Extending Your Credit Information Reach, by Larry Convoy

One of the benefits of group membership is being able to access the anscers databank anytime and not only receive information from members of your group, but information from members outside of your group. Many groups share common customers, and being able to pull up an anscers.com report and see a trade line or alert from someone in another group could be the difference in opening the account or not. After all, the information in anscers comes from past-due reports, meeting review reports, RFI’s, alerts and companies contributing their aging each month. More current information does not exist.

Now, expand the anscers databank to include 40 other NACM affiliates and their 10 million lines of information and you have the NACM National Trade Credit Report, NACM’s own report exclusively from industry credit groups and data contributors. The report is available at a reasonable price, and can act as the perfect companion to the major bureau reports. Get this with the pricing: each report costs $14.99, but if you contribute your company’s A/R to the databank, the price goes down to $9.99, and you get your first 25 reports for free. And this report IS ONLY AVAILABLE to members of NACM.

If you sell nationally or your customer has vendors outside of California, there could be multiple suppliers at other affiliates that have trade information on this account. If you sell strictly in California or Nevada, there could be suppliers in the other 48 states with trade experience with your customer. The information pipeline does not have to stop at the border anymore: for example, if a member of a Group in Dallas or Tampa reports them, you will be able to draw a report and make a more informed credit decision.

CMA recently unveiled this report to all members. Compare with your current provider and decide if the National Trade Credit Report has a place in your organization.

We hope you like what you see.


My Greatest Takeaways from NACM Credit Congress, by Tracy Rosenbach, CCE


Greetings everyone! As you probably know by now, I am a huge proponent of education. I feel that every little nugget that I take away helps me to be a better credit professional and add to my skill set. I’ve achieved the CCE designation, and I try to attend every CMA or NACM event that I can, schedule permitting, as all of them have offered something that I can bring back to the office and implement.

I just got back from the NACM National Credit Congress in Las Vegas and had a great experience. The conference offered a great selection of session topics such as how a credit manager can protect him or herself when selling into Latin America to cloud based solutions for the credit department. Aside from the amazing educational offerings, Credit Congress offers its members the opportunity for networking with other credit professionals from all over the country which can be invaluable. In addition to the education and networking, attendees can talk to various service providers including NACM in the conference’s Expo center to find out about services that are available to credit professionals to make our jobs better and more efficient. I truly believe that information is the key to our success and it is what sets us apart from everyone else.

From the information gained from the packed rooms of the sessions I attended, to the different service providers whom I spoke with, to the cocktail receptions I reconnected with old friends and met new ones, to the client dinners I went to, I felt that my attendance at this event helped reassure that my company’s credit operations are going in the right direction. If you haven’t attended an event like this one, CreditScape or Western Region Credit Conference, I can’t express how valuable it is to experience firsthand what other credit departments are doing to maximize efficiency.

For those who attended the event (and more than 100 CMA members did!), what were your biggest takeaways? I’d love to get your feedback.

Have a great month!


CMA Member Darrell Horton, CICP, Runs For NACM National Board of Directors

CMA member (and former Chairman of the Board of Directors) Darrell Horton, CICP, of Aristocrat Inc. has announced his candidacy for the NACM National Board of Directors. Ballots for the NACM National Board will be sent out to all CMA members beginning today Monday October 12. If you didn’t receive your ballot, contact us at CMA and we’ll send you another one.

Horton, who has more than 30 years in the Credit profession, has been an active CMA member since 1992, and has served on various committees and has chaired two Industry Credit Groups and was a founding member of a new industry Credit group. In addition, he has served on the CMA Board of Directors since 2007 in various capacities including Director, Treasurer, Chair Elect, Chairman, Councilor and currently as Advisor. In 2015, he was named CMA Credit Executive of the Year.


Darrell Horton, CICP
Darrell Horton, CICP


“I believe one of the greatest challenges facing NACM and its affiliates today is membership and getting new credit managers involved and connected to realize the value of being in an organization such as NACM. I believe we need to find ways to communicate through the technological methods they prefer to be communicated to. Once they are comfortable with the communication they receive, they would be more open to attending a face-to-face meeting. I will continue to engage the ‘up-and-coming Credit Managers’ to determine what they value, need and demand from NACM both now and in the future. If given the opportunity to be a Director for the NACM, I will do my best to listen to and be a voice for the membership at large, as I feel that this is the responsibility of each and every director, manager, employee and even member of NACM,” Horton said.

Directors are elected for a term of three years following the date of election. Ballots will be mailed to the primary contact for each CMA member company.

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 NACM and CMA – This contribution will support the National Trade Credit Report (NTCR) as well as 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.
  • CMA President Mike Mitchell has offered an incentive – Beginning October 1, members who support the NTCR program with their monthly accounts receivable contributions will get 25 free NTCR reports annually and receive a discounted price of $9.95 per report over and above those 25 free reports. To get complete details please go here.

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.

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 NACM Affiliates’ 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 NACM Credit Card Acceptance Program at Vantiv. He can be reached at matt.fluegge@vantiv.com or 608-834-2539.

WRCC – 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 – Western Region Credit Conference,  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 !

The Closing Speaker was one of my favorites, I am sure that cannot be said about many other economists but Chris Kuehl has a great way to share information and keep it light hearted and entertaining.  Chris is NACM’s chief economist and especially enjoys presenting to credit managers across the US.  Have you completed the Credit Manager’s Index with NACM, if you have, Chris is the one who is analyzing the data and telling other economy professionals what is happening in the business world.  He let us know that during an election year, things will be crazy that the economy has not taken off as well as everyone had hoped and an “Ebola czar” is not really needed.  Chris publishes a regular brief on changes and updates to the economy, I am definitely getting on his email list.

Overall, the WRCC 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

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!

Western Region Credit Conference Early Bird Registration Ends Friday, Aug. 15

I wanted to remind our readers to make plans to attend the NACM Western Region Credit Conference: CreditScape by this Friday, August 15, as NACM members will save $100 on conference registration by that date.

This three-day conference, October 15-17, 2014 at The Palms, Las Vegas, Nevada, offers in-depth education sessions, top-notch keynote presentations by industry experts and networking opportunities with the best and brightest minds in credit and collections.

Changing laws, technologies, and markets continuously alter the credit landscape and make this a must-attend event.

Register now.

Here are FIVE CAN’T-MISS SESSIONS at this year’s event:
• How to Analyze Customer Liquidity
• How to Secure Transactions in Mexico and Latin America
• New Rules, Developments and Trends in Credit Laws
• What the Recent Data Security Breaches of Major Retailers Means to Vendors
• How Exporting Can Increase Your Sales

With 18 breakout sessions geared towards every level of credit professional and risk manager, the CreditScape Conference focuses on the credit horizon and shows you how to navigate the shifting credit landscape.

There’s no other program that offers this level of credit education at this price.

Need to convince your boss about the conference benefits?

We realize that every penny counts and sometimes it’s difficult to convince upper management to invest in your future. That’s why we’ve created a letter for you to download and use to explain to your boss why you must attend this conference.

Download the letter here.

At CMA, we believe that the content of this conference cannot be missed in order to keep up with the changing credit landscape. The question isn’t will you attend, but how can you afford not to attend?

Credit Managers Index for December 2013


Market-watchers looking for holiday cheer would be hard pressed to find any in the December Credit Managers’ Index (CMI), published by the National Association of Credit Management (NACM). The Combined Index fell dramatically from 57.1 to 55.6, erasing most of the gains made in the last few months and taking the CMI back to levels not seen since the middle of summer. Though the manufacturing index fell by a full point from 56.7 to 55.7, it was the service sector’s two-point fall from 57.5 to 55.5 reflecting a slow response to Christmas and a slowdown in the housing sector that delivered the hardest blow.

The CMI’s four favorable factors registered the biggest declines, as the gains made in the second half of the year seemed to evaporate. Overall, the favorable factor index fell from 61.3 to 59.3, driven by a sharp reduction in sales, which stumbled from 63.4 in November to 58.7 in December, marking the fifth lowest sales reading in the last 12 months. New credit applications dropped by two points from 59.2 to 57.2, a reading not seen since April, and dollar collections slipped a full point from 59.7 to 58.7. The smallest drop occurred in amount of credit
extended, from 63.2 to 62.6, which could be the only silver lining in the favorable factor index. “This suggests there might be an opportunity to recover in the coming months,” said NACM Economist Chris Kuehl, PhD. “It gives some faint hope that many companies are still interested in making credit available to the customers they trust.”

Read the full report: CMI_dec2013


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NACM Credit Congress – Rio Hotel in Las Vegas

Credit Congress 2013

In May 2013, NACM’s Credit Congress & Exposition celebrates 117 years of education, enlightenment, unity of purpose, professional excellence and so much more.

Join us at the Rio Hotel Las Vegas for the year’s largest gathering of business credit professionals in the country.

NACM Members receive a special rate if they register before 12/14/2012. The rate is $679 per person – a $50 savings off of the normal rate.

Download the Credit Congress Registration (567)


October’s Credit Managers’ Index – No Big Gains


The bad news is the October Credit Managers’ Index (CMI) did not see September’s big gains. The good news is that there was no retreat from September’s numbers. The overall index hit 53.8 in September after tumbling to 52.7 in the previous month, but in October the index essentially held steady at 53.7. There was a slight reduction in the index of favorable factors, but the index of unfavorable factors came just a little bit closer to expansion territory. The majority of economic indicators has been reasonably positive over the past few weeks and seems to be pointing to better months to come and the CMI index did not dispel this assumption, although the slower pace of progress reminds those paying attention that this is unlikely to be a rapid recovery for any but a handful of sectors.

