abuse debtors, hurling at them every insult, thinking that the path of offense leads to collection success.

All of the above issues highlight the significance of compliance, which is compliance with existing codes and regulations, but above all compliance with the codes of human decency.

So, how can a company thrive in an environment of constant technological change? How can a company outsource its collection function without affecting the long-term profitability? How can a company be compliant?

The answers lie in a simple acronym: COLLECTOR.

The word ‘COLLECTOR’ embodies certain key qualities that need to be present whether a company pursues internal or external collection. If these qualities are pursued, then compliance issues will disappear. And if a company outsources to a third party to pursue its collection function, then the third party should have strong ethical standards that highlight the human factor. Here is the acronym:

C: Compassion, Connection, Communication, Courtesy, Customer-centric, Common sense

O: Options, Overcoming obstacles, Open-minded

L: Listen! Listen! Listen!

L: Learn! Legally-minded

E: Empathy, Education, Experience, Expertise, Excellence

C: Collaboration, Cooperation, Compliance

T: Teamwork, Targets, Timelines

O: Organization

R: Respect, Resolution, Results, Regulation

The above acronym highlights the human dimension of collection, not the technological and digital. It starts with the ‘C’ of compassion. Yes, collectors should show compassion to the debtor, especially in consumer transactions. Collectors need to connect in order to collect. Making that connection by building rapport is vital. Two-way open communication hallmarked by courtesy is paramount. Furthermore, a customer-centric approach is crucial in every collection call. I believe that collectors should always put on the customer service hat when they engage in collecting a debt. Simply put, it is common sense that should rule in collection.

Next, we see the ‘O,’ that opens the doors to options and alternatives. Collection is not a black and white approach. It should not be either / or. Collectors should work with the debtors to find the options and overcome the obstacles. Collectors should be open-minded throughout the collection process.

The first ‘L’ underlines the significance of listening. The key function for a collector should be to listen—listen to the debtor, listen to the debtor, listen to the debtor, listen to common sense. It is through listening that collectors move to the second ‘L.’

The second ‘L’ is a natural by-product of listening. When collectors listen, they learn, they go beneath the surface to see the unseen and the hidden. When they listen, they find the options that are practical and relevant. And yes, collectors should be legally-minded. They need to know the law, abide by the law and respect the law. Listening leads to the next letter ‘E.’

The ‘E’ reminds us of empathy. And empathy will make the collector’s job more exciting. Empathy humanizes the process; it allows the collector to walk in the debtor’s shoes—to feel, see, and experience the world from the debtor’s perspective and through the debtor’s eyes. Empathy leads to education that equips the collector with the experience that builds the expertise needed to show excellence in handling the collection process.

The next letter ‘C’ puts the spotlight on collaboration and cooperation. I read a quote that says: “If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative.” So, for collectors to be better, to feel better, and for debtors to be better and feel better, they all need to cooperate and collaborate. Collaboration that reflects all of the previous ingredients will lead to compliance. Ethical and moral collectors that embody humanity and exercise their function with integrity and dignity cannot help but be compliant.

Now, the ‘T’ introduces teamwork that adds the flavor of joint effort and togetherness. When teams come together, they have a goal, a target to achieve. And with targets comes timelines. Thus, the collection process has an objective to collect in a timely manner to ensure the timely cashflow of the creditor while helping the debtor to be released on a timely manner from the burden of debt.

For collectors to really be successful they need the ‘O’ of organization. Organization allows the collector to handle the workflow with ease and proficiency. Organization allows the collector to become efficient and effective.

The final letter ‘R’ reiterates the importance of the human factor. Respect is a human need and collectors should show it at every step in the collection process. In addition to respect, collectors should never forget that collection is about resolution, resolving the issues, dissolving impasses and finding the options that lead to results. All should be done with dignity and decency under the vigilant eye of the law and regulations.

Just imagine collectors who exemplify the above! Collections, collectors will become words that elicit admiration and appreciation.

The human approach in collections will yield greater results than the hard-nosed and hardliner approach. Good, ethical, and law-abiding collectors are guides. They guide their debtors through the collection process leading them to win-win solutions. They steer them in the direction of resolution keeping the goals in sight, while showing understanding and empathy, maintaining initiative, and demonstrating high integrity and strong discipline. They allow themselves to be educated by the process and by the debtor in order to reach the destination without victims and injury.

From the above, we can see that collection is a multi-disciplinary process combining among many things a human approach that reflects knowledge of psychology, anthropology, sociology, negotiation, time management, organizational techniques and a host of functional skills needed in the collection field. To collect is not just about the moment, it is about the future. Though the digital age is here collection will always be a human function.
Eddy A. Sumar is the President & Founder of ERS Consulting Services. He is also the director of education and community outreach for CMA, and will be speaking at the upcoming CreditScape Fall Summit. He can be reached at 909-481-9869 or ealberto@aol.com. 

Registration now open for the 2015 CreditScape Fall Collections Summit

CreditScape Fall Summit Logo

Registration is now open for the 2015 CreditScape Fall Summit, which will focus solely on improving attendees’ collection practices. The conference, a collaboration with commercial collection partner AG Adjustments (AGA), takes place September 17-18, 2015 at the newly renovated Tropicana Hotel on the Las Vegas Strip, featuring two days of hands-on workshop training, expert practical and legal advice, and networking with other credit professionals.

Register now at www.creditscapeconference.com

CreditScape will be unlike anything else CMA has ever done before because:

  • It takes a different approach to a conference in that it focuses on only one topic, and covers it thoroughly
  • CMA members have asked for more information on collections
  • The summit takes a different approach to learning by collaborative exercises with other credit managers in a workshop approach instead of the standard classroom style
  • CMA members’ input will comprise the curriculum, to give credit professionals exactly the content that they need.

Topics will include:

  • Effective collections communications strategies
  • Understanding the AP process & cycle at a member company
  • The “Collection Prevention Department”: Collection mitigation tools like UCCs, Liens, and Credit Insurance
  • If my company sells internationally, how can I collect the payments? Where to go for information on collection protocols for other countries?
  • How to leverage automation for better collection results
  • Developing and managing a third-party collections process: insourcing, outsourcing to third party agencies, legal, and bankruptcy administration
  • Using data and analytics to drive collections effectiveness
  • Power phone collection techniques
  • Collections best practices tips
  • Advanced Collection Techniques (Pre and Post judgment) and when to use your collection attorney
  • Bullet-proofing your credit application to make it enforceable
  • Legal compliance and best practices: Standards for commercial collections, including personal guarantees
  • How to hire and retain the best collectors: Interview techniques, skills you’re looking for

A complete schedule of topics, including speaker information, will be announced during the summer. Credit professionals can visit CreditScapeConference.com to register now.

Having a Bad Day, by Michael C. Dennis

Michael C. Dennis

A bad debt can ruin a good day. A bad debt is any debt that cannot be collected. Bad debt write-offs are a cost of doing business on open account terms. No matter how carefully the credit department reviews existing customers and new applicants, such losses are inevitable. Bad debt losses are a cost of doing business on open account terms.

When a bad debt loss occurs, you can either lament your losses or learn from them. I encourage you to consider all of the ideas below when such losses occur:

  1. Learn a lesson. Use this opportunity to reflect on what just happened. What could you have done differently? Even if the answer is that the credit department did ‘almost everything’ right, there is still room for improvement. Your goal is to take something positive away from the event, ideally so you can keep it from happening again in exactly the same way in the future.
  2. Keep things in perspective. Even if this is the biggest loss of the year, remember that some level of bad debt write offs are inevitable. Why? Because there is some level of risk in every open account sale. This includes sales to your largest and most creditworthy customers… not to mention the customers you recognize and self-identify as marginal credit risks.
  3. Every bad debt is an opportunity. Write-offs are opportunities to change, to improve and to refine your department’s policies and procedures. Each refinement brings you closer to the optimum internal credit management process intended to properly manage or balance risk and reward.
  4. Seek guidance from management. Use a bad debt as an opportunity to ask for comments, advice and guidance from your manager or senior management. Doing so is not a sign of weakness. It is an indication of maturity, and a great way to make certain that your ‘appetite’ for credit risk is consistent with your company’s taste for risk.
  5. Take responsibility. If you are the department manager, you are responsible when losses occur. This is true even if you personally didn’t take part in the decision-making process. Please don’t try to blame your subordinates. Instead, take the hit squarely in front of your manager and then move on.

I am convinced there are lessons to be learned from every bad debt write off. Among the most common mistakes uncovered are:

  • Information in the credit file was out of date
  • Financial analysis was not done or done poorly
  • The customer was allowed to exceed the credit limit
  • Orders were released while the account was past due
  • The credit manager was not told soon enough to make a difference
  • The collector did not focus enough time and attention on the account
  • The creditor company failed to place the account for collection quickly enough

Each of these mistakes has something in common. That common theme is that if the collection team is provided with clear guidelines and work instructions, fewer mistakes will be made and losses will be reduced

When [not if] bad debt losses happen, don’t lose faith in yourself or in the policies and procedures you have in place. If you ever fall into the trap of believing that what you do doesn’t matter, that idea can become a self-fulfilling prophesy. You will never be able to control all of the external forces that result in bad debts, but you can control what you do and how you respond.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com  He can be contacted at 949-584-9685.

Save the Date: CMA Announces CreditScape Fall Summit, by Mike Mitchell

CMA President Mike Mitchell
CMA President Mike Mitchell

CMA is proud to announce that it is collaborating with commercial collection partner AG Adjustments (AGA) to bring credit professionals an entirely new experience in collection and A/R management training. The CreditScape Fall Summit, which takes place September 17-18, 2015 at the newly renovated Tropicana Hotel on the Las Vegas Strip, features two days of workshop training, expert practical and legal advice, and networking with other credit professionals.

Part of this unique learning approach will involve subject-matter experts and seasoned credit professionals sharing their experiences through interactive case studies, and each session will dedicate time for participants to share their own experiences with each other. Sustainable learning is about shared knowledge and experiences, and this is one way that CreditScape Conferences will keep participants ahead of the curve in an ever-changing credit landscape. This will also be much more interactive than the typical teacher-and-classroom experience our audience is used to.

From discussions I’ve had with members over the years, CMA members are always looking for better ways to manage and maximize recovery of their receivables. CMA’s partnership with AGA has played an important role in satisfying that need, but we saw an opportunity to take that relationship to a higher level. By leveraging AGA’s deep expertise in commercial collections and vast network of contacts and resources in the credit space, we can deliver leading-edge tools, techniques, and best-practices in accounts receivable management. I also want to incorporate the latest techniques in content delivery for adult learners to create a thought-provoking and practical meeting experience that produces valuable take-aways and sustained value for participants and their credit departments.

AGA’s president Mark Gerstel has told me that his company has envisioned producing a training event focused on commercial collections because there is such a need, and that working with CMA on this event gives AGA an opportunity to help credit managers do a lot more to help themselves and help their outsource partners to get better results.

Preliminary discussions with CMA members and industry partners have uncovered various capabilities and core competencies that affect collection effectiveness, including automation tools, the quality of customer investigations and evaluations, building relationships with customers and sales, and differentiated collection approaches for large and small debtors. These are some of the subjects that will drive content and discussion at CreditScape.

CMA’s education subcommittee is currently developing the programming for the event, which is designed to propose best practices and methods to collect receivables from your company’s customers. Details about the program will be announced this summer.

To learn more about the event, visit www.creditmanagementassociation.org/events or call 800-541-2622.

We look forward to seeing you there!

Change is Good, by Larry Convoy

As we started CMA’s new fiscal year May 1, we began the annual ritual of passing the torch of group leadership on to new members.

We thank those of you who participate in the Industry Credit Groups, either on their leadership subgroups or as an active participant in the group. This year holds many of the same challenges that commercial credit grantors faced previously with the added pressures caused by the California drought and the horrible winters throughout the country. Therefore, strong group participation is essential.

Our belief at CMA is that the major component of a successful Industry Credit group is member participation, both online and by attending the meetings/conference calls. We sincerely appreciate those who make positive contributions to the group and encourage you to keep up the good work throughout this new fiscal.

For the fourth consecutive year, we have been able to revitalize several Industry Groups by getting more members to contribute their complete A/R to the CMA data bank. This industry-specific information has increased the information on the anscers report and helped add several new members to at-risk groups.

Did you know that companies that contribute their A/R:

  1. NEVER have to respond to RFIs as the system will automatically look for your trade information
  2. NEVER have to fill out their Past-Due Report or Meeting Review Report as CMA will automatically extract your information
  3. Create an industry-specific Data Bank that can be accessed 24/7

All group members are encouraged to look into contributing. It will save you time and can result in a large savings on a third-party credit reporting contract.

An increased data bank, timely alerts, comprehensive RFIs, packed meetings, engaged members and interesting best practices discussions make for successful groups. A successful group will save everyone $$$$ and validate your time and resource investment in the group.

Please feel free to call upon me throughout the year to assist in any way I can.  Have a great year!

 

Sincerely,

 

Larry Convoy

President’s Blog: Practice What We Preach, by Mike Mitchell, CAE

CMA President Mike Mitchell
CMA President Mike Mitchell

I have always been a big proponent of continuing education. My degree programs gave me the opportunity to serve in my current executive role at CMA, and earning my Certified Association Executive (CAE) designation helped me continue to grow into this complex management and leadership role. Having spent the last 15 years working closely with credit professionals in dozens of different industries, I have observed that most credit management positions require a depth of knowledge across a broad range of disciplines – financial, legal, customer service, and organizational leadership. The first three require study and practice to gain a proficiency for effective management. Organizational leadership requires proficiency for the first three, plus the confidence that comes from experience.

To be leader in your organization, you need to be good at what you do, and you have to bring new ideas and prospectives to your team and to the company. When I was studying for my CAE, I read up on many areas of association management that helped fill gaps in my knowledge, but I learned just as much from my colleagues who took the course with me. Their collective experience greatly enhanced my learning and insights, and gave me new ideas to bring back to CMA. How often can you say that about an educational course?

CMA’s online course format was designed to deliver just his kind of experience. We wanted to make education convenient for time-challenged participants without sacrificing the live classroom-style interaction that is so valuable for real learning and the exchange of ideas. Lectures are delivered by the course instructor in a live webinar format to allow for real-time interaction with them and other learners. Course assignments are assigned weekly in a virtual classroom and completed by learners at their own pace and posted to the classroom for sharing.

Continuing education is really about sharing knowledge and experience. There is a great scene in “Good Will Hunting,” a movie about a brilliant young man who is afraid to confront his own life’s extraordinary potential. Will’s therapist tells him that there’s nothing he can learn about his patient that he can’t read in a book, unless Will is willing to share his thoughts, ideas and experiences with him. Learning is about shared experience. Some of that experience is captured in a text book, a linear, fixed perspective which forms the basis on which to understand the multitude of shared experiences you will encounter from the subject matter expert and fellow learners.

I believe in the value that continuing education creates for professionals and the companies they work for. I also believe that we should practice what we preach. Almost 10 years after CMA launched its first online certification course, I have decided to experience CMA’s online courses myself. I am currently enrolled in Business Credit Principles with the goal of earning a CBA designation.

Stay tuned…

Years of Credit and Collection Knowledge is a Phone Call Away

Did you know that the CMA staff has dozens of years of credit and collections knowledge that is available for free to members? If you haven’t called CMA lately, you should call the association’s experts to ask your questions about the construction services industry and construction forms filing (702-259-2622); credit reports and all of the options you have that are available by a non-brand-specific salesperson (818-972-5300); insolvency services which can help distressed companies with out-of-court reorganization and liquidation efforts (818-972-5319), and Industry Credit Groups, led by Larry Convoy (818-972-5323).

Additionally, CMA’s Business Development Staff can help address many of your other needs. We invite you to call your reps  (818-972-5300).

For more information on how Credit Management Association can help fulfill your company’s credit and collection needs, we invite you to call us.

The Importance of Conducting Credit Investigations on Existing Accounts

Source: NACM’s Principles of Business Credit
Credit investigations on a customer don’t end once an application is approved and an account is established. Every company’s credit policy should include procedures for updating customer credit applications periodically, keeping in mind that certain specific events should trigger an immediate reevaluation.

When to Investigate an Account

It is recommended that credit applications be updated whenever there is a change in the credit grantor’s policies or credit terms or at certain timeframes such as annually or every three or five years. In the process of verifying information, the credit professional should take the opportunity to review the contents of the file and archive or destroy outdated or irrelevant materials. This will prevent duplication and oversight and make it easier to find items when they are needed.

The credit professional should begin an update whenever any of the following events occur:

• An account that usually purchases small amounts suddenly starts to place large orders
• A prompt payer suddenly begins to pay slowly
• A lot of inquiries suddenly come in about an account
• A change in ownership or legal business structure of an account

It is not necessary, legally or ethically, to obtain a customer’s authorization to order a commercial/business credit report. No personal or private information about the individual owners or principals of the business entity exists on a commercial credit report that would create a violation of privacy.

Methods of Contact

All too often a good account is not commended for the manner in which it has conducted its affairs. Credit correspondence should not be limited to collection letters, but should also include all facets that will build a solid customer relationship.