Download full report (405)

Stop Venue Shopping in Bankruptcies

The dome of the US Capitol building.
Image via Wikipedia

NACM is urging all of its members to support a bill in Congress that would require corporations to file Chapter 11 cases in the judicial district where they have their principal place of business or principal assets. H.R. 2533—the Chapter 11 Bankruptcy Venue Reform Act—would strongly curb the practice of venue shopping, whereby debtors choose to file in a jurisdiction that’s sympathetic to their needs, much to the detriment of their smaller creditors, who often have trouble participating in a case filed far away from their headquarters. NACM has already officially offered its support to H.R. 2533, but now we’re calling on you, the members, to write a letter to your representatives, asking them to support this bill.

To participate, first find your representative’s contact information  (be sure to use your company’s address, rather than your personal address, when determining which congressperson to write to).

Download this letter template. (482). You can edit with your representative’s contact information, as well as any personal experience you might’ve had with venue shopping. Be sure to edit the letter before mailing, or emailing it, since these letters hit hardest when they’ve been written by actual constituents, rather than just a generic form letter.

The more letters sent, the more likely the bill is to pass! Act now, and strike a blow for the nation’s trade creditors. If you have any questions, please contact Jacob Barron, NACM staff writer and government affairs liaison at jakeb@nacm.org.

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August CMI Tracking At Lowest Levels Since 2008-2009


The Credit Managers’ Index (CMI) for August hasn’t been this low in more than a year—falling from July’s 53.9 to 52.7— and is now tracking at levels last seen in 2008–2009. “The news this month is not good and comes as no shock to anyone who has been tracking the data coming from all directions,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). If there is any good news, it is that the combined number has not yet fallen below 50, the threshold separating contraction from expansion. But the index of unfavorable factors fell to contractionary levels. The last time the unfavorable index was this low was in the 2009 period when the recession had just started to show signs of easing. The fact that the data was not worse this month than it was is probably worth noting as most of the other indices released in the last few weeks suggested there might have been an even steeper decline.

Kuehl said the best news in this month’s data is found in the favorable index. Here the data barely changed, going from 58.9 to 58.1. This is still much lower than most of the last year, but the precipitous collapse that took place in the companion part of the overall index did not take place here. There was even some improvement in the amount of dollar collections, while declines in the sales category were slight, from 60 to 59.2. “The most interesting aspect of the data is that extension of credit actually improved in the middle of all this gloom and doom. The fact that favorable factors have improved slightly or remained stable provides some hope that conditions will improve in the coming months,” said Kuehl. “There is still demand and business progress, but the crisis in the overall economy has been putting pressure on the finances of many companies.

Download the August CMI Report (466)
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NACM Credit Managers Index April 2011

April 2011 is the month the U.S. economy started to confront dual threats and the credit community almost instantly reflected the transition. For the past two years the focus of the business community has been almost solely oriented toward recovery and finding strategies that would propel them toward that recovery. The threat of inflation was not a concern beyond the sense that at some point all the efforts to dig out of the downturn would come back to haunt the economy. That was before the price of oil started to accelerate at a rate not seen since the2008 debacle. Now the inflation threat has become a clear and present danger and one that is affecting the business and credit community.

Download the April 2011 CMI Report (410)

NACM’s CMI – An Accurate Predictor

CMI Graph

NACM’s Credit Management Index has proven to be an accurate predictor of the changes in the economy.

In the January issue of NACM’s Business Credit Magazine an article about the success of the CMI and the potential for regional versions was published. Download Business Credit Article (431)

CMA encourages you to participate in the monthly CMI survey so that we can create a regional version of the CMI for accurate benchmarking and economic predicting. To participate in the monthly CMI survey, click here.

NACM Credit Manager’s Index Dec 2010

The news for the end of the year was better than anticipated, matching the news coming from the retail sector in general. The gains in the overall CMI were impressive, but of more significance is the improvement in some key sub‐sectors. For the past four to five months there were pretty steady gains in areas like sales and new credit applications—the sectors that usually herald some improvement in business conditions. But, until this month, the gains had not reached levels set earlier in the year. It now looks like there is some momentum heading into 2011; as the combined index now sits at 55.8.

Sales reached the highest point of the last 12 months, getting back to levels last seen in April when it was at 65.7. It now stands at 65.9, a solid improvement on the 61.9 registered in November. “The sales numbers have been rising in both manufacturing and service sectors and that is promising for the coming quarter,” said Chris Kuehl, PhD, NACM economic advisor and director of Armada Corporate Intelligence. “The improvement in new credit applications is more significant yet, given the impact it has on future growth. For the first time in well over three years, it broke 60. There is certainly reason for future optimism as this factor was only registering 54 to 54.8 as late as September. More and more businesses are now anticipating expansion and are seeking credit in order to meet that expected demand.”

December CMI Report (402)

NACM Credit Managers Index – November 2010

The progress noted over the last three months in the Credit Managers’ Index (CMI) came to an end in November, at least as far as the manufacturing sector was concerned. The service sector data was a little more encouraging, but not enough to keep growth from stumbling. The combined index posted less than a 0.1 increase, which was barely enough to push the index from 54.9 to 55.0. “The issue was less about demand and growth than the fact that past issues were starting to catch up again,” said Chris Kuehl, PhD, economic advisor for the National Association of Credit Management (NACM). “There was actually a pretty impressive gain in terms of overall sales—from 60.8 to 61.9—even though this factor in the service sector contracted somewhat.
There were also gains in new credit applications and amount of credit extended. These indicators suggest real growth in both sectors and match data coming from the Purchasing Managers Index as well as more recent data from the retail community. The declines came from the indicators that point to debt issues and the struggles of companies that have not managed to get through the recession all that easily.”
The dollar collection data showed a substantial decline—from 61.9 to 58.6—and for the most part the index of unfavorable factors demonstrated a similar decline. There was an increase in dollars beyond terms and in filings for bankruptcies as well as in other indicators. The pattern is not unfamiliar to the credit community and based on past data, there was reason to expect some of these results to start showing up. This is a critical time for many companies and some are not ready to address the situation effectively. During the worst of the recession, most companies were in the same position: hunkering down to survive. As the recovery started, the majority of those companies that made it through the worst of the decline maintained a pretty cautious position due to lack of real demand. Now there is some sense that an economic rebound may finally be on the horizon and some companies are starting to gear up for that rebound with more marketing, sales efforts and inventory accumulation. If a few companies in a given sector start to make moves, there is additional pressure on others in that sector to match them. If they are not financially strong enough to make that move, they can swiftly fall behind if the expected sales rebound does not occur on schedule.Kuehl noted there is another take away from the unfavorable factors category. It appears that companies struggling to stay afloat are now having additional trouble getting access to credit, even if they have some opportunity to expand their business. The banks in general have returned to their more cautious ways and there are widespread reports of limited access to capital. The investment community remains unengaged, leaving companies with only their suppliers for credit. “That same set of limitations applies to these companies and that threatens to impose a stranglehold on credit availability in general,” he said. This month’s anecdotal evidence also suggests some companies are waiting to see what happens at the congressional level. If tax cuts are not extended, many companies will need to pay out far more than they paid in the past and that has executives holding back a significant amount of capital as a contingency. Presumably, when the tax decision is made, this money will either be put toward the additional tax or released for other uses. There is also discussion over whether other issues concerning small businesses will be addressed— everything from revising the medical reform law to moves to push more stimulus into the economy. One of the areas already recommended for reform is a provision in the health care law that requires most companies to file 1099 tax forms on any contract that amounts to more than $600 a year. NACM views this as a destructive provision for small businesses as it would tend to force them to choose fewer, larger businesses to provide a wide variety of services and products as opposed to several smaller ones, and require additional resources to issue the forms.
CMA Report November 2010 (392)

Credit Managers Index for Sept. 2010


“If you are a big fan of volatility, you will like this month’s Credit Managers’ Index (CMI),” said Chris Kuehl, Ph.D., the National Association of Credit Management’s (NACM) economic advisor. “The positive trends that we saw in last month’s manufacturing data were replaced by some negative trends, while the service sector that looked so stressed in August seemed to come back to life in September. If just the CMI numbers were considered, one could conclude there really wasn’t much going on and that everything was pretty stable. After all, the combined CMI reading went from 53.3 to 53.8. The real story is that this truly dramatic activity reversed the pattern of the previous month.”

Download September CMI Report (393)

NACM Credit Managers Index August 2010

The trend in data this past week was hardly encouraging, resulting in another chorus of pronouncements regarding an imminent return to recession. The housing market remains in the doldrums, GDP numbers were revised down in reaction to the worsening trade deficit numbers and there was a decline in the markets. In the midst of all this gloom comes the latest iteration of the Credit Managers’ Index (CMI) and it is looking much like
a beacon of hope. Over the last several years, the CMI, issued monthly by the National Association of Credit Management, has proven over and over that it is somewhat prescient when it comes to bigger economic trends.

The precipitous decline in the CMI in June and July 2008 presaged the overall collapse of the economy three or four months later. The index started to gain as early as October 2009, followed by the rest of the economy, which showed some recovery by the end of the year (5% growth for the quarter). Worsening conditions began to appear in the CMI as early as May of this year followed by the economy as a whole in June and July.

“The good news coming from the August CMI is that the index showed some modest recovery, which was more dramatic in the manufacturing sector than in services,” said Chris Kuehl, Ph.D., NACM economic advisor. “If the past is any prologue, this may signal some slow improvements in the overall economy within the next month or two. This optimistic assessment is tempered by the fact that the service sector remains weak and, given the size
of this sector in the U.S. economy, as a whole remains a significant drag on overall recovery.”

The improvement in the index—from 53.0 to 53.3—stems from small adjustments in areas that traditionally signal distress. The number of accounts placed for collection improved, invoking a number of suggestions as to why this is the case. Part of the reason, Kuehl noted, is that many of the weakest creditors have now exited the system—they have folded. There is also some renewed patience on the part of creditors according to survey respondents’ comments: a willingness to work with accounts because improved business conditions may be on the horizon. The natural preference is to get paid by a customer and keep them in the system. Having to resort to collection usually means the relationship is destined to deteriorate. There is now a growing sense that patience may be rewarded should the economy stage any sort of turnaround in the coming months.

The fact that business bankruptcies fell a bit is another example of the change felt in the credit community. The weakest customers have already left the system and those that remain generally look strong enough to survive. In sales, there were some small changes in a positive direction and a pretty impressive improvement in dollar collections. Overall, the CMI is consistent with other observations made by economists this week.

Some parts of the economy are doing far better than others. Unfortunately, the down sectors are the bigger drivers in the overall economy—housing being at the top of the list. As is indicated by looking more closely at the CMI manufacturing numbers, the gains are being made in the industries that have been sustaining the economy for most of the last six months. Manufacturing has seen improved performance in sectors related to energy development, health care and, to a lesser extent, electronics. Even automotive has started to show a little improvement and, if recent numbers from the rail sector are any indication, there may be more manufacturing gains in the months to come. “Rail is often referred to as the canary in the coal mine for the economy and carloads have spiked in the last two months, a very good indicator of future manufacturing activity,” said Kuehl.

August CMI Report (472)

NACM Credit Management Index 8/2/2010

July’s Credit Managers’ Index (CMI) continued to show that the economy as a whole is stuttering. The overall index remains above 50, but not by much, and these levels have not been seen since late last year when the index was down to 52.9 in December. As recently as April, the combined index was up to 56.5; it now sits at 53, and there are signs that this decline could continue into next month and possibly longer. “The fall is not as dramatic as it was when the recession started to wind up in 2008, but the trend is far from encouraging as there are weaknesses showing up in both the positive and negative categories,” noted NACM Economic Advisor Chris Kuehl, Ph.D., who issues the CMI for the National Association of Credit Management each month.

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.

Jacob Barron, Writer/Editorial NACM

NACM CMI Report For March 2010


The most striking aspect of this month’s Credit Managers’ Index (CMI), issued by the National Associationof Credit Management (NACM), is that sales in both the manufacturing and service sectors jumped—and ata pace not seen in over a year. This reinforces the news from consumer demand studies showing that spending was up last month. The increase in sales was nearly five points, faster than any increase since early 2008. This burst in sales occurred despite the fact that new credit applications were flat. There was aslight extension in the amount of credit extended, but the majority of that increase seems to have originated from companies working with the suppliers and contacts they have had for years as opposed to new additions to the business fold.“The pace of growth in the overall economy has been uneven thus far, but is about what was expectedfrom most analysts,” said Chris Kuehl, Ph.D., NACM economic analyst. “All along, the assumption has been that this would be a recovery marked by slow and methodical reactions to demand that was expected to be spotty and very much affected by the pace of consumer attitude recovery. The fact that consumers added 0.3% to their activity despite some of the worst weather this winter appears to indicate some significant pent‐up demand.” CMI data bolsters this assessment.

Kuehl noted the only really major change from last month’s data was in the sales factor. For the most part,the negative factors remained stable with only slight improvements in items like accounts placed for collection and dollars beyond terms. For all practical purposes, there was no change in the data, but thesales numbers allowed for a gain in the combined index, which improved from 55.2 to 55.7.
“It is early in the process, but if one couples this data with reports from other sectors, there is reason toassume there will be some pretty decent progress ahead in the coming months,” he said. “The consumer is getting a little more confident despite the fact that there has been no change in personal income and thebusiness confidence level has also expanded according to data from both the Institute of Supply Management and the Conference Board.”
“There are still plenty of worries about the future, but for now these are somewhat unfocused. There aresigns that inflation could be an issue before the end of the year and there are continued concerns aboutthe ability of the banking sector to recover fast enough to provide the credit that expanding demand willrequire,” said Kuehl. “The fact that financial reform is now the topic for Congress will make banks morecautious than usual until this situation is resolved and that could take all summer,” he added.

February CMI Makes Small But Anticipated Gains After Big January

The growth manifested in January has been interrupted. However, the drop in activity in February was not enough to plunge the Credit Managers’ Index (CMI) back into negative territory. In fact, a marginal gain moved the combined index from 55.1 to 55.2 and was somewhat anticipated due to the inspiring recent expansion in the manufacturing sector. Still, it feels more like a decline when compared to the big gains made in January.

“Starting in the latter part of 2009, manufacturing sector businesses began rebuilding inventories back to respectable levels; a process the CMI predicted,” said Chris Kuehl, Ph.D., economist for the National Association of Credit Management, which issues the CMI report each month. During the depths of this recession, most businesses did everything possible to reduce costs and protect cash flow. For several months, the CMI illustrated this point with reports of worsening unfavorable factors: more disputes, rejections of credit applications and dollars beyond terms. By the end of 2009, the CMI began to show a shift—businesses that owed money started the process of paying down debt in anticipation of needing access to credit in the near future. This shift in attitude has historically shown that expansion begins within a month or two, which is what started to transpire in December 2009 and January of this year.

“The development in manufacturing was matched to a lesser extent by similar movement in the service sector, and other economic indicators added to the notion that something was stirring in the economy,” said Kuehl. Fourth quarter GDP numbers for 2009 were up 5.9%, and the Purchasing Managers Index climbed to the mid-50s with new orders all the way up to the mid-60s. “There now appears to be a reversal under way, but it may be more accurate to refer to this as a breather,” Kuehl said.

“The first phase in an economic recovery is the replenishment of reduced inventory and there can’t be growth without the supply to meet expected demand,” said Kuehl. “If there had been no effort to bolster inventory levels, the arrival of demand would have provoked massive shortages, bottlenecks and ultimately inflation. For now, businesses are looking at low interest rates, commodity prices and labor costs. This is the safest time to build that base, but now they have to wait for the second phase—consumer confidence, which remains in the doldrums to an extent.”

Conference Board reports show a big drop in consumer confidence because of concerns about the employment situation. At the same time, there are reports coming in from big retailers such as Lowe’s and The Home Depot suggesting that consumers are shopping again. The consumer has yet to commit and until that happens, the economy remains in a waiting position.

The CMI shows that sales were flat in February after a major jump in January, but slight increases in new credit applications and the amount of credit extended indicate that credit remains somewhat accessible. Among the negative factors, the biggest changes took place in disputes and bankruptcies. Neither was unexpected: more companies are struggling with debt and will be maneuvering for more time, and the end of a recession is often harder on companies than the recession itself as they start to see pressure from competitors and may not have the ability to respond.

Special CMA Note: Dr. Chris Kuehl, quoted in this press release, will be the keynote speaker at CMA’s Annual Meeting April 14, 2010 in Montebello, CA. Click here for more info.

NACM Credit Managers’ Index January 2010

The latest data are starting to turn in a decidedly positive direction; GDP numbers are the best in over a year and a half, suggesting that the recession is in clear retreat. After a mild recovery in the third quarter, numbers jumped 5.8% in the fourth. The bulk of this growth is attributed to manufacturers starting to replenish inventories, mostly since the beginning of December. This shift in strategy is reflected in the Credit Managers’ Index (CMI) numbers as well. “The jump in manufacturing was stark and unexpected and, since the decline registered in the last iteration of the index, there has been a major leap in some critical areas,” said Chris Kuehl, Ph.D., NACM economist. “The combined CMI saw a jump from 52.9 to 55.1, which is
impressive enough, but the real movement came from the manufacturing side,” he said. Reinforcing the message coming from the economy as a whole, the manufacturing sector jumped from 52.1 to 55.1, reversing the trend from the December index when the sector stagnated and slipped in terms of positive factors.
There was an improved atmosphere in both manufacturing and service sectors with the most activity in the combined index’s favorable factors, specifically sales and new credit applications. Sales in the combined index jumped from 56.7 to 60.7, marking the first time this figure has been above 60 in 18 months. There was also progress in new credit applications—a jump from 54.2 to 57—signaling movement in the credit sector despite ongoing issues in the financial community. One of the biggest leaps came from dollar collections, which sported readings in the 40s just nine months ago and is now at 61.3. The same pattern was seen in
amount of credit extended, now standing at 58.8 after sitting in the 40s just five months ago.
“The past pattern in the index suggests that this is developing into a classic recession exit,” said Kuehl. “The deterioration of inventory and the dramatic reduction in capacity utilization meant that any spark of demand would propel business out of this predicament and, as in past recessions, the months following the end of these strategies would show substantial growth. The trillion‐dollar question is whether this growth surge can be maintained throughout the rest of the year.”
Thus far, these are the highest numbers seen in the index since February 2009 when the initial impetus of the recession was broken. Since then, growth has been even, but not dramatic. That trend of slow growth is likely to return, but the suggestion from this month’s data is that there will be pretty substantial gains for the bulk of the first quarter.
The service sector was not as dramatic as the manufacturing sector, but there was growth. The same factors seemed to be at work—increased sales and expanded availability of money. In both sectors there has been some improvement in terms of the number of accounts placed for collection and the number of disputes, and there has been a fairly steady decline in the number of bankruptcies as well. All in all, the CMI numbers of the last few months signal that business is attempting to catch up and position itself for the growth that has now finally arrived.