Business finances can change greatly from one period to the next so financial statements covering the year, or even a shorter periods, are very important. A request can point out that it is routine for all customers and that the current statements are used to continue or expand the customer’s credit line

If the seller firm makes it a practice to notify customers of their credit limits, the revision of a limit offers an opportunity to express the seller’s position to the customer. With a marginal account, particularly, notification may be important. It is always a pleasant task to advise a customer that its line has been increased. To be most effective, it should emphasize that the increased credit line is a direct result of the customer’s payment performance and financial growth.

More difficult is the letter to a customer advising of a downward revision, also known as an adverse action. When an adverse action is made “the creditor must notify the applicant either orally or in writing within a reasonable time of the adverse action taken.”

There are three kinds of actions affecting existing accounts that qualify as adverse:

• Refusal to increase credit on an existing account
• Reduction of credit availability on an existing account
• Termination of credit on an existing account

It is best to state the facts in a logical, friendly manner, with sufficient explanation so the customer will understand the reasons for the action. If possible, the letter should close on a hopeful note that the circumstances causing the downward revision will soon be remedied and again evaluated for reconsideration.

Through frequent calls on customers, salespeople may receive early news of changes in sales trends, collections or movement of inventory. When changes are promptly reported, the credit department can be alerted to investigate further.

Sources of Information

The sources of information for updating a credit file are the same ones used for opening a new account. In addition, it may be useful to search the Internet to check a customer’s website to determine what the customer is saying about its business. By using search engines such as Google, Ask.com or Yahoo, an alert credit department can immediately access articles or news items about a customer/company.

Business Credit Principles is one of the courses required to be considered for CBA designation. For more information about courses such as this one, visit www.creditmanagementassociation.org/events/

Are You an Engaged CMA Member?, by Michael W. Fenner, CBA

Michael Fenner, CMA Chairman of the Board of Directors
Michael Fenner, CMA Chairman of the Board of Directors

Here at CMA we are always looking for engaged volunteers; you know, new people, fresh ideas etc. who can help further the credit management profession. Are you wanting to make a difference? It is so important for each and every one of us to support our association. Without members like you and I it just wouldn’t work. So if you are interested in getting involved please contact me directly. I would be happy to point you in the right direction.

Are you supporting the services offered at CMA such as Industry Credit Groups, RFIs, Education, AG Collections, Construction Forms Filing, or maybe Business Credit Reports? Use as many as you can to support and protect your credit departments. What is your department lacking? Where do you need extra support? Make sure you reach out to the CMA staff or me if you have any questions or needs. We are always here to support you.

And when I’m talking about engagement, I’m talking about doing the little things: attending credit education opportunities and introducing yourself to other credit managers; submitting RFIs and subjects for your industry group meetings; regular active participation in your industry credit group; and the list goes on and on.

Here’s an idea let’s all try to bring one new person to your Industry Credit Group this year…wouldn’t that make a difference? Remember, please make sure each and every one of you reach out and support when and where you can this year. It’s up to us and we can all make a difference.

What a wonderful opportunity to serve as your chairman on Credit Management Association’s Board of Directors this coming year. On a personal note, I am truly honored and humbled for the chance to help make a difference for the CMA organization. I am also appreciative that my company supports me in this role at Credit Management Association. Have you thanked your boss lately for their support? I know that I have.

Again, thank you all for this wonderful opportunity, and I look forward to doing great things with you this year.

Michael Fenner, CBA, is the Credit Management Association Chairman and Regional Credit Manager for Beacon Roofing Supply. He can be reached at 714-321-8187, or mfenner@becn.com.

Why Out-of-Court Insolvency Pays Off, by Molly Froschauer

When facing a company showing signs of distress, we often hear credit managers afraid of the “big B,” bankruptcy. Well, while closing the doors of a company is never a pleasant thing, there might be another way to shut down without the many legal pitfalls for creditors in bankruptcy. The legal world fully embraces any sort of out-of-court resolution, with mediation and arbitration being considered preferable to courtroom solutions. In the business world, contracts often have an arbitration decision or disputes are resolved in mediation. Employing any alternative dispute resolution has many advantages, and mirror those provided by the business insolvency services at CMA.

Handling issues out of court is less expensive, less time-consuming, and considerably more private. The same can be said about the assignment (“ABC”) process, but ABCs are still a relatively little-known alternative to business bankruptcies. Normally, a business that has decided to close its doors would consult with an attorney to either wind down operations with legal advice from corporate counsel, or, it would file a Chapter 7.

The decision to file the Chapter 7 is complicated and should be taken with care and advice of counsel. However, if attaining finality for the closure of the business is the goal, an out-of-court option is available. Assignments for the benefit of creditors have all of the same advantages of alternative dispute resolution but in a bankruptcy context. For example, instead of obtaining judge approval to dispose of assets, CMA, as assignee can handle immediately. Also, as actions are not handled on a public docket, it’s a less visible process. As assignment can be done very quickly as well, creating a feeling of closure for everyone involved.

Alternatives to bankruptcy offer the same benefits as those in litigation and should be an important part of the legal landscape in the future. It’s important, when winding down, to know all options. Every situation is treated differently and the team at CMA can be very flexible with the specifics of any business. The easiest way to determine whether the alternatives discussed here are right for you is to call CMA. We appreciate the uniqueness of each business and are happy to discuss the particularities in detail.

Molly Froschauer is CMA’s Insolvency Services Manager. A bankruptcy attorney licensed to practice in California, she can be reached at 818-972-5315.

CMA President’s Blog: The Virtues of Continuing to Learn, by Mike Mitchell, CAE

CMA President Mike Mitchell
CMA President Mike Mitchell

With another Annual Meeting behind us, I was encouraged to see such a great turnout at the event last week. It was a pleasure seeing all who attended CMA’s Annual Meeting at Disneyland, and what made it particularly exciting for me was seeing that more and more of you are coming out of your offices to engage with other members and learn IN PERSON. It was nice to see credit managers reconnecting or getting to know each other for the first time, and learning from one another as they asked questions and shared experiences during the education sessions, an advantage of meeting in person rather than participating in online learning.

I noticed something else at the Annual Meeting that was very encouraging: experienced, senior credit managers brought their staff members with them to share in the education and networking experiences. I applaud this effort of good old-fashioned staff development, knowledge transfer, and succession planning, something that we don’t often think about in our daily routines, but is critical for the long-term sustainability of a credit department and the credit profession.

For those of you who were unable to join us at the Annual Meeting, look for more opportunities this year, as there are more upcoming in-person seminars, learning lunches and conferences. Additionally, NACM Oregon is hosting the NACM Western Region Credit Conference October 14 – 16 in Portland, OR. More details will follow after NACM’s Credit Congress in St. Louis next month.

My experience at the Annual Meeting re-affirmed for me why CMA is here for its members, customers, and other stakeholders. We believe, as you do, that credit management is critical to the success of any B2B company that sells on open terms, and we are here to help you grow revenue and reduce risk by providing, first and foremost, a vibrant community of credit practitioners with whom you can exchange experiences, best practices, and new ideas.

We hope you’re finding the educational and networking opportunities CMA is offering as useful to your business. Looking to learn more about a topic that we’re not currently offering? Let me know and we’ll try to help.

We hope to meet you in person at one of these upcoming events.

Announcing The Construction Credit Report: One Report Does It All

octo_contractor
One Report Does It All

The Construction Credit Report is a new single-source report providing critical construction related data

 

Yesterday, industry leaders in business credit data exchange on the West Coast– Credit Management Association® (CMA), Ansonia Credit Data and Southwest Business Credit Services– released THE Construction Credit Report, providing companies in the construction industry all the critical information they need to facilitate sales to their customers.

The Construction Credit Report makes data available to construction companies immediately via the internet, including title search (with live links to actual documents) on mechanics lien filing/release; notice of completion; notice of Lis Pendens (action/discharge); public records search on bankruptcy; tax lien or judgment; active trade lines; credit analysis and score; collection agency and factoring company activities; and links to state Registrars Of Contractors. Each report is available for $29.95.

“The report gives someone in the construction industry all of the data they need to know about the amount of risk associated with a construction project in one place,” said CMA President and CEO Mike Mitchell. “There’s nothing else like it on the market to my knowledge. In the more than 30 years of experience that CMA has in the Construction Forms Filing business, our customers have asked us for this type of report, but we previously didn’t have the technology to allow us to provide it. With the help of our partners, we believe the report will save our customers countless hours searching for this type of data in multiple places, some of which is exclusive to this report. The information gained from the report can potentially save our customers tens of thousands of dollars by helping them avoid over-extending credit to risky companies.”

Rich Adams, President and CEO of Southwest Business Credit Services, concurred. “The data contained within the report helps material suppliers, general contractors and project lenders perform due diligence on their customer as well as the projects they will be supplying materials, labor or financing for. The ability to confirm that a contractor is licensed to execute the work they’re going to do, pays their bills on time, is free of liens, judgments and the like all in one report is previously unheard of in my 35 years in business credit,” he said. “This report will help you determine the maximum dollar value your company should risk for any project that your customer is bidding on or that you plan to supply materials for.”

Bill Weiss, Vice President of Sales for Ansonia Credit Data, agreed: “The depth of the credit-related information available on this report, coupled with technology that not only captures mechanic lien and title detail but can also download the actual documents, makes this offering unique. There is so much useful information available – it really makes the credit department’s job much easier to have all of that information in one place without having to search for it.”

To use the Construction Credit Report, log in to anscers.com, ansoniacreditdata.com or swbcs.com

View a Sample Construction Report

The Construction Credit Report is one of many services available to material suppliers, construction companies, bonding companies and lenders from CMA, Ansonia Credit Data or Southwest Business Credit Services including assistance in filing mechanics liens and preliminary notices, lien warning notices, bond claims and stop notices. For more information, visit http://creditmanagementassociation.org/services/construction-forms-filing/,
http://www.ansoniacreditdata.com, or http://www.nacmaz.org/.

March Madness, 12 months a year, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

It occurred to me while watching Kentucky annihilate another opponent on their way to a possible NCAA title, that there are many similarities between a championship basketball team and a successful Industry Credit Group.

Both need a strong point guard, someone to lead the meeting, keep it focused and moving forward and keep all players or attendees engaged and contributing. This person must be able to bring the topic back when it gets off track yet not dominate the ball or conversation.

Each must have a big man or major company to go to when the offense is sputtering. This person has all the tools and resources to take the pressure off the other members simply because of the size of their company and their customer base. Just like LeBron James can take control of a game for an extended period of time, this credit representative can go on a run during the account and Best Practices discussion.

Teams and groups need veterans to remind us of the past and to not repeat mistakes. Most groups have a historian who remembers the risky accounts from when they stuck a member 3 Businesses ago. When the pressure is on, they come through.

Both also need a strong bench, role players who will do their job every game or meeting. For a group, it means contributing, entering alerts, RFI’s and attending every meeting prepared and willing to play any position required. Over the years, I have seen many role players develop into stars.

And finally, they both need a coach or facilitator to make sure they are organized, in their correct spot on the court at the appropriate time and work as a team

For in credit like sports, you are expected to win, and losing or LOSSES are not acceptable.

Proud to be a CMA Member, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

I am honored to have served as the CMA Chairman of the Board for the last year and as my chairmanship ends this month, I would like to share my sincere gratitude and appreciation to the membership. It was a great privilege to serve on behalf of the entire membership. My goal was to provide guidance, insight and enthusiasm to the membership and to the credit industry as a whole. I am proud to be an active volunteer for CMA.

Sharing ideas and processes are important to me and I very much enjoyed creating my Chairman chat every month. I hope that you found little tidbits of information that you could use in your every day credit life. I believe in learning every day and hope this contributed to you learning something new. Education will always be a personal top goal. Learning is power!

As I complete my service, I challenge you to get involved with your association. CMA gets bigger and stronger when its members give back and are engaged. Look to volunteer on a committee, participate in your industry credit group or attend a networking function. Share your ideas and best practices. Quite frankly, this week is the CMA Annual Meeting, if you are not already registered, do so today. It will be the best $99 you will spend for an entire day of learning and networking. Please connect with me at the annual meeting; I really cannot wait to have a little “Credit Paradise”!

I appreciate your time in reading these posts. If there are any questions or comments, please feel free to email or call me. Thank you again for allowing me to serve as your Chairman of the Board.

Puppets and Puppeteers, by Michael C. Dennis

Michael C. Dennis

Collectors often make the mistake of talking to “Puppets,” those who are not authorized to make decisions, and are surprised and disappointed when a Puppeteer working at the customer company overrides, overrules or ignores the payment commitment provided by their Puppet.

In a credit manager’s world where the norm is to deal with “puppets,” how do you determine whether you’re working with a Puppet or a Puppeteer? In my opinion, the solution is relatively simple. To the extent that the person you normally interact with in the customer’s accounts payable is able to keep their commitments, they are Puppeteers. If the debtor company does not honor the commitments you receive, this is a clear indication that your contact is not ‘pulling the strings.’

When this happens, the obvious solution is to make sure that in the future you speaking to and receive commitments from a Puppeteer, not a Puppet.

Food for thought: One of the key “unwritten” benefits of being in an Industry Credit Group is that your peers may be able to reveal the name of the “Puppeteer” to you. How do you reach the “Puppeteer?” I welcome your feedback.

Michael C. Dennis is the author of the Encyclopedia of Credit (www.encyclopediaofcredit.com), a free, fast, internet resource for credit and collection professionals. He is a consultant, and the author of “Credit and Collection Forms and Procedures Manual” as well as a frequent instructor at CMA-sponsored educational events. He can be contacted at 949-584-9685.

Let’s adopt the Postman’s credo; neither rain nor sleet…, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

I have often wondered how industry groups are able to hold meetings in the winter in the Middle and Northeast parts of the country. Last month, I experienced this when one of my National groups met in Nashville. The temperature went from a high of 18* to a low of -3* with the wind-chill and ice making it much worse. Even under these conditions we had 7 out of 11 members attend. We would have had 9 at the meeting but extremely dangerous road conditions prevented the members from Kentucky and Alabama from driving there.

I bring this up because every month I received emails from members informing me that they will not be able to make a local meeting and conference call for reasons that most would consider trivial. The excuses given that amazes me most was for the conference call. What could be easier to attend, you do not even have to stand up. Yet, statistics show that less than 50% of the members are on the call. Can a group meeting be made any easier?

Let’s compare the time, cost and effort required between the National, Local and Conference Call

  • Time- 2 ½ days vs 2 hours vs 1 hour
  • Cost- $500-$750 vs luncheon fee vs $0
  • Temp- 18* vs Calif/Nevada temp vs your office temp.

Groups only work when everyone participates and contributes. Your company has made a commitment and as its representative, it is your responsibility to fulfill it.

And to those 7 brave souls who agreed with my recommendation to meet in Nashville in February, my sincerest apologies.

CMA Creates Resource to Manage Vendor Relationships

Supplier Risk Management Group
Supplier Risk Management Group

Supplier Risk Credit Group to provide tools to help companies avoid business disruption.
Credit Management Association recently announced that credit professionals will now have access to tools that will help them assess the riskiness of a vendor with the formation of the association’s new Supplier Risk Credit Group. Comprised of credit and risk-management professionals from medium to large-sized businesses, the group offers resources and provides best practices to help companies manage their vendor relationships.

“We’ve had a number of responses from our members asking for a resource like this one, as many of our member companies have expanded the credit departments’ risk management role to include key suppliers,” said CMA president Mike Mitchell. “There has been a tremendous increase in the number of companies evaluating the risk and cost of business disruption when vendors are unable to deliver goods for reasons ranging from economic to political. Credit Managers deal in risk evaluation daily. They have the skill set necessary to transition from customer analysis to vendor. This new group will help companies assess their exposure to vendor failure, develop, implement and maintain a process to evaluate risk and gather business intelligence more efficiently and cost effectively,” he added.

“During my time in credit management, I’ve often heard the following: ‘We can survive if a customer relationship goes bad, but we cannot survive if one of our primary or secondary vendors has an interruption in delivering product, raw materials or services to us. For that reason, we invest an equal amount of resources investigating our vendors,'” said CMA lead group facilitator Larry Convoy, who will be CMA’s liaison for the new group. “I’m very excited to add this service for our members, as these relationships can make or break their businesses.”

Chaired by volunteer Alvin Moreno of Nestle, the Supplier Risk Credit Group held its initial information session in January, and the response was overwhelmingly well received by member companies who attended. “Moreno will do a great job with this group, especially since he just received his MBA with a focus on this topic. The existence of this group is a huge advantage for our members that can provide information that they cannot efficiently get any place else,” Mitchell added. The first official meeting is slated to take place at the CMA Annual Meeting, which will be held April 22, 2015 in Burbank, CA.

The group, which is one of 60 industry and topic specific groups that CMA offers, will meet quarterly via phone and in person. To learn more about this group, or any of the other groups and how they can help businesses minimize risk, visit http://creditmanagementassociation.org/services/industry-credit-groups/ or call 800-541-2622.