NACM December CMI – No Fireworks Yet!

The reports on the economy have been mildly encouraging at year’s end and now everyone’s attention is turned
to 2010—the year that is supposed to provide the anticipated recovery. The December CMI matched the mood
of the economy as a whole—essentially flat, but showing some mild progress. The most important aspect of the
report is that the index remained above the 50 mark that separates growth from contraction and even showed a
slight gain as it moved from 52.3 to 52.9. “This is hardly the kind of advance that provokes celebration, but given the gloomy assessments made about the 2009 holiday season, the gain is certainly preferable to what had been anticipated,” said Chris Kuehl, NACM economist.

The indicators that showed the least movement included sales and new credit applications. “This is to be
expected and is consistent with December readings in past years,” said Kuehl. “This is the period in which most
manufacturers are in semi‐hibernation unless the retail community is frantically trying to bolster inventory. That was not the strategy employed by retail this year; stores held the line on inventory and shoppers eventually
caved and bought what was available.” The retail numbers thus far showed a gain of around 4.5% over last year,
but these are still preliminary. What did show up as more positive was an increase in dollar collections and an
expansion of credit extended. Both of these data points bode well for the coming year, and the fact that there is
still evidence of companies seeking to catch up on their debt is making it a bit easier to advance credit. As has
been stated many times and from a variety of sources, the key to the economy’s healthy recovery is the rebound
in the credit markets. Thus far that recovery has been slow, but there continues to be a willingness to extend
new credit and there is some sense that more will become available in the coming year.

Other elements showing promise include the modest improvement in unfavorable factors—disputes,
rejection of credit applications and the like are still showing declines. But one unfavorable factor—filings for
bankruptcies—has deteriorated significantly. “There have been more bankruptcies and that poses some longterm problems. The growth of bankruptcy activity is not unexpected at this point in a recession, but until
these are worked through, there will be hesitation in the market to extend credit to any but the most healthy
companies,” Kuehl said. “As the economy rebounds, the companies that have been struggling to survive will
start to encounter more aggressive competition, which is often the straw that breaks the back of these
weakened companies.”

The overall conclusion from this month’s data is that the economy remains weak, but headed in the right
direction. The slow thaw in the credit markets is still taking place and there are signs of expansion in both the
manufacturing and service sectors. There has been no sign of explosive growth thus far, but that is consistent
with most of the other assessments on the economy. The improvement in 2010 looks more feasible, but there
are still no fireworks in the immediate future.

NACM December Survey Results

Which of the following best describes your credit department?

Responsibilities are split – some staff focus exclusively on collection tasks while others focus exclusively on credit extension. — 24.67%

Responsibilities are shared – each staff member handles multiple tasks, including collections, credit extension and others. — 47.88%

Our credit department operates in a different way (please describe in the comments section below).— 8.70%

My company doesn’t have a credit department, or I am the only member of the credit department. — 18.74%

NACM Credit Manager’s Index for Nov 2009

Black Friday has come and gone and the results are mixed. On the one hand there was much more traffic in the stores than last year, but the average consumer has been spending a bit less and more cautiously. The same pattern seems to have emerged in the business community, as indicated by the shifts in the Credit Managers’ Index (CMI). For the first time in some months, the reports suggest that sales are rising at a pretty rapid clip. The index noted a jump from 51.1 to 55. Given that last year’s number was at 34.4, this is pretty encouraging news heading into the depths of the holiday season. There was also some positive movement in terms of new credit applications and dollar collections. The new applications number went from 52.7 to 55.4 and that is much improved from the 45.2 notched in November 2008. Dollar collections had been pretty steady for the past several months, ranging from 50 in November 2008 to 53.4 in September this year. For two months in a row that level has improved more dramatically—54.7 in October and 55.8 in November. These improvements in the positive factors are encouraging.

In general there was improvement in the non‐favorable category as well, but the pace has slowed from what it was in October and September. There have been fewer disputes and fewer rejections of credit applications and a marked reduction of accounts placed for collection. The data suggest that creditors are still working to get their financial affairs in order in anticipation of better times ahead. The pattern in the past has shown that creditors start to work toward catching up a few months before they anticipate getting back into higher levels of production. To do that means they need to get more engaged with their suppliers.

November marks the second month in a row that the CMI crested 50 and that mirrors the trends identified in the Purchasing Managers’ Index. The growth in credit availability remains a major concern in the business community as a whole and there are still some strong headwinds as far as the financial sector is concerned, but there is some renewed activity going into the Christmas season and that is construed as a good sign.

NACM’s economist, Dr. Chris Kuehl, indicated that this latest set of survey results reinforces some of the assessments that have been made about the future. “As sales increase and credit applications are granted, there is a sense that more business is optimistic about the coming year than not. It was revealed in a recent KPMG survey that business confidence is improving and the CMI provides a clue as to why. Access to credit remains a limiting factor for many businesses but there is evidence of the logjam loosening. In conversations with credit managers and through the comments sent along with the survey, there is a sense that there are growing opportunities for the best customers and a willingness to get engaged with those showing a plan and some progress.”

Download the full CMI Report

Biggest Concerns for 2010?

NACM October Survey Results
Looking forward to 2010, as a credit professional, what are your biggest concerns?

The state and future of the economy — 31.25%
Slow pay or delinquencies — 23.39%
Larger customers increasingly dictating unfavorable terms — 17.96%
Your job security — 9.88%
Your company’s perception of the credit department as a cost center — 5.05%
Implementation of a new technology, such as a credit scoring model or ERP system — 3.45%
Compliance with pending and current regulations, including the FTC’s “Red Flag” Rules — 4.34%
Relationships with other company staff — 1.80%

Other — 2.89%

October’s Credit Managers’ Index Breaks Into Expansion Territory

Is the recession truly over? Most of the evidence says “yes,” although there will be problems to contend with for the next few months. In many ways, the best way to characterize the situation is to say that the beatings on the economy have stopped, but that every bone has been broken. The recovery started slowly in the last few months and will continue to progress slowly and not without some reversals from time to time, but news from the last few days of October was especially solid with the third quarter GDP numbers stronger than anticipated—3.5% growth after four quarters in the negative category. Even more significant from the perspective of credit availability is that the Credit Managers’ Index (CMI) broke past the 50 neutral barrier for the first time in over a year. The index started in that direction in September when the service side of the equation improved to 50.1, but manufacturing still lagged, finishing at 49.6. Now both sectors are showing expansion and the CMI as a whole is pointing toward growth.

The significance of these findings is hard to overestimate given the kind of analysis taking place around the improved GDP numbers. The dominant theme is that four factors were at work with third quarter GDP: the impact of the stimulus package, the “Cash for Clunkers” program, the $8,000 new home-buyer credit and the Fed keeping interest rates low. These are all important factors, but are not the only ones at work—the CMI data makes this pretty clear. The private sector is also engaging in this economic comeback with the CMI tracking this activity in both the service and manufacturing sectors.

This month, progress was made in both the positive and negative indicators in contrast to the numbers in September where the majority of the progress was in the negative indicators. NACM’s Economic Analyst Dr. Chris Kuehl said that there were two streams of good news, “Not only has there been some expansion in terms of credit availability, but there continues to be evidence that companies are catching up on their debt. Over the last few weeks, I have spoken at several NACM events and have heard similar stories at each. Companies that had been behind in their obligations are catching up in anticipation of further growth and the need to ask for more credit in the future. By the same token, comments by attendees suggest that there is more money starting to filter into the system, making credit more accessible than it has been in some time.”

The CMI data show a significant improvement in dollar collections and that the amount of credit extended is higher than it has been in well over a year. There were also far fewer accounts placed for collection and fewer applications rejected. This latter point is important to note as one would expect more rejections in a much more restrictive credit environment. This means that many of the applicants are more creditworthy than they have been in past months.

To view the full CMI report for October, click this link CMI_nov09

NACM Credit Manager’s Index for August 2009

After six months of solid gains, the Credit Managers’ Index showed slower progress and registered declines in key indicators. There was still some positive movement in the Index as a whole, but there are obvious weaknesses showing up in terms of credit availability, credit applications and sales. There were also areas of concern in terms of dollar exposure, disputes and other negatives. There was a sense that bigger economic issues began to overtake the sector, slowing down some of the progress noted in the last few months. The Index
showed a dramatic decline from the levels in July, but overall the Index gained and moved a little closer to the magic number of 50, climbing from July’s combined index score of 48 to the August score of 48.1.

These numbers are a little sobering given the sense that the economy had started to come out of the recession in July’s report. This suggests that the proposed recovery is a little weaker than some of the indicators reflect, especially in terms of availability of money. The reduction in credit applications indicates that there is less willingness to lend and that companies seeking credit are being put through more hoops than in the past. The number of additional disputes and delinquencies also suggests that some sectors of the economy are still struggling.