Top regulatory priorities for the commercial lenders

Tony Hadley of Experian
Tony Hadley of Experian

by Tony Hadley

Senior Vice President, Government Affairs and Public Policy, Experian

 

In many cases, business lenders often rely on the commercial credit of the enterprise coupled with the personal credit of the business owner when making lending decisions. This is especially true for sole proprietorships and partnerships. To that end, regulatory action and public policy initiatives aimed at consumer credit often times can have a direct impact on commercial lenders. This blog takes a look at some of the top regulatory priorities for business lenders within the credit ecosystem.

Ensuring the accuracy of credit data
Over the past two years, the Consumer Financial Protection Bureau (CFPB) has taken several actions to make clear that it believes data furnishers — including lenders — are responsible for ensuring the accuracy of the credit data that they report to credit reporting agencies (CRAs).

The CFPB issued two bulletins — in September 2013 and February 2014 — reminding data furnishers of their responsibilities under the Fair Credit Reporting Act (FCRA) and the need to properly conduct investigations when a consumer disputes an inaccuracy.

The CFPB backed up these bulletins with an August 2014 enforcement action against a lender that it said failed to fix flaws in its software system that were causing it to report inaccurate credit data to the CRAs.

Debt collection practices remain in the spotlight
Another top focus of regulators that may overlap with small business lending is increased scrutiny of the debt collection market.

Within the collections industry, the CFPB has focused on problems related to how information about a debt is transferred from a first party to an outside agency or debt buyer, as well as the standards and timing of when a collections item goes onto a consumer’s credit report. To that end, in December 2014 the CFPB announced that it was requesting the national credit bureaus to provide regular accuracy reports that highlight key risk areas, including disputes, for consumers. The CFPB will use these reports to help prioritize their work on accuracy metrics, including: furnishers and industries with the most overall disputes; and furnishers with high disputes relative to their industry peers.

The CFPB also released an Advanced Notice of Proposed Rulemaking (ANPR) in November 2013, covering a wide array of complex issues within the debt collection market. It’s expected that they will release the first version of its proposed rule for the collection market in late 2015 – early 2016.
Policies boosting financial inclusion are also critical for business lending

Commercial lenders should also pay attention to efforts by policymakers to improve financial access for the more than 60 million American consumers that either have a thin credit history or no credit data at all. In the case of an entrepreneur, a thin or no hit credit file would make it much more difficult to access affordable capital.

One way to improve the ability for unbanked individuals to access affordable credit is through the reporting of on-time payments made to utility, telecommunication and rental companies by consumers — often referred to as “alternative credit data.” While they have long made pricing decisions based upon the full-file credit data furnished by creditors, historically telecom and utility companies have only provided negative data — i.e. late payments or if an account is in collection.

Including both positive and negative data from these sources will enable tens of millions of thin-file consumers — and small business owners — with a proven record of meeting financial obligations to access fair and affordable credit. The CFPB weighed in on the importance of including alternative data in a 2013 report on financial empowerment. Bipartisan legislation has been introduced the past two sessions of Congress that would clarify federal law to encourage utilities and telecom providers to report positive credit data to the nation’s credit bureaus.

Coming soon: CFPB data collection on women and minority owned businesses
Small business lenders are also keeping a close eye on the development of the new data collection requirements under the Dodd-Frank Act. Despite the CFPB being primarily focused on consumer lending, the agency was tasked with implementing a provision of the Dodd-Frank Act that required lenders to ask small business applicants if the business was women or minority-owned.

The problem is that this question is currently prohibited under Equal Credit Opportunity Act (ECOA), as a creditor cannot inquiry about the race, color, religion, ethnicity or sex of an applicant. The CFPB will ultimately have to provide guidance to help resolve the conflict between these two laws.

While this new sweeping data collection mandate will not become effective until the CFPB adopts the necessary regulations, it’s easy to see how this could ultimately impact small business lenders.

As many have said before, small businesses are the lifeblood of our economy, but they need funds to grow. We’ll want to keep a close eye on each of these initiatives, as the regulatory impact can be huge for small business lenders, and the ability for small businesses to access capital.

Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy. For information about reports available from Experian, contact Terry Campos at 818-972-5361.

Credit Paradise: CMA Announces Schedule For 2015 Annual Meeting

Credit Paradise
CMA Annual Meeting

Credit professionals will experience a “Credit Paradise” on April 9, 2015 at Credit Management Association’s Annual Meeting. Taking place at Disneyland’s Paradise Pier Hotel in Anaheim, California, the “Credit Paradise” event includes a full day of training, education, awards and networking opportunities with other credit professionals.

“The Annual Meeting allows CMA members from all over California and Nevada the opportunity to learn about the latest trends affecting the credit profession, growing their personal and professional skillsets,” said CMA president Mike Mitchell. “Last year, we addressed the relationship between the sales and credit departments, and received some of the best feedback scores we’ve ever had from our exit survey. This year, we’re looking to build on that positive word of mouth and create a program to allow attendees to create a ‘Credit Paradise’ in their offices.”

Among the highlights of the education program, Jodi Walker will present the keynote address on utilizing creativity to move beyond “business as usual.” Walker is an award-winning speaker who is known for her high-energy presentations. “The topic should resonate with credit managers, as research has shown that five of the world’s largest economies are currently operating with a creativity gap,” Mitchell added.

“Securing transactions is a hot topic in credit management,” Mitchell said. “We thought we’d take a different approach this year and address the topic in a panel discussion with three expert speakers and a moderator who each have a different take on the subject.” Moderated by Diana Crowe of IAB, panelists for the discussion include Jerry Bailey (NCS), Milene Apanian (Law Offices of Abdulaziz, Grossbart & Rudman) and Rudet Fountain (United TranzActions). “The interactive session will include an audience question-and-answer opportunity, so attendees are encouraged to bring their questions to address the panel,” he added.

Popular speaker Rita Jo Schilling will present a discussion on understanding different communications styles in order to help create lasting relationships with others.

In addition, a designated networking reception (sponsored by D&B), a lunch session (sponsored by AG Adjustments) which honors the achievements of CMA’s members, and several Industry Credit Group meetings will take place at the event.

The Annual Meeting is the largest in a series of in-person educational opportunities offered by Credit Management Association. To learn more about the other sessions and topics, visit www.creditmanagementassociation.org/events or call 800-541-2622.

…And Seated to my Right…, by Larry Convoy

Larry Convoy, lead group facilitator
Larry Convoy, lead group facilitator

Recently, I discovered that a longtime CMA and group member had played college basketball not far from where I went to school.  A few years ago, I found out that gentleman who sat next to me at a group meeting was a decorated hero from the Korean War.  Unfortunately, both discoveries were a result of reading their obituaries.

Today, with Facebook and Twitter posting everyone’s daily activities, likes and dislikes out there for all to see, I am still amazed at how little I know about some people that I have had lunch with every month for decades at the group meetings. On Tuesday, I discovered that a member had attended the same concert I went to on Friday at Staples Center, the night before in Fresno. Our conversations will now extend past contributing and attending when I call her.

You already share a profession with the people sitting at your niche group meeting. The possibilities are unlimited for other things in common; schools attended, companies worked for, favorite teams, hobbies, vacation spots.

My goal has always been to get more information and participation from the members of groups in an effort to get critical mass. Groups do not have to be just alerts and past dues. For those who insist that we stay focused on Business, consider that forging these relationships might result in some advanced warnings about a problem account.

Take a few minutes at your next group meeting, put down the aging report and find out what movie the person on your right thinks will win the Oscar, or how they got in credit.

Years from now, I don’t want you to read that we were both diehard Yankee fans.

Finding Hidden Gems in Your Organization, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

The role of credit is ever changing.   What credit professionals handle on a daily, weekly, monthly basis is challenging and can sometimes feel overwhelming.  The requests from your customers, internally and externally, require you to reprioritize at any minute of the day.  What happens when the requests outweigh the resources available?  How do you handle the workload?  What steps have you taken to help balance your day?

I recognize that every company is different, what is a priority at one may not be a priority at another.  As the workload changes, have you taken a moment to rank your tasks by importance?  Are there tasks that you do as a matter of course “it’s always been done this way”, that are no longer really required.  Have you asked those who you are supporting, if the action is still necessary?  Eliminating redundant or outdated activities will easily add time to your day.

A challenge that I face with regularity is keeping up with technology.  Our customers ask us to support any number of different platforms for billing services and customer research.  Having the time and knowledge to provide excellent customer satisfaction is important, so I engage weekly with our IT group.  They have strong technical skills and have helped us out of a bind in a number of cases.  They too lack resources but I have found a good relationship has been mutually beneficial.

Sometimes there are those special projects that seem to come out of nowhere.  What about those projects that have been on your to-do list since last summer?  I have found resources outside the credit department to be extremely helpful depending on the project.  I have engaged sales support and front office staff to assist in getting the job done.  They welcome the new experience and opportunity to be involved.  They become part of the credit department extended family.  Who knows, they might bloom into the newest credit team member.

Streamlining your main activities and prioritizing; partnering with other departments; and developing resources outside of your specific team will help in balancing the ebbs and flows of the credit dept.  Can you too find hidden gems in your organization?

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Plan, Plan, Plan — It is a Small Business Essential, by Karin L. Schultz

financial_plan
Plan Plan Plan

In a recent survey of entrepreneurs that were about to start a business or had been in business for less than a year, we recently uncovered the areas that business owners explored to finance their business. When asked about how they financed their businesses or how they planned their financing, some revealing answers came to light.

A pattern started to emerge — these entrepreneurs, initially, fully expected to be self-financing in the start-up period. They used available savings and other ‘cash’ resources such as pension funds, and access to capital through facilities such as second mortgages on their own homes, etc.

Once that capital was exhausted, which in many cases was quicker than they had expected, they invariably turned to family and friends. Some reported that their group of friends dwindled very rapidly when asked for financial assistance. Once again, though, the inflow of funding was limited and only sustained them for a few more months.

What the surveyed group showed was a lack of detailed financial planning. Most assumed that if they could ‘sell’ their product or service they would easily survive and grow on the cash flow that those sales generated. They rarely recognized the fact that growth would always demand more capital. It is a fundamental cycle — the more a business grows, the more capital that is needed, and the more capital injected into a business, the more the business grows.

The group members turned to their banks for assistance when family and friends had made their last contributions, and growth demanded more capital. As most stated “Going to the bank was the obvious thing to do — banks are there to finance business.” And then the shock set in — the banks turned down their applications for a myriad of reasons: because their business was too young, it lacked a solid balance sheet, there was insufficient cash flow to support debt service, the bank didn’t finance that ‘type’ of business, and so on.

What could they do next? For some, they indicated that it would be the end of the road. For others, they had too much at stake to quit so the search for that illusive working capital continued.

Options the entrepreneur group discussed for locating additional capital ranged from ‘angel investors’ to ‘equipment sale and lease back,’ from ‘venture capitalists’ to ‘factors and discounters,’ etc.

The bottom line clearly showed that the lack of planning was a serious setback in building a viable business. Even a modest business plan usually talks more about marketing than finance.

It is essential that small business owners do their research before they become desperate. Businesses do not usually fail because of a lack of finance — they fail because the owner neglected to investigate and obtain the appropriate financing at the appropriate time.

Chuck and Karin Schultz are principals of The Interface Financial Group (IFG)’s Las Vegas office. The company is a leading alternative funding source for small business. IFG has provided short-term working capital funding in the form of a unique Invoice Discounting service since 1972. For more information, contact Charles and Karin Schultz, 702-636-8644 or visit www.ifgnetwork.com/cmaca/

Apple Pay And Its Implications As A Payment Channel For Customers To Pay Vendors’ Invoices In The B2B Space, By Scott Blakeley, Esq.

Scott Blakeley, esq.

By Scott Blakeley, Esq.
Blakeley & Blakeley, LLP

Apple has made a media splash with its announcement of Apple Pay, the latest foray of a tech company entering the mobile card payment space. While the B2B space has been slow to embrace electronic payment channel alternatives, especially those designed for smart phones and tablets, these alternatives are thriving in the B2C space. In another article “Payment Channel Alternative (Traditional and Emerging) For The Customer (And The Credit Team’s Preferences),” Lyle Wallis (VP Research, CRF) and I considered the topic of mobile payments. Apple Pay advances this payment form. But does Apple Pay provide insight for the credit team in the B2B space of what the payment channel may look like in the near future?

The Mobile Wallet: A B2B Payment Channel in the Near Term?

Electronic payments, especially in mobile form, are showing to be a most efficient and cost effective payment channel. Banks have invested in mobile options, which allow consumers to deposit checks, view balances and make transfers between accounts, all from their smart phone or tablet. Javelin Strategy and Research estimates that the average cost for a mobile banking transaction (deposit or transfer) is 50% cheaper than a desktop computer transaction and 90% cheaper than an ATM transaction. It costs J.P. Morgan Chase $0.03 to process a customer’s mobile check deposit, versus $0.65 where the customer physically deposits a paper check.

The mobile wallet has arrived. A mobile wallet can be peer-to-peer, consumer-to-business, or both. To use a mobile wallet, the consumer registers a new account with a provider and then connects that mobile wallet to their existing debit card and bank account. Once money is loaded onto the digital wallet, it can be sent to other peers and/or businesses also on the mobile wallet network. Then, should they desire, the consumer may “cash out” all or a certain percentage of their mobile wallet, and the funds are automatically routed back to the original bank account.

Consumers may choose a variety of mobile wallets: Google, Amazon, PayPal, Square, Venmo, and now Apple. Apple announced that its new iPhone 6 and digital watch give users the ability to pay for products and services just by tapping the device to payment terminals using Apple Pay. The service is a take-off of the Google Wallet, which has been available on Android phones since 2011. The mobile payment system uses a technology known as Near Filed Communication (NFC), which transmits a radio signal between the device (smartphone in this instance) and a receiver, when the two are fractions of an inch apart or touching.

Apple Pay, Data Breach and Card Security: Applications to the B2B Space?

The headlines regarding the Home Depot, Target Stores and Neiman Marcus data breaches have affected hundreds of millions of their customers. Vendors rolling out card payment programs in the B2B space are reminded to consider a cardholder’s privacy rights when they store the cardholder’s card information electronically. Apple recognizes the significance of cardholder privacy and intends to distinguish itself through greater card security. Major payment networks and banks have all been working on a system that allows customers to make a payment without handing over any personal details, using a kind of digital token that can be used only once. Apple Pay is the first program to use the tokenization system on a widespread basis. With each Apple Pay transaction, a user’s credit card number won’t pass through the system, just a scrambled, one-time code that can’t be used in any future transaction.

If a retailer’s systems are hacked, Apple Pay customers’ personal information is not compromised. The service also requires a thumbprint scan for each transaction, meaning that only the phone’s owner can use it to make purchases–a stolen smartphone cannot be used for fraudulent purchases. The devices’ operating software iOS 8 will also encrypt more of the user’s personal data (photos, messages, email, contacts, call history, iTunes content), where previous versions of iOS only encrypted a device’s email. These added security features are important and one of the reasons that Apple Pay has won over credit card companies and retailers. The iPhone 6 and the Apple Watch will use Apple Pay at merchant locations that have purchased the hardware that can read the wireless signal from Apple’s devices. Because merchants are already under pressure to upgrade their POS systems to accept EMV, a new card technology to reduce fraud, there is thus greater opportunity to add-on the NFC technology at the same time. Upgrades to POS systems have been mandated by the credit card companies and must be in place by late 2015 else the merchant will be liable for fraudulent credit card use.

Both Visa and MasterCard are on board with Apple Pay, and Apple is not charging them for allowing their products on Apple phones. Banks have agreed to accept lower fees from Apple than what they usually accept on credit card transactions, with their hope that cardholders will opt to use the technology in place of cash and other payment methods, thereby driving up the total number of transactions. Safer credit card transactions will lower the instance of fraud and thereby reduce card fees for everyone.

Apple Pay and B2B Implications

Can mobile solutions accommodate transactions in the B2B space? Mobile payment technologies have focused on the consumer sector. However, given the push for electronic payment alternatives in the B2B space, developers are pursuing B2B mobile payment technologies. Will businesses move to this payment channel, given the transactional efficiency and low processing costs of mobile payments? According to the AFP, only 11% of US companies surveyed are using mobile payment technologies.

Apple Pay is presently geared toward brick and mortar stores. Online application for card-not-present transactions is a key for the B2B space. The single use nature of Apple Pay technology (digital token) rules out use for multiple transactions (the credit team storing a card on file).

Applications will be developed that provide for Apple Pay technology to be used to pay vendor invoices in the near term.

 

Scott Blakeley, Esq., is a founder of Blakeley & Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at his email address.

”Just Add it your Job Description,” by Larry Convoy

This year, I put my New Year’s resolutions in writing so that I could verify that I achieved them next December. Unfortunately, the major one was broken by 9AM on January 1st when my wife asked if I wanted eggs or the leftover cheesecake for breakfast.

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

Though I was weak, it doesn’t mean that you cannot use this method to fully document your company’s position on industry credit groups and your role.