NACM Economist Chris Kuehl, Ph.D. stated that these readings do not necessarily mean that the other signs of economic recovery are not accurate but, he indicated, “the credit system has not healed and it may be some time before there is a sense that the biggest issues are behind the economy. There are some shoes left to drop, most notably the commercial property sector.” It had been assumed that the August index would crest over 50—signaling expansion—which correlated to the Purchasing Managers’ Index (PMI) that had also risen to levels
very near the 50 level. “It is mildly encouraging to note that the index has not fallen, but an anemic .1 gain was much less than had been anticipated,” said Kuehl.

Other data that has been used to assert that the recession has started to bottom out is accurate and encouraging. Housing starts are returning back to growth and it is encouraging to see durable goods orders back to normal, but the money situation remains a solid concern for business as it seeks to expand into other sectors to capture some newly available market share.

The issues are the same as they have been for the last few months: consumer confidence and investor confidence. At the moment, the investment community is more encouraged than the consumer, and that creates a problem in the not‐too‐distant future. Until consumers start to draw on the rebuilding inventory levels, there is nothing to suggest that producers should start gearing up again. This is part of what seems to be making credit scarce—a concern that the current growth is somewhat artificial, motivated by inventory gains in anticipation of demand or programs like “Cash for Clunkers.”

“Overall there were more down sectors than positive ones this month,” said Kuehl. “There is a small amount of solace to be taken in the observation that none of these areas declined a lot, but growth was expected.” The biggest improvement was in number of bankruptcies, but that may be connected to the fact that most of those companies threatened with collapse have already been forced into that procedure.

NACM – CMI Report for July 2009

For the sixth straight month, the Credit Managers’ Index indicates that there is growth in the availability of capital. The recovery in the index started in February of this year, supporting the notion that the economy was starting to show some rebound and “green shoots.” The July index also moved much closer to the magic number of 50, signaling expansion is taking place. The reading is now at 48.

Over the last two months, the dominant economic debate has focused on whether the recession has already ended, is ending now or is in the process of ending. The data coming from the housing sector is generally very positive with sales of both existing and new homes up. There are improvements in some of the manufacturing indicators, and some data suggests overseas sales have been improving. At the same time, there are concerns about the continued high rate of unemployment and the lingering impact of the downturn.

At the core of this debate is consumer confidence. Data from the Conference Board and the University of Michigan show some erosion of confidence lately, but at the core of that measure is whether consumers and businesses are seeing improved access to capital. The latest Credit Managers’ Index suggests that credit markets are continuing to edge toward expansion. If the trend of the last several months continues, the index may soon break above 50. The current score for the combined index is 48, up from June’s number of 46.4. Once the index crests 50, it will signal that expansion is taking place.

“This marks the sixth straight month of improvement in the index, and it now looks likely that expansion will be under way by the end of the third quarter,” said Dr. Chris Kuehl, NACM’s economic analyst. The specific improvements in performance are even more encouraging. Sales and the amount of credit extended both jumped dramatically. Sales were up from 44.8 in June to 48.6 in July, while the credit extended measure went from 46.1 to 48.2. The index of favorable factors as a whole reached the critical 50 point and two of the
measures moved into expansion territory as new credit applications moved to 52.6 and dollar collections went to 50.8. The unfavorable indicators also moved in the right direction as there were fewer disputes, fewer bankruptcies, fewer credit rejections and fewer dollars beyond terms. “The sense is that the weakest companies fell by the wayside as the economy toughened and now all that is left are the survivors,” said Kuehl. “The good news is that in a recession, this process allows the solid companies to pick up market share and recover much faster. There is some anecdotal evidence that this process istaking place. As some businesses vanish, their slice of the business is being absorbed by other competitors.”

FTC Delays Enforcement of “Red Flags” Rules Until November 1

Today, the Federal Trade Commission (FTC) announced that it would further delay enforcement of the “Red Flags” Rules by another three months, from August 1 to November 1, 2009. The commission also announced that it would redouble its efforts to educate small businesses and other entities about complying with the Rules and work to ease compliance by offering additional resources and guidance to clarify whether businesses are covered and what they must do to comply.

“Although many covered entities have already developed and implemented appropriate, risk-based programs, some—particularly small businesses and entities with a low risk of identity theft—remain uncertain about their obligations,” said the FTC in a release. “The additional compliance guidance that the Commission will make available shortly is designed to help them.”

Additionally, the FTC released a set of FAQs for the guidelines that address how the agency intends to enforce the Rules, noting that “Commission staff would be unlikely to recommend bringing a law enforcement action if entities know their customers or clients individually, or if they perform services in or around their customers’ homes, or if they operate in sectors where identity theft is rare and they have not themselves been the target of identity theft.” The full set of FAQs can be found here.

NACM has worked diligently with the FTC to increase awareness of the “Red Flags” Rules, most recently meeting with FTC officials just two weeks prior to the delay to discuss the lingering confusion surrounding the Rules and its application.

NACM CMI Report for June 2009

The recovery from the recession of 2008‐2009 continues to be a controversial topic as there are arguments asserting that the economy really has touched bottom and is on the road to rebound, just as there are arguments that assert that the economy has been severely damaged by the downturn and is not yet ready for recovery. The
latest Credit Managers’ Index (CMI) tends to favor the first interpretation although the data is not without some warning signs. “The latest CMI is holding steady and showing stability in the credit sector. The data has not yet been enough to push past the point of contraction to expansion, but it is getting ever closer to that point,
suggesting that expansion is only a month or two away,” said Dr. Chris Kuehl, NACM’s economic analyst. Download the full CMA Report.

NACM Credit Managers Index May 2009

Lately, there has been a great deal of discussion about whether or not there is reason for some optimism
regarding the U.S. economy’s recovery. The phrases are showing up everywhere: “green shoots” and “light at the end of the tunnel” and even references to a “phoenix rising from the ashes.” “Those who have been watching the Credit Managers’ Index have been able to refer to these improvements for three months already, and the May data carries the same theme,” said Chris Kuehl, Ph.D., NACM economist.

Over the past several years, the CMI has provided a judicious overview of economic indicators as the credit management function is at the core of every company’s financial well‐being. CMI data began to show some upward movement in February and now has carried forward those gains for four straight months. There have been additional recent indicators of recovery: consumer confidence is up, durable goods orders are up, first time claims for unemployment are down and even the much beleaguered housing market is showing some movement. The CMI presaged these more optimistic statistics.

The latest CMI combined index rose from 44.3 to 45.4, which equals levels not seen since October 2008 when the overall economy began its major slide. The index is certainly moving in the right direction and is now only a few points away from breaking above the 50‐point threshold that would indicate expansion as opposed to contraction. Kuehl said, “The recession essentially came to an end in February and March of 2009. The CMI data, combined with various other measures, suggest that the economy finally reached its lowest point and has been in the recovery stage since.” Kuehl pointed out that this doesn’t mean the economy will come roaring back in the next few months, but asserted that the second quarter will be the last quarter of negative GDP as the third quarter should show some growth.

The specifics within the survey are even more interesting as they reveal some important driving factors in economic recovery. For example, sales jumped from 37.4 to 41.8, representing one of the biggest increases in the last several months. There has also been substantial movement in the new credit sphere and that is a sign that businesses have started to lean toward expansion again. One of the underlying factors the CMI captures is the access to capital. Without the presence of additional open capital markets, there is no opportunity to expand credit; the CMI is now showing that some of that credit is being extended again. Additionally, a couple of negative factors declined, reflecting some stability in terms of delinquencies and disputes and some reduction in dollars outstanding.

There is still a great deal of regional and sector variation, which mirrors the performance of the U.S. economy as a whole. The states that have seen the highest rates of job loss and bankruptcy—California, Florida, Michigan and Ohio—are seeing the weakest performance in terms of credit. However, some states seeing severe declines—most notably Arizona and Nevada—have shown some improvement. Kuehl noted that he has been speaking before a variety of NACM industry groups during the last few months and has observed some very different moods. The sectors that have been struggling are those one would suspect: automotive and retail. The growth sectors in medical and energy are reacting differently and may even be in true recovery by this time. The overall energy sector has been growing, especially in the area of alternative technologies. The entertainment sectors have also been holding steady.

Click here to access the full report.

The Facts on Financially Distressed Customers

“Trade creditors today have more access to information than they ever have before,” said Ken Rosen, Esq., assistant vice president at Lowenstein Sandler PC. “When a big company files a bankruptcy, there aren’t a whole lot of excuses for trade creditors not to know.” 

During his recent teleconference, “Providing Senior Management the Facts on Financially Distressed Key Customers,” Rosen offered listeners a wealth of sources for information regarding a struggling customer’s finances. In today’s economic environment, sometimes the difference between getting paid and not getting paid comes down to how much information a company has prior and during a bankruptcy proceeding. “We’re all accustomed to traditional sources of information like talking to other vendors. That’s always very valuable,” he said, but for bankruptcy attorneys and turnaround professionals, "We have to remember that in the world of bankruptcy…we love to gossip. In the world that we live in today, insolvency professionals are a great source of information because they can’t keep secrets. With a well-placed phone call you can find that information out.” 

Rosen noted that while bankruptcy attorneys are often a walking encyclopedia of business information themselves, what makes a good insolvency professional worthwhile is their list of contacts. “Claims traders will purchase the claims of a trade creditor at a discount where a creditor wants to get cash. We often will call them and say ‘tell us what the market is paying for such-and-such company,’ and I’m talking about prior to bankruptcy. That gives us a good idea of what people are thinking,” said Rosen. “There’s no bankruptcy attorney, crisis manager or investment banker that wouldn’t love to hear these questions. Whoever your counsel is, buddy up to them. They have a lot of information that could be very valuable.” 

In addition to bankruptcy professionals, Rosen also pointed out that publicly available information can help a company position itself to better ride out a customer’s tough times. “I’m amazed at how much research there is in the public domain,” he said, adding that sometimes a deeper look at a struggling buyer’s local news can come in handy. “Things that would not make the press in a larger town, make the press in a small town.”

Jacob Barron, NACM staff writer

NACM Credit Managers Index for March 2009

CMI-LOGO_outline_medium The seasonally adjusted Credit Managers’ Index (CMI) rose another 0.5% in March after rising by 2.5% in February. This two‐month increase broke a lengthy string of negative readings and matches up well with other data that has recently emerged—a slight reversal of the downward trend in manufacturing, a small boost in retail sales and a sharp spike in durable goods orders. A number of the components in the index are still below the 50 level, but they are starting to trend in a positive direction for the first time since July 2008. 

Sales, dollar collections and amount of credit extended have started to rise, although all remain under 50. In terms of favorable factors, there were small reductions in categories like accounts placed for collection, disputes and dollar amounts of customer deductions, but on the negative side, the number of bankruptcies grew. All in all, the index of favorable factors showed the biggest improvement and pushed the overall CMI number to a level not seen since November of last year.

Considered together, recent data from the CMI and other economic benchmarks cautiously suggest that there may very well be a bottom in sight for this recession. “Getting back to an expansionary position will be not be simple and may take a few more months, but there are more and more signs that the recession may have reached its low point. The key issue from this point is how fast the rebound may be. Given that the most important issue in this recession has been access to credit, it is encouraging to note that the index is showing a pretty significant increase in credit extension, the best numbers since December 2008,” commented NACM Economist Chris Kuehl. “As the survey is examined in coming months, there will be some categories that will merit close attention—the key will be the favorable factors as they will likely show progress of the recovery more quickly than the unfavorable factors. It is not uncommon for business to feel the most threat as the economy starts to come out of a recession—bankruptcies often surge as stronger competitors begin to put pressure on weaker companies. But if new credit applications and the amount of credit extended show signs of progress, the economy will respond relatively quickly,” said Kuehl.

Download CMImarch2009

Letters of Credit, from the Fundamentals to the Nitty-gritty

In November, U.S. exports grew by more than 14% year-to-date to a hefty $1.7 trillion. The global marketplace has kept the nation afloat, supporting 13.7% of gross domestic product in the third quarter alone. The usual suspects like Canada, Mexico, China and Japan remain the hungriest markets for U.S. goods, but potential free trade partners like Korea, Colombia and Panama have increased exports by 13%. 

For credit managers dealing in international trade, the documentary credit cycle deserves unparalleled importance. Letters of credit (LCs) are what get exporters paid, by enabling an importer to offer secure terms of payment. The process is complex and failure can be rooted in mundane mistakes, even as simple as a missing period or comma, a premature expiration date or the inability to produce a particular document when asked. An estimated 70% of all LCs submitted to banks for payment are initially rejected due to incorrectly issued documentation, meaning payment delays, additional fees and even nonpayment in some cases. Danielle Austin, Export Trade Associates, LLC, said that the discrepancies in LCs typically occur due to a lack of education.

“There is a tremendous gap between beneficiaries—the exporters—banks and freight forwarders,” explained Austin. “The beneficiaries aren’t getting the support they need and the resources are not available in today’s environment.”
The realities are that because there are so many details that must be addressed on the export side prior to shipping, credit managers can no longer afford to “ship and learn” or “ship and pay.” There is simply too much at stake. At NACM’s 113th Credit Congress in Orlando, Florida, Austin will present two sessions: “Letters of Credit 101: The Fundamentals” and “Letters of Credit 102: The Nitty-gritty.” 

“We need the education to help our exporters grow, facilitate trade, get them paid in days—which is possible—without the initial fear and knowledge to take the first step,” stressed Austin. “An LC is still the safest way to do business internationally.” 

Austin has 14 years’ experience specializing in LCs. Her Credit Congress sessions will not only discuss the importance of the fundamentals to avoid costly elementary mistakes, but also the importance of LC instructions, Incoterms and how to read an LC. She will be targeting ways credit managers can get paid in a matter of days versus weeks or months, and how to reduce discrepancies.

“I provide shortcuts and streamline the learning curve,” said Austin. “By the end of my classes, credit managers will be prepared to ship internationally via an LC with the best possible tools to secure payment.” 

Matthew Carr, NACM staff writer

Government Looks at Bankruptcy Code: A Call to Action!


Recent hearings in the House Judiciary Committee have indicated that Congress may be willing to open up the Bankruptcy Code in their efforts to shorten the current economic crisis. With the recent passage of "cram down" mortgage provisions that place more power in the hands of bankruptcy judges, as well as a recent hearing in the House Judiciary's Subcommittee on Commercial and Administrative Law regarding the role of Chapter 11 filings in an economic downturn, the time for action in the interest of trade creditors everywhere is now. 

In order to get a better idea of how the Bankruptcy Code affects a company's ability to lend credit, NACM is seeking comments from you, the trade credit professional, about any experiences you've had in dealing with a customer's Chapter 11 filing and its effect on your business. We're looking at how some of the code's provisions enhance or inhibit your company's willingness and ability to extend credit, with specific reference to preference claims. 

Much has been made of a debtor's right to collect preference claims on payments made to their vendors 90 days prior to their bankruptcy filing and many articles in NACM's eNews and Business Credit magazine have offered trade creditors advice on how to defend themselves from these claims. The House Judiciary Committee would certainly be interested in hearing about how preferences affect credit extension, specifically in our current economic downturn. Do you believe that the risk of preference claims diminishes your willingness to lend credit? The goal of the Bankruptcy Code is to provide for the orderly liquidation or reorganization of an insolvent debtor's estate, but it was also designed to aid economic growth, so if you think preferences or other provisions in the code are hindering your business' ability to extend credit, make your voice heard! 

As legislators look at the code and aim to make it more conducive to economic recovery, it would be dangerous for them not to consider the interests of trade creditors, who provide the lifeblood of the nation's economy. If you have a story about preferences and how they affect your company's ability to lend credit to keep your customers in business, or experiences with other parts of the code, share them with us! Send all your comments, data or stories to jakeb@nacm.org and don't forget to share this email address with your colleagues as well. Every bit of information will help us provide committee members with an accurate depiction of whether the Bankruptcy Code is helping or hurting our country's economic recovery. 

Jacob Barron, NACM staff writer

What to Do When Your Customer Files Chapter 11

It's been a difficult year for creditors. The dour economy and timid spending from consumers has sunk enterprises across the country at a rapid pace. The rise in corporate bankruptcies has been a troubling event for credit managers to wrangle with and, ultimately, no credit professional wants to discover themselves in a position asking, "What do I do?" when one of their customers files for bankruptcy protection.

"This is a more current topic than perhaps what it was a year ago," said Mark Berman, Esq., partner, Nixon Peabody LLP, during the NACM-sponsored teleconference "What to Do When Your Customer Files Chapter 11." "Unfortunately, some of the things I'm going to recommend should have been done a year ago, but there's not much we can do about that. It's a matter of making sure you are doing things going forward that best helps you if one of your customers becomes the subject of a bankruptcy proceeding." 

Automatic stays are the first step for creditors to consider. Section 362 of the Bankruptcy Code covers automatic stays, and they are just that: no one has to ask for it or issue it, a bankruptcy petition automatically triggers it. 

"The provisions in section 362 make certain things a creditor might otherwise do a violation of law," warned Berman. "For example, a creditor cannot sue the debtor other than by going to the bankruptcy court. If the creditor has a lien on the customer's assets, as you would if you were a secured creditor, you cannot foreclose against those assets. You can't conduct a foreclosure sale and you can't notice a foreclosure sale, so you have to first go to the bankruptcy court for permission to proceed." 

Berman also covered stopping goods in transit and reclamations, plus administrative priority for suppliers of goods, creditors' committees, proofs of claims, executory contracts as well as doing business with a Chapter 11 debtor. 

Berman advised that credit managers should also be proactive in protecting themselves from the repercussions of their customer's filing for bankruptcy protection and dreaded preference claims by determining whether a customer should be sold to on credit terms, COD or on a cash-in-advance basis. The advantage of these strategies is that goods sold on a cash-in-advance basis will never be subject to a preference claim since a preference requires that a payment be received on an account of sale of goods and ascendant before the payment was made. 

"If you're receiving payment in advance, you could never be receiving that payment on an ascendant of debt," explained Berman. "The payment in advance protects you from preference recovery." He noted that most credit managers run into problems by requiring not just payment in advance but also a payment on arrearage. That makes that payment on the old debt potentially preferential. 

He recommended that credit managers consider whether or not sales should be backed up by some sort of collateral. 

"Banks lend money oftentimes on a secured basis," said Berman. "There's no reason why you can't condition your sales to being on a secured basis. And I would include in security, letters of credit or guaranties or purchase money security interests as well as just regular secured interest as means to enhance the chances you are going to be ultimately paid." 

With the surge in bankruptcies, there has been an overall increased interest by credit managers on how to deal with the various chapter protections and ensure that they are entitled to the most pennies on the dollar. NACM members are welcome to contact their local affiliates to receive copies of the free NACM pamphlet Your Customer Files Bankruptcy, which provides a checklist of immediate actions credit managers can take, as well as other actions that they should weigh. To accommodate this interest, NACM will also be hosting a teleconference on March 26th on "Hot Issues in Bankruptcy in Today's Economic Climate," which will be presented by Bruce Nathan, Esq., Lowenstein Sandler PC and Wanda Borges, Esq., Borges and Associates, LLC. Members can register for this event here. 