I contend that though the amount of information picked up at each meeting may be less than what is detailed on the monthly reports, alerts and RFIs, the quality of that information is greater. Previous businesses, the owner’s new cell number, other bank accounts, and the new a/p person’s name are just a few valuable pieces of non-trade data that do not show up on reports including D&B and Experian. This is only learned by attending group meetings/calls.

Therefore, to avoid confusion, last minute requests, and to ensure that you get all the information, ask your management to include the following in your job description:

“Credit Manager is required to attend and participate fully in all facets of the industry credit group.  Only senior management can override this and in that case, an alternate chosen and trained by the credit manager will attend.”

This past year, a company lost over $200,000 because the credit manager was asked to handle the phones, missed the meeting and the news that a major customer was not renewed by a big box retailer. Their anticipated big re-order never came through.

Don’t let it happen to you.

ATTEND. CONTRIBUTE. SAVE.

Happy New Year!

Larry Convoy

President’s Post: Trends in Credit Management, by Mike Mitchell

CMA President Mike Mitchell
CMA President Mike Mitchell

Happy New Year!

With gas prices down and holiday sales up over last year, 2015 has already been off to a great start.

At CMA, we are working on exciting new initiatives that will make it an even happier 2015. I recently attended a credit reporting summit hosted by one of CMA’s partners, Experian, and heard about 11 trends in credit management that the Credit Research Foundation has identified for 2015.

• Cash Flow – Cash is King
• Integration with ERP/CRM Platforms
• Credit Cards
• Shared Services Environments
• Credit Scoring/Portfolio Management
• Risk-Based Collection Activity
• Reporting – Business Intelligence
• Blended Scores and the FCRA Hurdle
• Sales/Credit Partnership
• Supplier Credit Evaluations
• Emerging global markets

In order to best meet the needs of the credit managers, CMA is offering programs to address several of these trends.

Sales/Credit Partnership – Gear Up for Profit: Linking Sales and Credit Cycles to Grow Profit

CMA is offering a first-of-its-kind workshop that addresses the challenging dynamic between Credit and Sales, for the first time inviting leaders from the Credit and Sales teams to participate in this ground-breaking approach to exploring how the Credit and Sales teams can work together for better profitability.

Supplier Credit Evaluations – Supplier Risk Credit Group

CMA is launching a new credit group that will focus exclusively on evaluating Supplier Credit Risk. We see an emerging trend in companies tasking the credit department with evaluating the risk and cost of business disruption caused by the failure of key suppliers. CMA plans to support this new functional competency by creating a special credit group that focuses on expanding the credit department’s risk management role to include key suppliers as well as key customers. CMA invites you to attend a complimentary organizational meeting to explore and finalize the benefits and features of a Supplier Risk Credit Group – January 28, 2015, 10:00 am – Noon. Email Larry Convoy for details at lconvoy@emailcma.org.

Emerging global markets – The Global Trade Credit Consortium

CMA is building a unique network of top resource providers for international trade and credit practices, with the goal of helping companies sell internationally by making critical trade and credit resources more accessible, responsive, and accountable. International credit consultant and co-founder Eddy Sumar, MBA, CCE, CICP will leverage the Global Trade Credit Consortium to provide professional guidance to help navigate the complex process of exporting. For more information, visit the GTCC website at http://www.globalcreditconsortium.com.

Which trends are you most concerned with in your business for 2015? I’d love to get your feedback on how CMA can deliver services that will make 2015 the best year yet!

CMA Salutes Its Staff for Milestone Service

As the year draws to a close, it’s time to celebrate some of the notable accomplishments that happened in 2014, as the association staff looks forward to serving your risk management needs in 2015. Among those activities, several members of CMA’s own staff celebrated milestone anniversaries in 2014, and we ask that you join with us and help us appreciate these individuals who work tirelessly to help your businesses. Several of those staff members were recognized at CMA’s annual holiday luncheon in Burbank (see the photo gallery below).

On behalf of our membership body, we wish to extend sincere thanks to Jean Capitanelli (5 years), Scott McLaughlin (5 years), Daphne Masin (5 years),  Amber Jackson  (10 years), Laura Rothman (25 years), Jose Felix ( 25 years), Michael Hansen (25 years), Charles Klaus (25 years) and Cheryl Lloyd (50 years), along with the rest of the staff.

Thanks again to all you do for the membership, and we look forward to many more great years to come.

Senior Staff Accountant Cheryl Lloyd Celebrates 50 years with CMA
Senior Staff Accountant Cheryl Lloyd Celebrates 50 years with CMA
Resident IT expert Michael Hansen Celebrates 25 years with CMA
Michael Hansen Celebrates 25 years with CMA
Sales Manager Laura Rothman Celebrates 25 years with CMA
Laura Rothman Celebrates 25 years with CMA
Jose Felix Celebrates 25 years with CMA
Jose Felix Celebrates 25 years with CMA
Daphne Masin celebrates 5 years with CMA
Daphne Masin celebrates 5 years with CMA

Chuck Klaus celebrates 25 years with CMA
Chuck Klaus celebrates 25 years with CMA


2014 – the Year in Review

2014 has been a very productive year for us at Credit Management Association. While the year will be remembered in pop culture history for its massive data breaches and Kim Kardashian “breaking the internet,” CMA has continued to help businesses minimize risk, as it has since it was founded in 1883. Additionally, it has enhanced some of its services to make them even more valuable to members. Here are a few of those new upgrades:

  • CMA launched a new anscersX multibureau report that incorporates the data from the top three reporting bureaus in a concise, easy to read report, to allow credit managers to make informed decisions. Details: www.anscers.com.
  • CMA upgraded its Construction Forms Filing Services (CFFS). Serving as a point of reference for those who supply materials or labor to construction projects, the new functionality equips companies with the tools to protect their lien rights under the law. Among the enhancements: CMA’s Lien Provision Assistance Guide provides a summary of the provisions to meet individual state statutes in all fifty states to assist any company working public, private or federal construction projects by identifying each state and the time requirements for each form in that state depending on the type of project. Other upgrades included an enhanced reminder system and incorporating the Lien Provision Assistance Guide with the CFFS service module on www.anscers.com.
  • CMA and the International Trade Administration (ITA) of the U.S. Department of Commerce (DOC) have agreed on a “U.S. Trade and Investment Expansion Partnership” that will help credit and risk management professionals gain access to educational resources needed to expand their businesses nationally and globally. The agreement will continue to promote international trade to CMA’s members by increasing awareness of the economic benefits of exporting, and educating them on trade activities as a job creation and growth strategy.
  • Speaking of education, CMA has successfully administered more than 50 webinars, in-person seminars and events allowing CMA members to stay current in the ever-changing credit management profession. For a list of upcoming educational programming, visit www.creditmanagementassociation.org/events.
  • CMA enhanced its communications with members by creating Quick News, its bi-weekly newsletter. The newsletter focuses on the latest happenings from the credit management industry, as well as news from CMA. CMA has also had a bigger presence than ever on LinkedIn and Facebook.
  • CMA members have continued to understand the value of submitting their A/R data to CMA and NACM.  Members who contribute continue to save time by never having to answer an RFI nor fill out a past due or meeting review report. They create an industry-specific data bank for their niche markets, reducing their dollar commitment to third-party reporting agencies. Though CMA has a large number of members who participate, CMA welcomes every company to add their data to the pool. For more information, contact Lisa Wong at (951) 672-0581.
  • Another successful Annual Meeting and Western Region Credit Conference were completed, with some of the best attendance figures in both events’ histories.

2014 was a great year for Credit Management Association, but we’re looking forward to an even better 2015. As a valued customer of CMA, we appreciate your business and look forward to continuing on as your association. Have a Happy New Year!

How Small Businesses Can Cope With the Year-End Cash Crunch, by Chuck Schultz

There is no time more stressful for small business owners than the end of the year. This period of juggling numbers, sorting out income and finding the most efficient tax breaks can confuse anyone. To avoid the cash crunch, many of today’s businesses are turning to invoice discounting services for some much-needed help.

Here are five tax-saving tips to help small business owners and entrepreneurs deal with the year-end cash crunch:

1.  Purchase necessary equipment and technology. If you have any plans for purchasing equipment or computers in the next year, making those purchases this calendar year will allow your business to write off the taxes against this year’s income. The majority of small businesses can deduct equipment purchases with the option of an immediate write-off or one spread out over years.

2.  Start up, or contribute to, your retirement plan. Payments made to your business’s existing retirement plan before the end of the year can reduce your income for the year. If you do not have a retirement plan set up for you or your employees, consider starting one. There are many options available, including a 401(k) and a SEP-IRA, depending on what best fits your business.

3.  Delay or defer income. Any income a company receives during early January instead of late December can cut your tax bill. Income received in early January will not be taxed until the following April. If lower income tax rates are predicted for the new year, delayed income makes a lot of financial sense for many business owners.

4.  Increase expenses. Similar to delaying income, increasing expenses at the end of the year can reduce income and maximize your tax deductions for the year. If there is an upcoming need for goods or services, anything from phone plans to office supplies, purchase them now.

5.  Use an invoice discounting service. Many small business owners regularly use an invoice discounting service to maximize their year-end cash position. A strong cash position is a universal must for all businesses.
Chuck and Karin Schultz are principals of The Interface Financial Group (IFG)’s Las Vegas office. The company is a leading alternative funding source for small business. IFG has provided short-term working capital funding in the form of a unique Invoice Discounting service since 1972. For more information, contact Charles and Karin Schultz, 702-636-8644 or visit http://www.ifgnetwork.com/cmaca/

Not The Top Ten List You Want To Be On, by Larry Convoy

With due respect to David Letterman and Sports Center’s nightly “Top 10” lists, there are some lists that you would be better off not being on.  One that directly affects you and your company is “The Top 20 Creditors in a Bankruptcy Case,” a document that is easily obtainable by accessing Pacer. No company likes to see their losses published for all to see.

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

However, this document of doom will now be turned into an excellent prospect list for any industry credit group (ICG). Whenever you post an alert of a Chapter 11 in your industry, CMA will run a list of the top 20 creditors. These companies could be competitors of yours, or they are at least selling into the same market as you and have just taken what could be a major hit. A phone call from a group member informing them about the group, and mentioning that the group was aware of the problem and therefore had minimal exposure, could get the group a new member very easily.

Therefore, effective with the next Chapter 11 alert posted on anscers, the ICG department will forward this list of names to the group chairmen and group facilitator. There will probably be some banks, factors or lending companies that would not fit but you should be able to identify some HOT prospects. Tell them that the best way to avoid the next BK is through membership in your credit group.

Thank you for your support throughout 2014, and we wish you and your family a Happy and Healthy Holiday Season and a Prosperous 2015.

Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org

To Ship to Not to Ship – Should a Credit Manager Be Santa Claus or the Grinch?, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

It’s December, the last month of the fiscal calendar for most companies.  There is a lot of pressure to make sure your results are strong.  The sales team wants to have as many orders as possible go out the door. You need to have as much money as possible come in but your customers are having cash flow concerns, and it’s not making your job any easier. What is a credit manager to do?

It might be easy to just say ship the material and say “Happy Holidays.”  It will help increase sales and will make your past due percentage smaller and possibly improve your DSO.  The orders will help your customer complete the job they are trying to finish before the holidays.  Your sales manager will be happy as that will increase their bonus payout for the month, no coal in their stocking this year.  You can collect those funds in January.  However, is this really in the best interest of the company?  Are there other options that might secure the order, entice your customer to pay you sooner or can you just bring in the cash?

In my credit experience, I have worked with a lot of contractors.  We ask questions about the order and find out if this is material that is being used to improve a particular piece of property, if it is we will ask for a job sheet.   With that information, we create a job account to secure our transactions either through lien or bond rights.  There is a level of comfort when we have a job account: we know that if there is a payment issue, we can reach out to the owner or the general contractor for their assistance.  If I am questioning if an order can go out the door, I will always ask, “Can we secure it?”

All credit professionals are trying to be paid before other suppliers.  Providing excellent customer service helps as the customer is more willing to pay you first but that may not get the job done.  Have you ever tried to offer a one-time discount for a large payment?  Have you asked the customer if they can dip into their line of credit?  In the construction industry, you can ask for a joint pay agreement, when they get paid by their customer, you’ll get paid at the same time via a two-party check.  We are all leery about accepting a credit card payment, but is that an option you can offer?  Being creative is a key asset to success in credit. Find a way to get the order out the door and to collect the funds.

Your goal within the credit department is to maximize sales by managing risk and minimizing write offs.  This is the same throughout the year but even more important at the end of the year.  So how do you make that decision to ship or not to ship?  Are you going to be Santa or the Grinch?  My suggestion, pull out your red bag of tools & tricks and surprise the sales team, your boss and your customer and show them that Santa does really exist and find a way to accept the order and get paid.

I wish you all the very best during the holiday season.  If you have any questions or comments, please reach out to me.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

Save the Date: CMA Announces “A Credit Paradise,” the 2015 Annual Meeting

Credit professionals will experience “A Credit Paradise” on April 9, 2015 at Credit Management Association’s Annual Meeting. Taking place at Disneyland’s Paradise Pier Hotel in Anaheim, California, the “A Credit Paradise” event includes a full day of training, education, awards and networking opportunities with other credit professionals.

CMA is currently surveying its members about the resources that would be “A Credit Paradise.” The results of this survey will direct the event’s education and training topics. Details about the program, including the keynote speaker and education topics, will be announced in early 2015.

The Annual Meeting allows CMA members from all over California and Nevada the opportunity to learn about the latest trends affecting the credit profession. Last year, the event addressed the relationship between the sales and credit departments, and received some of the best feedback scores it’s ever had from the exit survey. In 2015, CMA is considering valuable training programs and topics requested by its member so they can attain ‘A Credit Paradise’ in their offices.

The Annual Meeting is the largest in a series of in-person educational opportunities offered by CMA. To learn more about the other sessions and topics, visit www.creditmanagementassociation.org/events or call 800-541-2622.

New CMA member benefit: The Interface Financial Group to Offer New Source of Working Capital for Small Businesses

We are excited to announce that CMA and The Interface Financial Group (IFG) have announced a partnership that will offer small businesses an alternative source for working capital. IFG will be working with members of Credit Management Association (CMA) and their at-risk customers to provide working capital through receivables financing to companies who are unable to receive traditional bank funding.

This partnership will help both CMA members and their at-risk customers by providing alternative sources of funding to companies that wouldn’t otherwise have been able to access these funds.

Charles A. Schultz Jr., a former restructuring and turnaround consultant who runs the Las Vegas office of IFG and will be a point of contact, was most recently with a New York City-based boutique consulting firm, where he provided turnaround and restructuring services, and interim leadership within diverse companies. With his diverse background, he achieved results from foreclosure-to-corporate-sale transformations and large-scale operational expansions through such strategies as business plan development, cash flow planning, budget development, negotiations, right-sized operations, and crisis management planning.

IFG’s solutions are specifically designed for small business, and programs can be tailored to each individual business from a service mix that includes invoice discounting, purchase order funding, and inventory financing. IFG also works closely with local banks to make available the working capital business owners need.

Schultz previously held Director of Finance and Assistant Controller positions with a startup sub-prime consumer finance company, and served as Comptroller of the then third largest financial institution in the state of Nebraska.  Over the past 20 years, he has conducted numerous presentations and training seminars in the restructuring and banking industries.

For more information on these services, contact Charles and Karin Schultz, 702-636-8644, schultz@interfacefinancial.com, or via the web at http://ifgnetwork.com/cmaca/.

Offshore Suppliers Beware of the Insolvent U.S. Customer and the Terms of Sale: What the World Imports Bankruptcy Case Teaches the Credit Team, by Scott Blakeley, Esq.

Scott Blakeley, esq.

The global supply chain is an often written topic in the press. Recent public company chapter 11 filings (usually Delaware or the Southern District of New York) highlight the global network of suppliers reflected in debtors’ lists of 20 or 30 largest unsecured creditors. This list often consists of offshore creditors from around the globe, whether Asia, Europe or South America.

Offshore suppliers who ship goods to the U.S. on credit should be wary of insolvent, or potentially insolvent, customers. Although U.S. Bankruptcy Code section §503(b)(9) provides that suppliers of goods are entitled to an administrative expense claim for the invoice value of the goods received by the customer within 20 days prior to their filing, an issue arises as to when the goods are received.

For many offshore suppliers, it is advantageous to ship goods to a U.S. customer “Free on Board port of origin” (“FOB”) as it places risk of loss during transportation on the customer. However, shipping goods FOB would also mean that the goods are technically received by the customer on the date of shipment. For many offshore shipments, this would mean that the shipment may have been received prior to the 20 day period of the customer’s bankruptcy filing, even if the goods were actually in the customer’s possession within the 20 day period.

The recent decision in In re World Imports, Ltd2, however, takes the §503(b)(9) priority claim protection away from the offshore supplier. There, the Bankruptcy Court held that an offshore supplier who provided goods to a U.S. debtor within 20 days of the bankruptcy was not entitled to a priority claim under Bankruptcy Code §503(b)(9) because the goods were “received by the debtor” at the time they were placed on the vessel at the port overseas more than 20 days before the debtor’s bankruptcy filing, even though the debtor took physical possession of the goods within the 20 day period.