Matthew Carr, NACM staff writer

Antitrust Issues in Troubling Economic Times

Despite the relatively old body of law governing competition, antitrust issues still beguile credit grantors regularly and violations of those laws can be easily made and painfully costly, especially in a recession. "This topic becomes more and more important everyday especially in today's economy," said Wanda Borges, Esq. of Borges & Associates LLC. In a recent NACM-sponsored teleconference, Borges offered listeners all they needed to know about what they can and cannot do, what can and cannot be discussed, when and how credit terms may be adjusted and what is covered under the various antitrust statutes. 

In an economic downturn, many credit-granting companies will turn to their competitors for information on a particular customer's past payment behavior. "Your natural fear is, ‘well, I need credit information, I want credit information, I want to reach out, how can I do that safely?'" said Borges, noting that, despite the sometimes vague regulations, "You can do that many ways, completely safely."

First and foremost, Borges recommended that credit professionals looking to others in their industry for information learn to make a record of their communications, in order to maintain their innocence should things get legally troublesome. "Put everything in some form of writing, either email or faxes," she said. "I would recommend no longer picking up the phone and asking your fellow competitor ‘hey what are you doing with this customer? Are you selling to them?' The next statement will be ‘what are you going to do when they get caught up?'" she added, noting that this type of forward-looking statement is exactly the sort of thing that could get credit professionals and their companies in trouble.

"Having that kind of conversation can lead you right to a Sherman Act violation," said Borges.

Still, she urged attendees to put their trust in the exchange of credit information for the sake of their business. "The exchange of valid, good credit information is not only permissible, but is more and more on a daily basis essential to you," said Borges. "It has become commonplace for me to hear stories, but I just heartily suggest having those conversations in writing and not having them on the phone." 

Borges used three true scenarios to educate listeners about what was permissible and what was not and also discussed the various antitrust statutes and what actions constitute illegal business practices. For more information on NACM's teleconference series, or to register, click here.
Jacob Barron, NACM staff writer

Creditors’ Committees Get Mixed Reviews in NACM’s February Survey

NACM's most recent monthly survey, asking "Have you ever served on a creditors' committee?," illustrated the broad array of opinions regarding the worth of these committees in a bankruptcy case, with some saying their attendance helped their company get a better claim in the proceedings and others arguing that a credit professional's time is better spent elsewhere. As early estimates were quite low, a somewhat surprising 29.6% of participants said that they had served on a creditors' committee, while the remaining 70.4% said they had not. 

One of the most oft-repeated refrains in the survey comments was that, although creditors' committees are often time consuming, they can also be invaluable to a credit professional looking for a more hands-on understanding of bankruptcy. "It was a very enlightening experience and taught me more about the bankruptcy process," said one respondent. "I've served on many through the years," said another. "I have found that they can be very beneficial. They help you understand the financial position of the debtor, which in turn helps to determine how you want to proceed with the debtor and determine how to reserve for the amounts due." 

Still, while many considered creditors' committees to be valuable learning tools, as a means to collecting more from a bankrupt debtor, many respondents found the committee experience to be somewhat lacking. "Most times, serving on the committee really does not get you anywhere with regards to assisting in recovering unsecured creditor funds," said one participant. "However, as a form of experience, each intermediate or senior credit person should at least sit on a committee, purely for the experience." 

"Based on the returns we have received on large public bankruptcies, it appears that even a well run, involved creditors' committee can provide only marginal utility to unsecured creditors," said another participant. "In my opinion the reward/time ratio precludes involvement." 

Respondents ran the gamut between first-time committee members to seasoned pros with many committee co-chairmanships and chairmanships under their belts. "The first and largest creditors' committee I served on involved a very large coal company filing bankruptcy. It was a great learning experience and was very, very time consuming," said one respondent. "We were able to improve the position of unsecured creditors through our negotiations with the secured creditors and with the debtor and their bank. It was just at the time that the preferred vendor concept was being explored legally, so that also came into play for most on the creditors' committee."

"In a sense, we created a 'preferred' class of unsecured creditors using this theory, which saved several additional companies from filing bankruptcy as a result," they added. 

NACM's new March survey deals with the stimulus package and is now live on www.nacm.org. 
Jacob Barron, NACM staff writer

NACM Credit Manager’s Index January 2009

The seasonally adjusted Credit Manager’s Index (CMI) fell 0.4% to a record low of 39.7 in January, its sixth consecutive decline. All 30 components in the indexes are below the 50 level signaling economic contraction; 13 are even below 40, suggesting a powerful recession, and 13 are at record lows. Seven of 10 components fell in manufacturing sector, six of 10 in the service sector. “It was another grim report,” said Daniel North, chief economist with credit insurer Euler Hermes ACI, who evaluates the data and prepares the CMI report for the National Association of Credit Management (NACM). “Similarly, much of the recent economic data has been worse than expected, suggesting that the economy’s decline may actually be accelerating,” he continued.

“There is some positive news however,” said North. “Over the past few months the indexes have been subject to dramatic, almost sickening declines, like the 11.7% drop in manufacturing sales last month. This month’s report seems almost sedate by comparison as the worst fall was only 4.4%. In addition, some of the respondents actually had some good news to report this month, apparently seeing a tiny glimmer of light in the darkness. There might also be the slightest hint of a bottom in the housing market, and there might also be some barely visible cracks in the frozen credit markets.”

“Combine all this with super loose monetary policy, plummeting energy prices and some new ideas from a new administration, and the optimism expressed by a few of the credit managers might be justified,” he said. “Bear in mind, though, that no matter what, it will be rough going until at least the second half of the year.”

Download Nacmncmi_jan_2009

Credit’s Role in Customer Visits

It seems that, in an age of heightened travel concern, everyone knows someone or has their own story of an airport security nightmare, whether from an overzealous TSA agent or an innocently misplaced bottle of mouthwash. In general, increasingly stringent security policies have removed a bit of the sheen that once characterized the world of air travel. “Traveling today is certainly no glamour gig. It’s a lot of work,” said Susan Delloiacono, CCE. However, she added, braving the crying babies, metal detectors and parking fees may be just the trick for credit professionals looking to enhance their relationship with a customer and, in the end, generate a solid, tangible benefit in the form of quicker customer payment.

Delloiacono, a long-time credit professional and expert on customer visits, recently delivered an NACM-sponsored teleconference, entitled “Customer Visits: Credit’s Role,” where she outlined the many benefits of visiting a potential or existing customer. “This is the best weapon in your credit arsenal when you think about knowing your customer, having them know you,” she said. “You become a human to them. And you become accessible. When there’s a problem, you get the first phone call.” In addition to bringing credit departments and their customers closer together, Delloiacono argued that customer visits can also bring other company departments in on credit’s mission as a sales generator and customer service organization. “Our purpose is to develop a win-win customer service strategy that really looks beyond just the credit department,” she said. “Early in my career I thought the world revolved around the credit department, and clearly, as we grow, we realize that although all roads go through credit, we need to understand other members of our company, other members of our team and their touch-points with the customer.”

“When you go to visit a customer, it not only brings you closer to them, it also brings you much closer to your sales organization,” she added. “You really adopt that team approach.”

As with any well-considered business venture, Delloiacono noted that proper planning for a customer visit is essential and offered tips about what to prepare for when visiting a buyer. She also outlined the different considerations that need to be made depending on the type of customer visit, whether it’s at your office, theirs or in a neutral territory like a trade show or whether it’s a pre-sales customer visit, a maintenance visit, or a problem solving visit.

For more information on NACM’s teleconference series, or to register, click here. Also, this month’s NACM Online Monthly Survey deals with the value of customer visits. To participate, visitwww.nacm.org.

Jacob Barron, NACM staff writer

NACM Survey Shows Virulent Opposition to Auto Bailout

Responses to NACM's December 2008 Survey question, "Do you support a government bailout of the 'Big 3' auto companies?" showed that a majority of respondents opposed the government's proposed bailout of the Ford Motor Co., General Motors Inc. and Chrysler LLC. All in all, 66.8% of participants answered "no," and 28.8% responded "yes." Only 4.4% noted that they had no opinion on the matter.

Last month's survey also elicited the most additional comments of any prior NACM survey, indicating the strength of respondent opinions and, in some instances, showing some participants' outright revulsion at the thought of a government bailout aimed at helping an industry that, many believe, dug its own grave. "Not only no, but hell no!" said one respondent. "The auto industry has been totally oblivious to the needs of their customers, selling whatever brought the highest profit. This allowed unions to demand ridiculous wages and executives to receive obscene pay levels. It's time to start over," said another respondent. "Stupid hurts. It's supposed to. That's how we learn," added another participant.

Among the "yes" respondents, most admitted that their positive responses were made begrudgingly and that they only supported the bailout because they feared the negative impact of a Big 3 bankruptcy, or that they would only support a bailout that came with major restrictions on executive salary, reduce company spending and concessions by the United Auto Workers union (UAW). "Yes, assuming that the bailout includes a comprehensive plan to address and remedy the industry's structural issues, particularly pension benefit and retiree healthcare expenses," said one respondent. "I am philosophically opposed to the bailouts in general. However, since the government has bailed out the financial sector to the extent they have, it makes no sense to let the Big 3 go under if it can be avoided," said another respondent, one of very few auto-industry sympathizers who participated in the survey. "No other industry has been more maligned, nit-picked and needlessly over-regulated as the automobile industry," the respondent added.