The ruling of World Imports is a red flag for offshore suppliers and their global supply chain selling to U.S. customers on credit who are insolvent as they may not have a priority claim, leaving them with a non-priority claim, which translates to no distribution on the invoices. To avoid this harsh result, we consider ways the foreign supplier can reduce this payment risk.

The World Imports Court Ruling
In World Imports, a Chinese supplier had shipped goods to the Debtor within 20 days of the bankruptcy filing, and claimed that such prepetition delivery entitled them to an administrative priority claim pursuant to §503(b)(9). The supplier asserted that because §503(b)(9) does not define “receipt,” the Uniform Commercial Code should apply, which defines “receipt” as occurring when the buyer takes physical possession of the goods, which occurred within the 20 days required by §503(b)(9).

However, the debtor argued that given this was a contract for the international sale of goods the UCC was preempted by the federal CISG treaty. Under this treaty, Free On Board (“FOB”) delivery provides that the customer’s “receipt” occurs not when the customer takes physical possession, but when the vendor delivers the goods to the agreed upon carrier.

The bankruptcy court found that the contract was governed by the CISG. The court noted that the parties did not opt out of the CISG and concluded the delivery occurred outside of the 20 day window and barred the offshore supplier from administrative priority under § 503(b)(9). The World Imports only applies to international contracts between countries that have adopted the CISG treaty. The CISG has been ratified by 80 countries, including: Argentina, Australia, Bahrain, Belgium, Brazil, Canada, China, Columbia, France, Germany, Italy, Japan, Korea, Mexico, Netherlands, Russia, Singapore, Spain, Switzerland, Turkey, the United States, and Venezuela.

The Creditor Waterfall in Chapter 11
Suppliers selling on credit to an insolvent customer know well that when the customer files chapter 11, the value of the prepetition invoices that are very old, say 100 days, will typically bring but a few cents on the dollar, often years after the filing. The reason is the creditor waterfall or priority scheme of creditors. Secured creditors are entitled to be paid first from the collateral in which they have a security interest. After secured creditors, administrative or priority creditors are next in line. Each of these creditor classes are entitled to be paid in full prior to a junior class of creditor. Last in line of the creditor class is suppliers that have provided trade credit. Even though these suppliers may have undisputed invoices entitling them to payment, the problem is that they are at the bottom of the creditor waterfall and they face a shortfall. Thus, the World Imports case is significant as the §503(b)(9) claims are often paid in full.

The Credit Team Reducing the Risk of Being Ensnared in an In re World Imports Setting
So what steps can the offshore supplier take to reduce the payment risk that World Imports creates when that customer is insolvent? One step is for the supplier to opt out of the CISG’s application. Another option is moving the customer to CIA. However, the supplier may lose the business if terms are cut off. A supplier may also require the customer to post a letter of credit at the time it delivers the goods to the carrier, which insures that payment is made to the supplier at the time the “risk of loss” shifts to the customer. With a drawdown of an L/C, the supplier is protected from preference as the payment comes from a third party, the issuing bank of the L/C, and not payment from the debtor.

Key Concepts & Terms

§503(b)(9) of the Bankruptcy Code – provides that suppliers of goods are entitled to an administrative expense claim for the invoice value of the goods received by the customer within 20 days prior to their filing

FOB Origin – The acronym for Free on Board. A shipment for which the seller is responsible for transportation and shipping costs to the point where the goods are delivered to and loaded onto a carrier.

CISG: The Convention on Contracts for the International Sale of Goods. This international treaty has been signed by most industrialized nations and many that are not. Its provisions govern the formation and subsequent rights and obligations of the parties to international contracts, meaning those entered by parties in different countries, both of which countries are signatories to the convention. The list of countries changes almost every year. Current status of accession of a particular country to this convention can be checked, for prospective sales and international law concerns, at the CISG database.
Scott Blakeley, Esq., is a founder of Blakeley & Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He can be reached at seb@blakeleyllp.com.

Gearing up for 2015: New Opportunities to Manage Risk, by Larry Convoy

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

November is a month to give thanks. One of the benefits of working in the Industry Credit Group department that I’m thankful for is the ability to help companies minimize their risk in new industries. In fact, many ideas and leads for new groups come from members who have changed jobs, know the benefits of belonging to a trade group and want to join or start a new one in their new industry. To meet this demand, here are several new groups that are in the works for 2015.

The most ambitious and challenging is Supply Chain Risk Management Credit Group.

One troubled customer can cost your company dollars;
One troubled vendor can cost you your Company.

Scheduled to hold its first meeting in January, CMA has engaged two supply chain experts to oversee the development of this group. Whether your vendors are domestic or international, whether you have a Vendor Analysis program in place or not, this group will provide you with the resources to properly assess and monitor the risks facing your company and add a skill to enhance your position in the organization.

Other new groups in development also include the following:

1. Court Reporting Credit Group
2. Transportation and Freight Service
3. National and International Hay
4. Spanish-speaking Food Manufacturers
5. Southern Calif. HVAC and Plumbing

If you’re in these industries or know of other companies that would fit into these groups, please let us know. Feel free to contact me should you be interested in starting a new group, or joining an existing one.

Have a great Thanksgiving!

Sincerely,
Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org
818-972-5323

CreditScape – An Excellent Opportunity to Learn and Network, by Melissa Kobus, CCE

Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com
Melissa Kobus, CCE, is the Credit Management Association Chair and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

As you probably already know, I am a big proponent of continuing education, which is why I attended the CreditScape,  held at the Palms Hotel in Las Vegas last month. As someone who has participated in many seminars and events, this was one of the better programs I’ve attended.  I was impressed with the many first-time attendees attending.  I thought the conference overall was excellent. The speakers and topics were varied and well presented.  I learned about a lot, I met many new people and was able to connect with others who I had lost touch with.  There were so many different topics and I would like to share my thoughts on a few of the sessions I attended and look forward to your feedback and comments.

The Opening Keynote Speaker this year was Steve Zipkoff.  He energetically shared with us how to deliver customer delight in many aspects of our professional and personal lives.  I now know the 6 tools that I started implementing right away.  The one that hits home the most is to be a “fixer” not a finger pointer.  We all should be looking for solutions to resolve the cause and change it verses putting a band aid on the problem.  You can either fix the issue the right way or you will be fixing it again and again.  It is important to practice continuous improvement and be able to adapt quickly.  Steve expressed to everyone to behave like you own the business which is something I’ve believed for a long time.

I attended Rudet Fountain’s session on the changes in payment processing.  Does everyone understand how electronic payments are processed and what is changing?  If you attended this session, you would now.  B2B payment processes continue to change and improve but at what cost to your company?  How are banks standardizing communication formats so that data can be transmitted more easily?  What about credit card payments, I know my company gets requests daily to use a credit card to pay but are we ensuring our fee structure is the best it can be?  Is our processing at a Level 3 standard which could save my company a lot of money?  What about the new chip we are starting to see on credit cards – anyone know what that is for?  It is for fraud protection; which there are new rules for that and those need to be in place by Oct 2015.  Boy, lots to think about just from this session alone.

The Credit View was a fun session filed with excellent pointers and insight to other credit professionals’ struggles and achievements.  The panelist shared with the attendees how they broke into the credit field, how they work with the sales team and how they integrate with upper management.  The session was a takeoff from the TV show “The View”.  There was some banter and good opinions shared.  I was particularly impressed with the ladies on this panel, excellent role models for women in the credit profession, definitely making sure I am connected with all through LinkedIn or Facebook !

Overall, CreditScape was a great opportunity to learn.  There was also great network events too, “Fly Me to the Moon” was well attended and a super fun dance night!  I really encourage all credit professionals to mark their calendar and not miss the next conference, you will not be disappointed.  For those who haven’t seen them, photos from the event have been posted on CMA’s Facebook page.

I truly hope that the first-time attendees this year return for years to come and that training stays a key attribute for all credit professionals. What about you, did you attend (or wish you had attended)? Please post your comments and insight below.

Melissa Kobus, CCE, is the Credit Management Association Chairman and Regional Credit Manager for Anixter Inc., based in Anaheim, CA. She can be reached at 714-695-2219, or melissa.kobus@anixter.com

U.S. International Trade Administration Renews Educational Resources Program for Credit Management Association Members

Credit Management Association® (CMA) and the International Trade Administration (ITA) of the U.S. Department of Commerce (DOC) have agreed on an extension to its Memorandum of Agreement (MOA), titled the “U.S. Trade and Investment Expansion Partnership,” that will help credit and risk management professionals gain access to educational resources needed to expand their businesses nationally and globally.

The agreement, which now goes through Sept. 30, 2015, was signed at the recent CreditScape Conference in Las Vegas by CMA president Mike Mitchell and U.S. DOC representative Richard Swanson, at the event, which represents the largest gathering of credit managers on the West Coast. Upon completion of the contract, the program will be up for renewal for a third time.

The agreement, which was originally signed earlier this year, continues the relationship between CMA and the U.S. Department of Commerce, to promote international trade to CMA’s members by increasing awareness of the economic benefits of exporting, and educating them on trade activities as a job creation and growth strategy, emphasizing the small- and medium-sized businesses that make up CMA.

Through this program, CMA and the DOC have begun jointly developing a series of educational webinars and events on topics such as exporting to Latin America and Mexico that was offered at the CreditScape Conference. Other topics are likely to include the importance of trade and business investment and associated benefits to the economy, export and business investment opportunities, and ITA’s role in opening foreign markets to U.S. exporters. Additionally, this partnership creates the platform to engage in a dialog between CMA and the DOC. The program expands upon the resources of another CMA-sponsored service, the Global Trade Credit Consortium, which offers assistance for companies that sell internationally by providing access to letters of credit, international collections, banking resources, credit insurance, international credit reports, and education and training.

“In this global economy, CMA is constantly evaluating which programs and services it offers that will help our members the most,” said CMA President Mike Mitchell. “Participation in this project furthers CMA’s programs such as the Global Trade Credit Consortium which encourages the economic growth of its members and other small and medium-sized businesses, and gives them access to some high-powered government resources on these topics. CMA is helping its members to better understand how to navigate and effectively compete in a global marketplace.”

“The function of the ITA is that it strengthens the competitiveness of U.S. industry, promotes trade and investment, and ensures fair trade through the rigorous enforcement of U.S. trade laws and agreements. ITA works to improve the global business environment and helps U.S. organizations compete at home and abroad,” said Eddy Sumar, CMA Director of Educational Services. “The goals of this U.S. Trade and Investment expansion partnership are to increase the economic benefits of trade; educate the public on trade activities as a job creation and growth strategy; to create general awareness of ITA and other government resources, and encourage U.S. businesses interested in exporting and foreign businesses interested in investing in the United States to seek the assistance of ITA. I can’t wait to announce some of the great training programs that we have planned.”

“In the coming months, CMA members will be reading more about these developments via CMA’s social media sites, blog, newsletter and other communications. I am very excited about the growth possibilities of this program,” Sumar added.

These educational sessions will complement the dozens of annual seminars, webinars, courses, conferences and training sessions that CMA offers. For details on other offerings, visit www.creditmanagementassociation.org/events.

Rich Swanson, USFCS Pacific South Region, and Mike Mitchell, CAE, President & CEO, CMA (Credit Management Association) sign the MOA at the CreditScape Conference at the Palms Hotel, Las Vegas on Thursday, October 16, 2014.
Rich Swanson, USFCS Pacific South Region, and Mike Mitchell, CAE, President & CEO, CMA (Credit Management Association) sign the MOA at the CreditScape Conference at the Palms Hotel, Las Vegas on Thursday, October 16, 2014.

Pictured in the photo: Front row: Rich Swanson, USFCS Pacific South Region and Mike Mitchell, CAE, President & CEO, CMA (Credit Management Association). Second row from left to right: Melissa Kobus, Chairman of the Board, CMA; Bob O’Brien, Director Channel Partnership Development, D&B; Eddy Sumar, President, ER$ Consulting Services; Andrew Edlefsen, Director, USCS, USEAC.
 

 

 

 

 

 

 

 

What’s new at CreditScape 2014?

CreditScape 2014

In four weeks from today, many of the greatest minds in credit management will gather at the Palms Hotel in Las Vegas at CreditScape, the 2014 Western Region Credit Conference.

If you haven’t already signed up for the conference, here are 10 new reasons to attend:

1. NEW TO WRCC: Top-notch presenters and program moderators, including Chris Kuehl; Steve Zipkoff; Lisa Wright, Esq.; Rita Jo Schilling; Steve Ragow; Romelio Hernandez; Andrew Edlefsen; Bob O’Brien; Kelly Brockway; Joyce Simas; Ross Cirrincione; Lee Clutter, CBA; Tracy Rosenbach, CCE; Jennifer Walsh, CCE; Elissa Miller, Esq.; Michelle Herman and Diana Crowe.

2. As the Credit Industry keeps changing, lots of information has changed since last year. Keep current on the latest trends in credit management.

3. With the economy going global, CreditScape offers a bigger focus than ever before on international issues.

4. New Industry Huddles provide a forum to network with credit managers in the Construction, Food and Technology industries.

5. Sessions “tracks” include fundamental credit principles, legal, international, collections and finance to help make it easy to pick your conference schedule.

6. More than 10 new topics/sessions that have never been featured at this event before!

7. Looking for inspiration to excell at your job? Several sessions have been created to inspire you, including Reinvent Yourself 101, Understanding Your Communication Style and Delivering Customer Delight

8. “Fly Me to the Moon” Event on Thursday night offers a fabulous reception at the Moon nightclub for all registered conference attendees. The Moon is a sultry penthouse nightclub with one of the most spectacular architectural features in Las Vegas – a massive retractable roof that opens up to provide a mind-blowing view of the stars above. Located at the top of the Palms Fantasy Tower, Moon’s dramatic, surreal environment is truly out of this world. Come play among the stars!

9. CreditScape is still the only conference of its kind on the west coast, offering credit education to credit managers by credit managers at an affordable price.

10. The venue (The Palms Hotel) is new too.

Learn to navigate the credit landscape…register now ( http://creditscapeconference.com/registration-payment/ )

I hope to meet you in person at the conference!

Senior Accountant Cheryl Lloyd Celebrates 50th Year With CMA

Congratulations to CMA senior accountant Cheryl Lloyd, who on Monday celebrated her 50th anniversary with Credit Management Association.

Lloyd, who began working at the CMA headquarters (then located in the Koreatown area of Los Angeles) on Sept. 8, 1964, started as an Industry Credit Group clerk, moved over to maintaining membership records, then to accounting in 1983, where she has been ever since.

“Throughout my time here, some things have changed and others haven’t. When I started at CMA, the groups were different because we didn’t have computers. We had to do our work on a typewriter. We copied our reports and group information on a Xerox machine and passed them around the office to share data amongst our staff. Computers have made my life (and job) much easier. On the other hand, the Group meetings themselves were about the same. Group members discussed information on their delinquent accounts in meetings and lunches back then, and still continue to do that,” Lloyd said.

Having only worked part-time jobs prior to coming to work at CMA, Lloyd says that some of her most fond memories have come from the family atmosphere that’s been cultivated while working at CMA. “I’ve appreciated the support over the years that I’ve received from my co-workers. We have shared life and work experiences, and many of them have become as close as family,” she said, adding that she met her husband Ed while he was running the mailroom for CMA from 1976-1992.

The CMA staff participated in a surprise celebration of Lloyd’s amazing feat last Friday, and we’re happy to report that Lloyd has shown no signs of slowing down.

cheryl lloyd

Credit Management Association Expands Construction Forms Filing Services

CMA is excited to announce that it has published a series of enhancements to its Construction Forms Filing Services (CFFS) on CMA’s website, CreditManagementAssociation.com. The site, which serves as a point of reference for those who supply materials or labor to construction projects, equips companies with the tools to protect their lien rights under the law. The service assists those customers who file or pursue preliminary notices, notices of intent, mechanics liens, releases, stop notices, bond claims, foreclosures, or other legal actions pertaining to construction.

A free service to all those in the construction industry, CMA’s Lien Provision Assistance Guide provides a summary of the provisions to meet individual state statutes in all fifty states. To view the guide, go to http://creditmanagementassociation.org/services/construction-forms-filing/lien-provision-assistance-guide/. This guide will assist any company working public, private or federal construction projects. The guide identifies each state and the time requirements for each form in that state depending on the type of project.

CMA has upgraded its reminder system incorporating the Lien Provision Assistance Guide with the CFFS service module on www.anscers.com. The system allows users to create reminders that are web, email or Outlook calendar based throughout the lifecycle of a construction project. As users create reminders, they can review the lien provisions for each state to ensure they pick the right follow-up dates for their project.

This rounds out CMA’s other recent enhancements, which include importing multiple Preliminary Notice Requests using Microsoft Excel and providing access to detailed monthly usage reports, creating a state-of-the-art forms filing service from CMA.

“These new features greatly expand the benefits of our Construction Forms Filing capabilities,” said CMA president Mike Mitchell. “We listened to the feedback of our customers, who have requested changes that would help them file their forms online, and their suggestions have helped us deliver a better product,” he added.

CFFS services currently allow construction suppliers to request preliminary notices and record mechanics liens in all states and Guam; as well as request mechanics lien releases; lien warning notices; bond claims and stop notices. Other benefits of using CMA’s CFFS services include online filing and notice tracking; no set up fees or minimum orders; same-day service when rapid filing is required; automatic verification of ownership and parcel information; CMA member and quantity discounts; and the availability to send progress releases at no charge.

“Our rates have always been competitive with similar services, and these enhanced features improve an already good product. The site can be tailored to fit individual needs, and the pricing is more cost-effective than filing in-house. CMA is even licensed and bonded for our customers’ protection,” Mitchell added.

For pricing information, visit CMA’s website at http://creditmanagementassociation.org/services/construction-forms-filing/ or call CMA at 800-841-5793 for more information.

U.S. International Trade Administration to Offer Educational Resources to CMA Members

Credit Management Association® announced that it has entered into a strategic partnership with the International Trade Administration (ITA) of the U.S. Department of Commerce (DOC). The Memorandum of Agreement (MOA), titled the “U.S. Trade and Investment Expansion Partnership,” will help credit and risk management professionals gain access to educational resources needed to expand their businesses nationally and globally.

The agreement, which represents a relationship between CMA and the U.S. Department of Commerce, will promote international trade to CMA’s members by increasing awareness of the economic benefits of exporting, and educating them on trade activities as a job creation and growth strategy. As part of the agreement, CMA will work with the DOC to increase trade and business investment awareness among the U.S. business community, emphasizing the small- and medium-sized businesses that make up CMA.

Through this program, CMA and the DOC will jointly develop a series of educational webinars on topics such as the importance of trade and business investment and associated benefits to the economy, export and business investment opportunities, and ITA’s role in opening foreign markets to U.S. exporters. Additionally, this partnership creates the platform to engage in a dialog between CMA and the DOC. The program expands upon the resources of another CMA-sponsored service, the Global Trade Credit Consortium, which offers assistance for companies that sell internationally by providing access to letters of credit, international collections, banking resources, credit insurance, international credit reports and education and training.

“In this global economy, CMA is constantly evaluating which programs and services it offers that will help our members the most,” said CMA President Mike Mitchell. “Participation in this project furthers CMA’s programs such as the Global Trade Credit Consortium which encourages the economic growth of its members and other small and medium-sized businesses, and gives them access to some high-powered government resources on these topics. CMA is helping its members to better understand how to navigate and effectively compete in a global marketplace.”

“The function of the ITA is that it strengthens the competitiveness of U.S. industry, promotes trade and investment, and ensures fair trade through the rigorous enforcement of U.S. trade laws and agreements. ITA works to improve the global business environment and helps U.S. organizations compete at home and abroad,” said Eddy Sumar, CMA Director of Educational Services. “The goals of this U.S. Trade and Investment expansion partnership are to increase the economic benefits of trade; educate the public on trade activities as a job creation and growth strategy; to create general awareness of ITA and other government resources, and encourage U.S. businesses interested in exporting and foreign businesses interested in investing in the United States to seek the assistance of ITA. I can’t wait to announce some of the great training programs that we have planned.”

“In the coming months, CMA members will be reading more about these developments via CMA’s social media sites, blog, newsletter and other communications. I am very excited about the growth possibilities of this program,” Sumar added.

These educational sessions will complement the nearly 100 annual seminars, webinars, courses, conferences and training sessions that CMA offers. For details on other offerings, visit www.creditmanagementassociation.org/events.

Announcing the New anscersX Report that combines key data from D&B, Experian and Equifax into one Business Credit Report

The anscersX multi-bureau trade credit report combines key factors from the three largest trade credit reporting agencies (D&B, Experian and Equifax), giving credit managers the most complete payment story available. “We spent time reviewing all the elements on each provider’s business credit report to determine what would give anscersX clients the best insight into their customers’ credit worthiness,” says Robert Shultz, Managing Partner of Trade Information Exchange. “By using an anscersX Report, you have covered the necessary bases at a much better cost and a tremendous time savings.   The anscersX Report provides a quick review of the information needed for most trade credit decisions.”

Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.
Credit Management Association® and Trade Information Exchange are proud to announce that they have produced the anscersX Report, a single report that contains all the key elements about your customers’ paying habits needed to make most credit decisions.

The report, which is available now at www.anscers.com, ranges in price from $29.95 to $64.95, depending on the number of reporting agencies the user requests. Users control which reporting agencies are accessed for the report.

“The anscersX report offers some real advantages to anyone making a credit evaluation,” said CMA president Kim Lamberty. “Single-source Business Credit Reports are made up of accounts receivable data that has been contributed by companies, public record data and scores generated from the combination of this data. Since most companies that contribute accounts receivable data only send it to one provider (D&B, Experian or Equifax), using one report may only provide a piece of the payment habit story.”

The anscersX Reports are available through CMA’s web-based platform anscers.com. “The anscersX Report is a significant proprietary credit offering to our customers,” Lamberty added. “A key feature is the summary section that displays scores from all three providers, plus other key data. This makes the anscersX Report easy to read and comprehend so users can make faster credit decisions. There are other advantages as well. This is a web-accessed report that can easily be ordered and received at the user’s workstation in seconds, all at a low cost. There are no minimum purchase or contract requirements. The users order what they want, when they need it and only pay for the reported results.”

Several CMA Members have already used the anscersX Report and have had positive experiences with it. “We got an answer in minutes as opposed to calling all the trade references on the credit application,” said Mary Donaldson, Office Manager, Worthen Equipment Inc. Grating Pacific Inc.’s Stacy Henry added: “The enhanced anscersX Report is very intuitive and easy to read. The “Summary” section at the top of the report included all the information I needed to make my decision whether to extend credit. That saved me a lot of time.”

To learn more about the program, visit www.anscers.com or call 800-541-2622.

CMA Introduces Credit Management Association Quick News

In an effort to keep its members informed about issues affecting credit managers, Credit Management Association has created a new bi-weekly electronic newsletter, called CMA Quick News, to be distributed to members of the association.

The newsletter, which will be released every other Thursday beginning June 5 via e-mail, offers tips and tricks to make informed business decisions based on extending business credit, exploring opportunities and issues on the horizon.

“We understand that our members are very busy with their daily jobs, so we’ve created a news format designed to be read in a matter of minutes,” said CMA president Michael Mitchell, CAE. “The newsletter will focus on news pertinent to every credit manager…the latest trends that are available, new educational opportunities and reports that can help them make informed business decisions.”

To be added to the mailing list, subscribe at http://bit.ly/1rErsna and select CMA Quick News.

What is the main reason you choose to use your credit cards? by Rudet Fountain

For the majority of us, the primary reason we use our credit card as a form of payment is the rewards program.  It is not because we cannot pay the bill with a check, or from our bank portal, or from the merchants webpage…we simply want the rewards.  Of course, in the business to business (B2B) process, customers’ logic is no different.

When we consider the various payment technologies in the market place – cash, checks, ACH, wire transfers, EDI, credit cards – we must come to the realization that credit cards are the only payment technology that your customers can be incentivized for using.  Today, in the retail market, credit card use typically exceeds 90% of a merchant’s total revenue.  However, in the B2B marketplace, they only represent about 3-5% of all receivables.

Due to the extremely high levels of use in the retail market, we must realize that the “green grass” for the card networks is in our backyards.  VISA, MasterCard, Discover and AMEX are all seeking greater market share, and there is very little way for them to successfully hit their sales goals without penetrating the B2B markets.  Let’s not forget that they are now public companies that need to show a nice return for stockholders. Therefore, the card networks are aggressively pursuing your customers with new incentives for the B2B merchants.  B2B rewards are most often ‘kickbacks’ of some percentage of dollars paid with purchasing, corporate, commercial, or business cards.  Federal Reserve data shows that card usage is up growing almost 14% each year and our statistics support these numbers.

Perhaps you have received many more inquiries from customers — or perhaps the bank that issued them their credit card – wanting to pay with a credit card number.  Both VISA and MasterCard have released new Accounts Payable programs that generate a great deal of efficiency for AP departments.  Perhaps more importantly, because of the “rewards,” these programs permit the monthly AP process to become a revenue stream for your customer.  Thus, the battle continues to rage between your customer’s AP department and your AR department.  And we all know, AP represents the customer and the customer is “always right.”  Therefore, merchants are often forced to accept cards when they certainly would prefer not to because of the price.

A little good news: the interchange rates associated with these AP programs can be quite favorable when compared to traditional B2B rates.  Additionally, when payments are generated out of the Credit Card AP programs, merchants will receive the remittance information and the transactions are very secure.  Lastly, no special data input is necessary (We will speak further about this in future articles).

As the card networks seek more transactional volume in the B2B market, it is more important than ever that we learn more about the dynamics of processing.  The card networks do not help you reduce your price by implementing best practices or giving you “do overs” when you overpay on processing.  It is incumbent upon us to learn, implement, and put into practice the best possible solutions.

If the card networks are successful and hit their sales goals, imagine what your costs will be if they double their volume.  Amazingly, they hope to hit 10-times the volume in the next decade.  Are you ready? They are.

Rudet Fountain is the Vice President of Channel Marketing at UTA/United TranzActions, a payment processing company and the preferred payment processing partner of CMA for 15 years. He can be reached at (404) 386-9586.

“WEATHER” YOUR CUSTOMERS CAN PAY – By Larry Convoy

Just when you thought that the economic forecast had brightened, multiple storm fronts have appeared that may bring the good times to an end.

If you are selling in California, you must factor in the drought when evaluating a new or existing customer. Drive through the Central Valley and notice the deserted farms and dairies. Those lucky enough to be located on top of a water supply must pay huge fuel costs to pump the water. Many fields previously growing fruits and vegetables are now dry patches of dirt.  As agriculture goes, so does California’s economy, and this is major concern if a solution is not found.

If you are selling nationally, how have the winters blizzards affected the ability of consumers to go out and visit retailers? How has the construction industry dealt with the frigid weather in the South and can businesses operate normally with the weather conditions the Mid-West has experienced the last 3 months? You have to keep affects of the weather on your radar to stay on top of your accounts.

Luckily, you belong to an industry credit group with an alert system that works like “credit radar” providing you instant notifications when your customers have payment problems. You participate in meetings/conference calls where the latest information is available and best practices are exchanged. You have the ability to poll other companies about their experiences with a customer through RFIs.

Your company has a tool that gives you a decided advantage over companies not participating in a group. If you utilize this resource, you and your company can weather any storm.

Thank you for your continued allegiance to CMA this year and have a great April.

Sincerely,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

Time to look inside the box – by Larry Convoy

At CMA, success of our groups can be directly tied to the amount of information exchanged.

Traditionally, membership in CMA’s industry groups was restricted to companies selling the same product. For example, the Electric group had only electrical distributors, and the Roofing group had only shingle suppliers. This system worked out very well before mergers and consolidations reduced the number of companies in each industry, which significantly reduced the amount of information exchanged.

Seeing this trend, several groups took a different approach to recruiting new members. They looked at which other products their customers stocked, trying to find other commonalities. For example, the Door and Window group wished to expand. They already had the major players in their industry, but most of their customers also bought hardware. This opened up an entirely new list of group prospects. Similarly, roofers have to buy glue to secure the shingles; while restaurants need paper products and linens besides food.

Each of these groups increased membership count and information exchanged by looking INSIDE the customer’s business.

Don’t let the name of your group or its historical policies prevent expansion. By-Laws can be amended to include, rather than exclude, new members.

We would be happy to work with you on this new member drive.

We encourage you to hold elections in March and plan on joining your fellow Credit Managers at CMA’s Annual Meeting on April 10th in Anaheim, CA for a great educational program. I hope to see you there.

Let’s look inside the box and expand the amount of information that we share.

Larry Convoy
Supervisor, Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

Cash Flow Analysis Is Paramount to a Superb Credit Scoring System

Cash Flow
Cash Flow

By: Gene Tanguay

Don’t overlook cash. It is often overlooked and yet the most critical component of financial statement analysis. Cash ratios are essential to credit scoring and to greatly mitigating credit risk. Incorporate in-depth, highly proficient and sophisticated cash ratios into your credit scoring model to assess cash retention, cash generation and cash burn rates. Cash scoring ratios demonstrate a high correlation in a customer’s ability to meet its ongoing debt obligations, capital expansion and future working capital requirements from the company’s operation. Cash scoring analysis is the true indicator of a company’s solvency as it depicts the sources and uses of funds generated from the income statement and balance sheet activity to determine the financial viability of a company. Save your company from a detrimental financial decision or provide an integral decision making tool to justify credit extension to a customer using cash scoring analysis.

Traditional credit scoring focuses primarily on the income statement and balance sheet with a lack of emphasis on the statement of cash flow. A strong credit scoring system can reviews 75 financial ratios or more including over 30 cash ratios. It should be based on a direct review of thousands of trade/financial accounts. Utilizing a comprehensive credit scoring system, with about 75 financial ratios, provides a company the ability to assess customer risk from all different industries with the same credit scoring model and achieve operational efficiency.

Credit scoring, with a strong emphasis on cash flow analysis ( as outlined in examples below), essentially sets credit limits for viable customers, provides prudent risk ratings, increases sales, profits and cash flow, decreases bad debts and improves decision making, resulting in lower operating costs.

Scenario One: Income statement shows a large net loss stemming from non-cash items such as a write down of assets, restructuring charges and early extinguishment of debt resulting in no credit limit.

Solution: Use the statement of cash flow to demonstrate positive cash flow from operations and no cash burn rate. Operations are profitable outside one time charges, consequently, major support for a credit limit.

Scenario Two: Highly leveraged company with total debt to equity in excess of three to one causes extensive concern that customer will not be able to meet their current debt obligations. Credit limit is declined.

Solution: The statement of cash flow reveals the company is generating significant cash flow from operations, with no cash burn rate, enhancing cash reserves to meet payments for accounts payable, short term debt obligations of principal and interest; consequently, justification for credit extension.

Scenario Three: Manufacturing firms who have long lead times to drive products to markets (slow inventory turnover) exacerbated by slow turnover of accounts receivable can exhibit cash flow problems and slow pay vendors. As a result, company may not have credit extended to them.

Solution: The company is generating strong cash flow from operations derived from normal operations to offset cash shortfalls created from slow accounts receivable and inventory turnover. Also, the company has strong cash flow from operations to cover its investing and financing activities. As a result, the customer has ample cash resources to meet vendor payments, thus major support for a credit limit.

Scenario Four: It is possible for a company to be showing profits from a one-time sale of a division or early extinguishment of debt or a satisfactory working capital ratio but yet there could be a potential major cash flow problem.

Solution: Upon closer inspection it is revealed that the company is incurring a net loss from normal operations. Also, the customer has slow turnover of accounts receivable and inventory, strong cash burn rate and a significant diminution in its cash balance correlating with potential severe cash flow problems and bankruptcy, thus major support for revocation of credit limit.

Scenario Five: Regarding bad debt reduction, watch for large or small companies that have mature business products with little sales growth, eroding gross margin, weaker cash flow due to lower profit margins and deteriorating customer base. A culmination of the above facts precipitates a company to increase its borrowing and leverage its position.

Solution: A strong credit scoring system is designed to catch these red flags and revoke credit limit privileges when liquidity, cash flow, profitability and leverage are all negatively impacted leading to a potential bankruptcy.

Credit scoring with financial statements is not completely inclusive of all credit risk; for example, it does not aid in prediction of losses due to natural disasters, fraud or inadequate audit reports. However, it should be based on thousands of credit reviews to greatly strengthen the risk scoring classifications and ultimately the credit operation. Credit scoring through financial statement analysis presents the best model to evaluate credit risk. It can be used as a standalone credit decision making tool in 80-90 % of the credit decisions.

All other scoring modules that exclusively use metrics such as: pay performance, management history, strength of competition or customer base, years in business, lien and suit searches, fall short of the pertinent information contained in financial statements. But there are certain situations where other data outside financial statements is important. For example, other sources (D&B, trade/bank references) need to be consulted when there are no financial statements, borderline credit decision, and new customers to ascertain if a company is a legitimate business or advise of any prior bankruptcies.

In summary, credit scoring with financial statement analysis benefits include the following: increase sales, profitability and cash flow, reduce operating expenses and mitigate bad debt.

Due to SOX compliance measures it is most difficult for public companies to commit fraud which heightens the integrity of credit scoring model. Credit scoring with financial statement analysis should be based on 75 or more financial ratios representing thousands of companies from small to large, different industries and all parts of the world. It should be low priced, has financial scoring analysis that assesses customer strengths and red flags plus credit limit recommendations. Also it is recommended that this credit scoring model has the flexibility to fit customers from a variety of industries including: retail, manufacturing, biotechnology, software, construction and finance companies.

An excellent credit scoring system with financial statement analysis is designed to average out risk between leverage, liquidity/cash flow and profitability to ascertain the true financial viability of the customer. Don’t overlook cash; cash ratios are essential to risk management.

Author: Gene Tanguay, BA, MBA Founder of Credit Scoring for Success, Former Certified Credit Executive Passed CPA Exam. Expert in accounts receivable credit risk assessment for portfolios up to $2 billion. Performed customer credit reviews up to $500M credit limit.  Received management awards for outstanding performance in financial statement analysis. Published credit articles for Credit Management Association and Credit Today. Conducted credit presentations at Hitachi and Advanced Micro Devices.

 

If An Alert Saves You Money, Does Anyone Hear?” – Larry Convoy

If a tree falls...
If a tree falls…

We have all heard the expression about the tree falling in the woods with no one around, does it make a sound? To relate this to Industry Credit Groups, if an alert posted by a member of your group results in your company avoiding a big loss, does senior management ever hear this?

Within the confides of group confidentiality, do you ever tell your superiors that you rejected the new customer your salesmen “finally” landed because the RFI you requested shows 2 members recently withdrew credit or the alert just posted told you that a member placed them for collection. Do they know that their company got paid in full on the bankrupt account because of what you learned about UCC’s or Lien Laws as part of a group discussion? Or are they aware that the expensive new software package that you voted against was the result of first-hand information gathered at a group meeting by asking people who are actually using it?

May I suggest giving your management a tour of the anscers website, show them the alert page, how you can do an RFI and get instant feedback from the group or check the anscers credit report for historical information. Tell him about your monthly discussions on best practices and how that has not only made you a better credit manager but provided you with tools to save the company money. Emphasize that you cannot get this information if you miss the meetings or conference calls. However, make it clear to them that the information is confidential and any slip can jeopardize your standing in the group and potentially cut off the stream of information.

Making more of your financial team aware of the group benefits, will not only insure group renewal, but encourage them to allow you to attend conferences such as the Western Region Credit Conference or other educational seminars.

Have a great October.

Larry Convoy, Supervisor-Industry Credit Groups
lconvoy@emailcma.org – 818-972-5323

UCLA Extension Launches Credit Analysis and Management Course

ucla_summer_session
UCLA Extension

by Mike Mitchell, CAE – CMA President

I have long wondered why institutions of higher learning have not offered courses in business credit. When I was pursuing my graduate degree in business administration, I don’t recall that credit ever came up as part of the course curriculum. I began working for CMA shortly after I completed my degree, and this is where I learned that business credit is really what makes the US economy as unique, competitive, and robust as it is. NACM does a great job of supporting professional development and recognizing credit professionals through its Professional Certification Program, but that only touches practicing credit professionals. What about the many more college graduates and job seekers who don’t know that credit jobs exist? How do we reach out to those people who are pre-career or looking to change direction and let them know about credit as a career? What about small business owners who don’t have the staff to delegate credit decisions?

A year ago, CMA was invited to participate in the development of a credit analysis and management certificate program at the University of California Los Angeles (UCLA) Extension to expose an entirely new audience to credit as a career. The program is intended for the credit community in banking and finance, trade credit management and small business owners. Roger L. Torneden, Ph.D., CFP®, the Director of Business, Management and Legal Programs at UCLA Extension, actually worked as a credit manager at JC Penny. He saw the same opportunity as we did to reach people working outside of credit.

In anticipation of this course offering, the CMA Board of Directors created a new student membership category to encourage students to join the Association while enrolled in credit courses. CMA can help student members network and learn from experienced credit professionals, and bring qualified job candidates to member companies that are looking to fill internships or entry-level positions that require specific skill sets in credit management.

Mike Mitchell, CAE
Mike Mitchell, CAE

14 students successfully completed the pilot course in January 2013, and now CMA is helping UCLA Extension promote summer enrollment. With training from UCLA and professional networking and services from CMA, our collaboration could seed the next generation of credit managers and expand the NACM brand.

For more information:
visit www.uclaextension.edu/credit

Or download program brochure

CMA Members receive a 10% discount on these classes. Use promo code H5278 when registering. Summer Sessions start June 27!

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When Less is Really More – Larry Convoy, CMA

Less Is More
Less Is More

At a recent National group meeting, 2 members took totally opposite routes to reach the same credit decision on a potential new account.

In one corner, we had a credit manager who utilized a comprehensive D&B, a Experian Business Owner Profile report on the individual principles and data from Hoovers and various internet sites.

In the other corner, a credit manager had a one page anscers report showing 2 lines of information, both being “account placed for collection”. By running his cursor over the reporting member numbers, he was able to identify the group members reporting and called them to get a further explanation.

Besides the disparity in costs and time involved they came to the same decision. The highlight here is the value of an Industry specific report from members in your group. The members of the Outdoor Living group know and that is why they all contribute their A/R to the CMA database. Many of their credit decisions are made simply by clicking on the anscers report.

Your group can experience the same ease in clearing accounts by contributing A/R to the CMA database. It is not a hard or long term project. If all or a majority of your group commits, it can be up and running in 1-2 months. The reduced expense of your third party reporting contracts should be attractive to management. The ability to look up an unlimited number of customers each month plus a pro-active group submitting alerts will make you aware of potential problems months ahead of non-group members.

Discuss this with your group in June and have a great credit tool at your disposal by the end of the summer. Our staff is here to assist.

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

Hire a Credit Professional Who Is Certified To Do The Job

NACM
NACM

Accountants have CPAs, Attorneys have Esq., Association Executives have CAEs, Business Professionals have MBAs, and many Professors and Scientists have PhDs.

Business Credit Professionals can also receive professional designations that identify their level of knowledge and skill at the credit profession. There are three professional designations that demonstrate a commitment to excellence in the credit field: CBA – Credit Business Associate, CBF – Credit Business Fellow, and CCE – Certified Credit Executive.

Credit Management Association (CMA) provides online educational programs that fulfill the course requirements for credit professionals to achieve their NACM (National Association of Credit Management) designations.

  • CBA is an academic-based designation which signals mastery of three business-credit related subjects: Business Credit Principles, Basic Financial Accounting, and Financial Statement Analysis. No minimum work experience is required. Applicants must be registered with NACM National (nacm.org) prior to applying to sit for the exam.
  • CBF is both academic and participation-based and signals competence in two intermediate courses: Business Law and Credit Law. Applicants must also have accumulated 75 Career Roadmap points, and be registered with NACM National. One cannot achieve a CBF without first having achieved a CBA designation.
  • CCE is NACM’s highest designation that endorses its achievers as capable of managing the credit function at an executive level. There are several ways to qualify for the CCE, and candidates must pass a rigorous exam that tests them in accounting, finance, domestic and international credit concepts, management and law. Applicants must also have accumulated 125 Career Roadmap points. Certified Credit Executives are also required to recertify every three years. Once they reach 60 years of age or have formally retired at age 55, they are exempt from recertifying and receive a lifetime certification status.

Registration with NACM National is required prior to applying to sit for each of the Designation’s exams, which can be proctored at the students’ company location. Exams are held only four times per year in March, May or June (only at Credit Congress), July, and November. CMA helps facilitate the certification process by providing information on all our education programs (classes, seminars, webinars, and conferences) to National for the students lifetime file.

NACM has just introduced a new designation called the Certified Credit and Risk Analyst (CCRA). This is academic-based which signals mastery in the analysis and interpretation of financial statements. It was created to support the need to

Cheryl Hammond, CMA
Cheryl Hammond, CMA

maintain sound financial analysis skills. Three courses are required along with a final exam, but Career Roadmap points are not needed for this lifetime designation.

CMA hosts free webinars every other month on the Professional Certification process called “Destination Designation”. If you have are interested in any of the Designation programs, please contact CMA at 831-475-9482 or email Cheryl Hammond at chammond@emailcma.org.

No Alerts or RFI’s – What’s Up?

anscers RFI and Alerts
anscers RFI and Alerts

TO ALL CREDIT GROUP MEMBERS:

As I navigate around anscers.com, I am amazed at how many groups have no alerts and no RFI’s on their group page.

Are we to assume from this that the members of these groups get :

NO NSF CHECKS, PLACE NO ONE FOR COLLECTION, NEVER WITHDRAW CREDIT, NEVER FILE LIENS, NEVER HAVE A CHANGE OF OWNERSHIP, CUSTOMERS PHONE NEVER DISCONNECTED, ETC.

As for RFI’s, wouldn’t free information from industry specific references be more effective than expensive credit reports where you cannot identify the provider of the trade line or it may be old information.

These services are a means for you to communicate with your group every day of the month, not just meeting day. The groups that actively use these services are weeks ahead of the general trade in knowing when a particular account is having problems..

IF YOUR GROUP IS SUCCESSFULLY USING THESE SERVICES, I WOULD LOVE A TESTIMONIAL WE CAN SHARE WITH THE OTHER GROUPS. SIMPLY SEND TO MY EMAIL ADDRESS BELOW. A GIFT CARD TO THE BEST ONE.

My staff and I are always available to train members or groups on the procedures for entering alerts and submitting RFI’s.

Please make a commitment to actively use these resources.

Sincerely
Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org
818-972-5323

“Trust, but verify” creditworthiness

Trust and Verify
Trust and Verify

Data from CMA’s Credit Confidence Survey was used to created this article by Sageworks, Inc. You can participate in this quarters CMA Credit Confidence Survey using this link.

“Trust, but verify” creditworthiness 

By Mary Ellen Biery, Research Specialist, Sageworks, Inc.

More than four years after the peak of the U.S. financial crisis, bankers, businesses and borrowers still remain cautious about their exposure to risk.

In a recent survey, only about 6 percent of senior loan officers atU.S. banks said that credit standards for commercial and industrial loans or credit lines had eased over the past three months. Instead, most respondents said that standards were basically unchanged. And among banks that had eased credit standards or loan terms, it was more often due to aggressive competition from other lenders – not a more favorable economic outlook.

Credit managers outside of banking, too, are exercising caution in their own extensions of credit. The Credit Management Association found that 30 percent of respondents expected to tighten credit policies in the upcoming quarter. At the same time, corporate credit managers are under more pressure to evaluate credit because demand, as measured by the number of received applications, had picked up.

How can a business keep a pulse on the companies with which it interacts?

All too often, companies trust that a potential business partner is creditworthy with very little evidence to support the assumption. Ronald Reagan made popular the catchphrase “Trust, but verify” regarding the former Soviet Union, but the maxim is a good one for businesses considering new business relationships, too.

“Most [business-to-business] credit risk is really of a 30-, 60- or 90-day nature, so it’s very short term,” says Hugh W. Connelly, CFA, president of Univest Capital Inc., a small-ticket corporate finance business.

“As long as the customer pays their bills within 30 days, I don’t think people even look at the creditworthiness of the customer. They just assume that because they paid their bill on time last month, they’re going to pay their bill on time this month.”

But that’s dangerous. Many businesses examining a company’s trade-credit history are evaluating data that is 90 days or older — ancient by business terms, according to Connelly.

Connelly says payment histories can be valuable, but he recommends that credit managers shouldn’t rely too much on them, either. Depending on the situation, it makes sense to perform a more thorough financial analysis.

If a company’s risk appears to be above a given threshold or even if payment history is spotty, says Sageworks analyst Libby Bierman, deeper analysis like a review of financial statements or cash flow may be merited. Additionally, requesting and analyzing financials might be a necessary step in the review process for suppliers that are particularly crucial to the supply chain or for customers requesting credit lines over a certain amount.

Conducting due diligence on a supplier could also help credit managers “trust, but verify” the integrity of a supply chain, a significant operational exposure. “Checking a supplier’s likelihood of default based on current finances could save you money and trouble,” notes Bierman. “If they go out of business, you could be out of a key line of credit and a key supplier, or if they do not make their payments on time to their suppliers, that could affect your whole supply chain,” she notes.

Michael Mazzarino, founding partner of strategic advisory firm The SCA Group LLC, says that in addition to quantitative verification, credit managers should consider qualitative checks. “It’s extremely useful to get in a car or airplane to visit the supplier, partner or customer,” he says. “You see a lot that you don’t often see in the analysis of financial statements or projections.”

For example, walking through a customer’s warehouse may reveal boxes of very old inventory. “You may or may not have a problem with cash being tied up, but at least you have the genesis of a question,” Mazzarino adds.

Thank You To My Industry Credit Group – Larry Convoy

Click to see the dance

As we close out 2012, we have much to be thankful for. Naturally – family, health and living in the greatest country on the planet are at the top of the list. Somewhere on the list should be those people you meet with that make your job easier by sharing their knowledge and credit experiences with you.

So take a minute to thank the members who:

1. Entered the alert regarding a bankruptcy that allowed you to stop a delivery in transit
2. Responded to your RFI quickly, providing you with trade specific data to make an informed decision
3. Contributed their entire A/R to the CMA data base which included information on an obscure account
4. Shared their credit application with you explaining the various features that allowed them to maximize the revenue while reducing the risk.
5. Explained to you what a UCC is
6. Remembered that the new owner of a business you inquired about was the old owner of a business you placed for collection
7. Contribute every month to the group report/past due list and never missed a meeting/conference call
8. Provided you with a resource, recommended a service or a legal professional that saved your company $$$$
9. Always took your phone call when you had an urgent question or credit inquiry
10. Shared an incredible dessert with you

On behalf of the Industry Credit Group staff at CMA, we thank you for your support this year and wish you and your family a healthy and prosperous 2013.

Have a Great December,

Larry Convoy
Supervisor-Industry Credit Groups
lconvoy@emailcma.org

New California case affecting lien laws – Joseph Hanna

A recent decision by the California Appellate Court has now changed the rules for contractors and material suppliers.

In the case of California Paving & Grading Co., Inc. vs. Lincoln General Insurance Company, decided on May 21, 2012, the appellate court concluded that any time a public agency enters into a contract where a private developer is contractually obligated at its own expense to make public improvements, the contract is a public works contract as a matter of law.   This decision is retroactive to all cases and projects.

In this case a private developer, 26 Moorpark, LLC, and the City of Los Angeles entered into a Subdivision Improvement Agreement and Contract for Moorpark  “to construct and install all public improvements required in and adjoining and covered by the final map.”

As you know, those public improvements are then handed over to the City.  Moorpark hired Masada Development as it general contractor, who in turn hired California Paving & Grading (“CP&G”) as its subcontractor to perform the street paving and asphalt work.

CP&G finished its work and having not been paid, filed suit against the surety on the subdivision improvement labor and material payment bond.  The surety demurred to the suit and the trial court dismissed the case.

In affirming the dismissal, the appellate court found that CP&G’s failed to serve a public works preliminary notice on the City of Los Angeles and failed to bring suit within the time frame of a public works payment bond.

CP&G argued that it was not a public works project, that it served a private works preliminary notice pursuant to the private works statutory provision for a preliminary notice, §3097 of the Civil Code.  The surety successfully argued that a public works preliminary notice pursuant to §3098 should have been served.  Further, the surety argued that CP&G failed to file suit within the shortened timeline for suits against public works payment bonds (within six months of the deadline to serve a stop notice on the project) as opposed to the general four-year statute of limitation applicable to the subdivision improvement bond.

The appellate court began its analysis with §3100 of the California Civil Code which defines a public work to mean “any work of improvement contracted for by a public entity”.  Relying on this definition, the appellate court concluded the Subdivision Improvement Agreement between the City and Moorpark constituted a public work because it was a contract entered into by a public entity for the construction and installation of public improvements.

Because the CP&G’s subcontract agreement was in furtherance of the underlying Agreement between the City and Moorpark, the subcontract was likewise for a “work of improvement contracted for by a public entity” and therefore governed by the public works statutes governing suit on a payment bond, requiring the service of a preliminary notice on the City pursuant to §3098.  The appellate court concluded that the suit on the bond must be brought within the shortened time under §§3184 and 3249 of six months from the last day a stop notice could have been properly served.

The appellate court rejected CP&G’s argument that the project was not a public work of improvement CP&G argued that the subdivision improvements are not paid for out of public funds and that the improvements were not the subject of competitive bids or prevailing wage requirements.  The appellate court disagreed, relying on its interpretation of §3100 that the City entered into a contract for a “work of improvement contracted for by a public entity”.

What this means is any contract where its nature involves “a work of improvement to be performed under a contract entered into by the public agency” is now subject to the rules and laws governing public works.  This will require that a public works preliminary notice under §3098 must be given to the public agency and that the timeline to bring a suit on any labor and material payment bond or subdivision bond must be filed within the time period applicable to a public works payment bond.

So, if you are a material supplier or subcontractor performing work off site or upon privately held land in furtherance of an agreement by a public entity for public improvements, regardless if public funds are not being used, your job rights will be governed by both the private works statutes for mechanics’ liens and stop notices procedures and timelines as well as the public works procedures and time lines against the labor and material payment bond.  This means sending both private works and public works preliminary notices to protect your job rights against both the property and any public improvement bonds for a subdivision development.

The content of this article is intended to provide a general guide to the subject matter, and is not a substitute for legal advice in specific circumstances. Should further analysis or explanation of the subject matter be required, please contact Joseph M. Hanna at jhanna@lanak-hanna.com

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A Failure To Communicate – Larry Convoy

Cool Hand Luke

One of my greatest frustrations as an Industry Group Secretary is getting an email or phone call from a member about 10AM saying they will not be able to attend that days meeting because they are shorthanded or the boss wants them to stay and cover the phones.  When I remind them that an industry group meeting is not a social function but a fact finding investment of time that can save their company money, they agree but the boss is the boss.

To quote a line from a great movie, Cool Hand Luke, “what we have here is a failure to communicate”. Have you conveyed to management the value and benefits derived from that minimal investment of time.

To prove my point, valuable information was exchanged at each of my first four meetings this month. Information that you will NOT find on a report, NOT find on anscers but will save companies thousands of dollars because they took the time to attend.

  1. Collection Account Information-during roundtable discussion, a group member was informed of a secondary address for a $70K account that their collection agency reported as a SKIP and uncollectable.
  2. Software Difficulties-a member complained about not being able to get desired reports from their new software. 2 members explained the method for extracting information and scheduled a follow up call to walk her through the process.
  3. Construction Law-a novice in the construction industry got educated on the procedure for going after a bond simply by explaining a situation she is currently going through with one of her customers.
  4. Sales Tax Audit-group discussion supplied several members with tips for dealing with audits, what auditors were most and least concerned with and potential problems.
When you consider that you work 40 hours/week, 160 hours./month and the group meeting takes up 2 hours or 1.25% of your month, the Return on Investment, (ROI) for those 2 hours is extraordinary.

Not writing off $70K, not losing your Lien rights, not paying a tax penalty, maximizing your software investment, your boss and you should agree that this is worth 2 hours of your time.

Larry Convoy, Industry Credit Group Supervisor

Is The Customer Always Right? – Nancy Friedman

Nancy Friedman

By Nancy Friedman, the Telephone Doctor

Ask most folks and I’m betting the answer you hear will be, “Yes.” Ask us at Telephone Doctor and we’ll tell you, “The customer always thinks they’re right.” It’s the perception of that you need to work with and, as we know, perception is reality.

If you go with our theory that the customer always thinks they are right, handling them and solving their problem will become a bit easier.

When the customer thinks they’re right, they’re right. IN THEIR MIND! And that’s what is key. Instead of arguing with them and telling them they’re wrong, get the mentality that they believe they are right. Think as they do. As we know, many times the customer can be wrong.

True story time and this illustrates the picture pretty well.

We have trees in our backyard. I’ve always wanted to put some lights on a few of them so that they’d show up nicely in the dark. I called the lighting company and was satisfied with their estimate. We made a date for installation and the lighting company came to install the lights while I was as work. When I got home I was excited to see how the lights would look. By the time I got home it was dark out. I couldn’t wait to go out to the backyard and see how pretty the lights were. BUT WAIT; something is wrong. I looked out toward the yard and there were no lights! “Shoot,” I said. “They didn’t show up today.”

I called the lighting company early the next day and asked why they hadn’t come to install the lights in the backyard as they promised. (Yes, I was very nice.) “Oh, they were installed Mrs. Friedman,” the lady said. I came back with: “Yeah, well they’re not lit now. Seems as though, they don’t work at night. Please come fix them.” “Sure will,” I was informed. “First thing tomorrow.”

The next night I came home and peeked outside at the yard. Again, no lights on the trees.

So my next call the following day wasn’t as nice as the first call. “I’m sorry I paid you guys already,” I said. “The lights still don’t work! What’s going on?” I told her I wasn’t a happy camper.

“Well, the lights worked when the guys were there yesterday, Mrs. Friedman,” the frustrated woman said to me. “Well they’re not working now! Please come fix them or I’ll cancel the check.” (Yea, I got testy.) I was assured they’d come a third time to check that the lights worked.

Sure enough, when I got home that third night, no lights. So I immediately called my daughter who lives down the street. I asked her to come over so she could be proof the lights were not on and I wasn’t going crazy.

Linda came over and I said, “Look, do you see any lights? They have been here three times and keep telling me they work. But they must only work in the day time.” Linda looked out and she agreed no lights appeared to be on. She then opened the screen door to go out to the forest area and take a look at the trees up close.

It was dark out but I could see her out there and she bent down to do something. All of a sudden one light came on to one tree. I watched her and she did the same thing with the second tree and then with the third tree. Now all three trees were brightly lit by gosh!

She came back inside and I asked her if she had a magic wand. She smiled and said, “Look, it’s October and the leaves are falling. The leaves fell and covered the tree lights each day. I just wiped off the leaves.”

Wow! Powerful example of the customer is always right. I called the lighting service the next day on bended knee asking to be forgiven. I explained what had happened and they were very nice about it. I thought I was right, but I had been wrong.

Now some of you may be asking why the lighting place didn’t tell me about the leaves the first time they came out. That’s what I thought as well. But then I thought the person who took my call probably wasn’t the person who came out to fix it. That’s when I thought that their own internal communications weren’t very good.

The installer who came out should have told the person who took my call to call me and explain exactly what happened. He knew the leaves covered the lights.

But that’s a whole ‘nother article isn’t it? Bottom line: The customer always thinks they are right. It’s our job to help them see the difference without making them feel badly.

Do you have a story for us about when you thought you were right and you weren’t?
Could end up in my new book:
 Is the Customer Always Right?
Email us at: press@telephonedoctor.com

Summary of CA Mechanics Lien Law Changes

Provided by Amber Jackson, CMA Constructions Forms Filing Manager

Summary of changes to CA Civil Code 3084 and 3146 effective 01/01/11

Civil Code section 3084

Mechanic’s Lien with a proof of service affidavit and “Notice of Mechanic’s Lien” must be served on the owner of the property before the Mechanic’s Lien is recorded [3084(c) (1)];

– Service requirements on the owner are by registered mail, certified mail or first-class mail with a certificate of mailing. Civil Code 3084(c) (1) (A).

If owner cannot be served, then the original contractor or the lender can be served instead of the owner [3084(c) (1) (B)];

– Service requirements on the original contractor or the lender are by registered mail, certified mail or first-class mail with a certificate of mailing. Civil Code 3084(c) (1) (B) (2).

Failure to serve the Mechanic’s Lien, including the Notice of Mechanic’s Lien, shall cause the Mechanic’s Lien to be unenforceable as a matter of law [3084(d)];

A Mechanic’s Lien in proper form, verified and containing all of the information required by Section 3084 shall be accepted for recording by the County Recorder. The information required to be contained on the new Mechanic’s Lien form: (1) Statement of demand after deducting all just credits and offset; (2) name or the property owner or reputed owner; (3) a general statement of the kind of labor, services, equipment or materials furnished; (4) name of the person by whom the claimant was employed or to whom the claimant furnished; (5) a description of the site sufficient for identification; (6) proof of service affidavit; and (7) Notice of Mechanic’s Lien printed in at least 10-point boldface type . The County Recorder will charge additional recording fees for the extra two pages of the new form.

Civil Code section 3146

If lawsuit filed to foreclose on the Mechanic’s Lien, then after filing the Complaint: – A “Notice of the Pendency of the Proceedings” (or a “Notice of Pending Action” must be recorded on or before 20 days after the filing of the Foreclosure of Mechanic’s Lien claim.

– Only from the time of recordation of the Notice of Pending Action will a purchaser or encumbrance of the affected property be deemed to have constructive notice of the pendency of the action, and in that event, only of the pendency of proceedings against parties designated by their real names.

Lien Law Changes & Notices (2228)

Does your company have an Electronic Billing Strategy?

UTA

As consumers, we’re inundated with all things Internet‐related. Everyone has a web site and we’re all expected to have an e‐mail address. So does that mean that we’re all paying our bills online, too? Today, companies are wrestling with this notion. In theory, electronic billing, presentment, and payment (EBPP) is the ultimate model of efficiency. But is it catching on?
Think about it: Why write a check, buy envelopes and spend the postage on mailing it, when it has become so simple to point, click and pay your bill via the web?
Today, many of your customers want to do the same thing. It’s easy, fast and convenient for them and gives them 24/7 access. It also simplifies your internal process, and can save your company substantial costs. Offering your customers these electronic options may be a huge advantage for you.

Electronic billing solutions have always been more of an operational or cost savings type of decision. But is it really more strategic than that? Cost savings may no longer be the top reason for turning to EBPP. Now, an effort to ensure customer loyalty is slowly replacing cost savings as the main driver.

Customer service and satisfaction are paramount today, in this or any economy. Making it easier to do business with your company is a key strategic consideration. Today it is about gaining a competitive service advantage. This “advantage” often translates to lower invoicing costs, the elimination of “lost” invoices and lowered cost of dispute resolution. Other key benefits include: the ability to reduce days sales outstanding (DSO), improve payment processing and reduce frequency of collections and customer service calls.

Electronic billing can deliver strong marketing and customer retention benefits when implemented as part of an integrated customer communications strategy. Web self‐service is the most obvious value for customers, providing them 24/7 access to their account information online. Online access to bills helps reduce in‐bound calls. Servicing an inquiry via telephone is 15 times more expensive than via a Web self‐ service site, citing research from Forrester.

With that in mind; have you provided your customers with efficient electronic bill choices?

Has your competition?

Please realize that you will always be faced with customers that still want paper bills mailed to them, while others may accept fax or e‐mail and some will opt for advanced web‐based delivery and payment. So it is equally important then, to offer all these delivery methods for your unique customer base. Keeping all these options available and tightly connected can also be a challenge:

  • Are you using manual internal personnel or costly equipment? Is a local printer your best option for delivery of your printed and mailed bills? Does your ERP/Accounting system provide for efficient, automated e‐mail and/or fax options?
  • Do you really want to assign another project to your overworked, understaffed IT department to design and build an on‐line web portal for presentment and payment?
  • Can your staff support all the security and compliance features for the above processes? So how can we address the above problems?

Join us for an upcoming NACM, Electronic Bill Presentment and Payment webinar, to be hosted by United TranzActions (UTA). We will discuss how it is possible to not only streamline your process and save you money, but provide you with a long‐term, strategic solution for both you and your customers for years to come. (Information to follow at the beginning of 2011)

Make it easier for your customers to do business with you!

For more information about Electronic Bill Presentment and Payment, contact your UTA Representative Rudet Fountain at: 800.858.5256 ext. 4802 or rfountain@unitedtranzactions.com

10 Times the Leadership!

Debbie Lundberg

Article from Debbie Lundberg our closing speaker at the WRCC.

“Not the cry, but the flight of the wild duck, leads the flock to fly and follow.”
~Chinese Saying~

While there are many lists and ideas about leadership, after speaking with a wonderful and talented client about leading during a one-on-one coaching session, I left and really reflected on what we covered, and consolidated the ideas I shared into my ten (perhaps top 10, and definitely current 10) strengths of an effective leader. The list includes (minimally) the ability to:

Envision – Seeing things for what they are and where they can go.

Observe – Looking at things with little bias and an open mind.

Inquire – Asking of others for input, observations, really listen and hear what is being said for feedback without repercussions to the person.

Care – Wanting to know about the people, the teams, the clients/customer and opportunities earned…and missed.

Cheer – Letting someone know he or she can do it. At times, just taking off the title and being a supportive person.

Coach – Being willing and able to meet people where they are and assist them in getting successfully where they are willing and able to go.

Show & Tell – Demonstrating and informing the team of what is behind, in front of and on the horizon for the company/group, and being willing to lead the way in words and actions. These are forms of effective communication.

Reflect – Making time and take time to consider competition, client desires, team interests and what to make of them and how the wins can be developed, and not just expected or taken.

Grow – Knowing others often have the answers and humility and pride can work hand-in-glove when learning and what serves well is top of mind. Being able to own decisions and seize opportunities for self and others.

Share – Being selfish enough to want the best and selfless enough to let others be a part of it. Knowing there is not just one leader, regardless of titles, and that results, victories and overall success in an effort of more than one. Sharing the opportunities and sharing of yourself by giving back in ways that work for you!

How are you, and your fellow leaders doing on these 10 traits? It’s okay, be proud of what you are doing, and hone in on those areas where you’d like to see improvement…after all, you are a life-long learner if you are a true leader of self and others!

FTC Extends Enforcement Deadline for Identity Theft Red Flags Rule

Delayed until 12/31/10

At the request of several Members of Congress, the Federal Trade Commission is further delaying enforcement of the “Red Flags” Rule through December 31, 2010, while Congress considers legislation that would affect the scope of entities covered by the Rule. Today’s announcement and the release of an Enforcement Policy Statement do not affect other federal agencies’ enforcement of the original November 1, 2008 deadline for institutions subject to their oversight to be in compliance.

“Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule – and to fix this problem quickly. We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift,” FTC Chairman Jon Leibowitz said. “As an agency we’re charged with enforcing the law, and endless extensions delay enforcement.”

The Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.

The Rule became effective on January 1, 2008, with full compliance for all covered entities originally required by November 1, 2008. The Commission has issued several Enforcement Policies delaying enforcement of the Rule. Most recently, the Commission announced in October 2009 that at the request of certain Members of Congress, it was delaying enforcement of the Rule until June 1, 2010, to allow Congress time to finalize legislation that would limit the scope of business covered by the Rule. Since then, the Commission has received another request from Members of Congress for another delay in enforcement of the Rule beyond June 1, 2010.

The Commission urges Congress to act quickly to pass legislation that will resolve any questions as to which entities are covered by the Rule and obviate the need for further enforcement delays. If Congress passes legislation limiting the scope of the Red Flags Rule with an effective date earlier than December 31, 2010, the Commission will begin enforcement as of that effective date.

In the interim, FTC staff has continued to provide guidance, both through materials posted onwww.ftc.gov/redflagsrule, and in speeches and participation in seminars, conferences and other training events to numerous groups. The FTC also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form (www.ftc.gov/bcp/edu/microsites/redflagsrule/get-started.shtm). The FTC staff also has published numerous general and industry-specific articles, released a video explaining the Rule, and continues to respond to inquiries from the public. To assist further with compliance, FTC staff has worked with a number of trade associations that have chosen to develop model policies or specialized guidance for their members.

As was the case previously, this enforcement delay is limited to the Red Flags Rule and does not extend to the rule regarding address discrepancies applicable to users of consumer reports (16 C.F.R.§641), or to the rule regarding changes of address applicable to card issuers (16 C.F.R.§681.2).

For questions regarding this Enforcement Policy, please contact Naomi Lefkovitz or Pavneet Singh, Bureau of Consumer Protection, 202-326-2252.

Telephone Doctor’s Six Cardinal Rules of Customer Service

There are a lot of ‘rules’ in customer service, but few more important than the six we’ve listed here from our newly reproduced DVD Six Cardinal Rules of Customer Service. Each makes a valid statement and will increase the satisfaction of your clients.

Cardinal Rule #1 – Personal Responsibility/Accountability: Don’t Pass the Buck

One of the most important attributes a company staff member can have is personal responsibility – personal accountability. Those that have it refuse to accuse, blame and complain. Those that do accuse, blame and complain break one of the most important cardinal rules. “Who” statements accuse and blame. “Who took my stapler?” We should use a more positive manner and take personal responsibility by saying, “I seem to have misplaced my stapler; has anyone seen it?” Remember to take full responsibility with the customer. The customer doesn’t like to hear accusing, blaming and complaining statements. They know when you’re passing the buck!

Cardinal Rule #2 – People Before Paperwork

When someone walks into your place of business or calls you while you’re working on something, Cardinal Rule #2 says drop everything. Attend to that person. Remember, paper and other tasks can wait, people should not. We’ve all been abused when we go shopping and been ignored because the staffer is doing something else and we know how that feels. Let’s not abuse our own customers. Remember: People before paperwork.

Cardinal Rule #3 – Don’t RUSH Your Customers

Sure, you may understand something real quick, but rushing the customer along will only lead to them feeling intimidated. Remember to mirror their speed. Trying to be “done” with a customer as quickly as possible is seen as being rude and uncaring. Rushing threatens customers. Take your time with each and every contact.

Cardinal Rule #4 – Company Jargon

Ever get a report from a company and not understand it? Some companies have company jargon that makes the CIA wonder what’s up. Be very careful not to use your own company jargon on your customers. You and your employees may understand it very well, but the customer may not. And you’ll only cause a lot of unnecessary confusion. Spell things out for your customers. Use easy words. Try not to abbreviate. Remember, don’t use military language on civilians.

Cardinal Rule #5 – Don’t Be Too Busy To Be Nice

Hey, everyone’s busy! That’s what it’s all about. Being busy does not give you carte blanche to be rude. Remember, you meet the same people going down as you do going up. They’ll remember you. (What’s worse than being busy? NOT being busy.)

Cardinal Rule # 6 – Be Friendly BEFORE You Know Who It Is

There’s a good lesson to be learned here. One Telephone Doctor saying is: Smile BEFORE you know who it is. Often times it’s too late. Being friendly before you know who it is will earn you classic customer service points. The customer needs to know you want to work with them, no matter who they are. Remember, sometimes it’s way too late to smile and be friendly after you know who it is.

Any one of these tips can boost your customer service!

Nancy Friedman is a featured speaker at association and corporate meetings around the world. She has appeared on OPRAH, The Today Show, CNN, Good Morning America and CBS This Morning. Her articles have been published in the Wall Street Journal, USA TODAY, as well as hundreds of other print outlets. She is also the author of six best selling books. For more information, log onto theTelephone Doctor website at www.telephonedoctor.com or call 314.291.1012.