Many objected to the use of the term "bailout," insisting that they supported loans to the industry, rather than a "blank check" that the word "bailout" connotes. Other respondents rejected the idea of any government money not put toward a Chapter 11 filing supervised by the government, an option that many found fairer and preferable to federal financing. "The Detroit 3 must go prepackaged Chapter 11 more to get free from the UAW contracts and the dealer franchise organization," said one respondent. "The government, banks bailed out by the government and other major banks need to be the [debtor in possession] lenders. We all have a lot to gain if this is done correctly."

This month's survey asks for opinions on the value of customer visits. To participate, visit www.nacm.org.

Jacob Barron, NACM staff writer

NACM Credit Manager’s Index Report for December 2008

The seasonally adjusted Credit Manager’s Index (CMI) fell 2.1 in December to a record low 40.1. It was the fourth consecutive record low. All 10 components are below the 50 level, representing economic contraction, and six of the components are at record lows. “The carnage was widespread as both the service and  manufacturing indexes fell to record lows, and all 20 of their collective components’ fell below 50,” said Daniel North, chief economist with credit insurer Euler Hermes ACI, who evaluates the data and prepares the CMI report for the National Association of Credit Management (NACM). “Credit managers delineated in nauseating detail the business conditions of an economy which has lost almost two million jobs in the last year, and one whose prospects are dismal,” North continued. “Deteriorating sales and payment patterns are the credit managers’ main complaints, and those complaints are likely to strain cash flow and put businesses at risk.”

“It’s no wonder things look so grim,” said North. “Retailers had abysmal holiday sales which are likely to
contribute to a wave of bankruptcies in 2009. Continuing difficulties in both the auto industry and the
financial markets are putting a severe drag on the economy. The housing market is still in decline.”
North surmises that it’s possible, however, that a change in administration, super loose monetary policy and a new stimulus package will help bring the U.S. out of the recession next year. “But according to credit managers, it’s going to be a rough ride until then,” he said.
Download CMI_1208

Protecting Profit in Anticipation of Bankruptcy

"We seem to have a crisis a week and now the crisis is the risk of bankruptcy of the big three auto companies," said Bruce Nathan, partner at Lowenstein Sandler PC, introducing his most recent NACM-sponsored teleconference, "Protecting Trade Creditors From Customer Bankruptcy: No Need to Cry the Blues!" "There's lots of turmoil, credit is gone as a result of the Lehman Brothers filing, the credit markets are pretty much dried up. There is no funding that's available to restructure a lot of these distressed companies and this has led to a large increase in bankruptcy filings."

In short, Nathan illustrated that when it comes to trade creditors looking to protect their company's profit from insolvent customers, a teleconference such as his couldn't have come soon enough. "This teleconference could not have been scheduled at a more appropriate time because we're trying to protect ourselves," he said.

Attendees got a chance to bask in Nathan's always-enthusiastic expertise regarding the ways creditors can protect themselves in the case of a customer's bankruptcy. First, Nathan noted, it's important that creditors know where they can get information pertaining to their case. "There's a lot of public information out there to see if your customer is financially distressed," he said, adding that, in some instances, this information could easily be used to predict a customer's future. "There's a lot of information that you could be looking at that could predict bankruptcy a year from now. Whether it's ratings, information you could get from your credit group, a credit check, these publications will predict the bankruptcy a year or two before the actual bankruptcy."

By leveraging this information and spotting any troubled company warning signs, credit professionals can make sure they act soon enough to protect their company's investment in a customer, ensuring their payment long before receiving a word of a bankruptcy filing. "The warning signals that you should be looking at, once you get them, should prompt you to take action to protect yourself and try to obtain some sort of security," said Nathan, who used the majority of his presentation discussing the many ways creditor companies can secure their investments prior to customer filing, including their advantages, disadvantages and legal requisites. "These credit enhancements increase the likelihood of you being paid on your claim when you have a customer who is on the path to bankruptcy, but not there yet."
Nathan went into detail about credit enhancements like letters of credit, security interests, guaranties, put agreements and many more.

Jacob Barron, NACM staff writer

NACM Monthly Survey: Most See More of the Same, Expansion in 2009

With all the doom and gloom surrounding the current state of the U.S. market, including, most recently, a worse-than-expected jobs report, responses from credit professionals participating in NACM's November survey paint a picture of clearer skies on the horizon or, at the very least, an economy that has reached the bottom. In response to the question "What do you expect your business to do next year?," 39.8% of survey respondents said "stay the same," 32.7% said "expand," and a still statistically significant 27.5% said "contract." While the results were certainly less than optimistic, they illustrate that situations and expectations vary widely across the field and that much of the differences in what to expect in 2009 come down to company position, industry and geographical region.

"I wouldn't expect our business to expand as a result of the economy, but more-so because of our newness in the industry as well as our logistic position in our market compared to our competitors," said one participant, who noted that proximity to customers may have an effect on business. "People will continue to become more cost conscious. Our organization's prices are very competitive, but we can provide cheaper freight rates because we are so much closer to our customers than many of our competitors." Other respondents noted that their location in parts of the country that have been largely unaffected by the current crisis has allowed them to look forward to expansion in the coming year. "In the Houston area the economy is still strong and even next year still looks good," said one respondent.

"I expect to see our business expand with new product launches," said one participant, who added that an expansion in business doesn't necessarily mean easier credit management. "I do believe short payment deductions will increase as customers use suppliers as interest free banks to improve their working capital positions in light of the present economic issues."

Many respondents who expected their business to remain the same next year noted their ties to the as-yet unrealized recovery of the housing market. "We are in the building industry and do not anticipate much change in 2009," said one participant. "I anticipate the housing market will remain flat. We may see a small increase in sales and building, but nothing significant," said another. Among the 27.5% of respondents that thought their business would contract in 2009, their expectations were tied to the performance of their industry, including sectors other than construction and residential building. "We are a manufacturer in the food service industry," said one respondent. "People are eating more at home and less in restaurants. We expect that to continue until the economy turns around."

"We are a non-profit, so we have seen some slowing in donations this year, and if the economy does not improve, I am sure it will continue into the next year," said another participant, who added that there have been bright spots in performance. "Because people are not traveling as far away from home, the Zoo and Wild Animal Park have become popular places for people to come, and so our annual passes sales have increased."
NACM's December survey asks participants for their opinions on the bailout of the "Big 3" automakers that is currently being considered on Capitol Hill. To participate, visit www.nacm.org.

Jacob Barron, NACM staff writer

NACM Credit Manager’s Index November 2008

“The seasonally adjusted Credit Manager’s Index (CMI) for November painted an even uglier portrait of the
economy than it did last month, dropping 2.6 to a record low of 42.2, well below the 50 level indicating
economic contraction,” reported Daniel North, chief economist with credit insurer Euler Hermes ACI, who
evaluates the data and prepares the report for the National Association of Credit Management. “The amount of negative data was overwhelming, as eight of the 10 components fell and seven set record lows, leaving all 10 components below 50,” he said. On a year-over-year basis, four components and the total index itself fell record amounts. Both the manufacturing and service sectors set record lows.

“The macroeconomic data continues to describe an economy which is in bad shape and which seems to be deteriorating,” said North. Unemployment is on the rise as hundreds of thousands of jobs are being lost every month, retail sales are falling dramatically, especially on an inflation-adjusted basis, third quarter GDP growth was negative and credit is still very difficult to get. “It’s little wonder that credit managers are seeing so much demand for trade credit, but at the same time they are facing a very difficult business environment where their sales are deteriorating on the front end, and their customers can’t re-pay them at the back end,” said North. “Unfortunately, the holiday shopping season is here, and the results are likely to be grim. It will be great news if they are only as bad as they are expected to be."

Download Nacm_cmi_1108

Case Studies and Presenting Credit Decisions

Typically, credit managers aren't performing back flips and climbing over each other at the chance to lead presentations on case studies. The dreaded topic is a producer of much anxiety for those having to outline their credit decisions to a third party, whether it is a boss or their peers.

Susan Lujan, CCE, corporate credit director, Kenworth Sales Company, explained that credit managers can't let their fear of this practice stand in the way of possible advancement in their careers, enhancement of their knowledge base or attainment of their CCE. She remarked that oftentimes the fear is anchored to who will be looking at the case and will they be able to understand the points that are being presented.

"So many times we have the knowledge, but it is about presenting it," said Lujan during the NACM-sponsored teleconference "Case Studies and Presenting Credit Decisions—How Even You Can Get Over the Fear." "We just witnessed today, with the elections being over, how much eloquence can carry you forward."

Lujan added, "Your presentations are a reflection on you. Our credibility is often judged by the way we communicate our decisions."

There will likely be a point in every credit manager's career when they will have to justify a credit decision. Lujan pointed out that case studies are something credit managers use day-in and day-out; it's just that the anxiety of public speaking and unfamiliarity with the presentation process culminate into problems. The first step in the process is to reduce a case to a more comfortable idea so that there is an easily defined way to communicate it. She likened the process to packing for a trip.

"Our cases in credit are much the same," said Lujan. "It depends on our destination. So, when we're done planning, we may create an itinerary, an alternative plan or maybe even decide this is something we don't even want to do."

A credit case is about gathering information, analyzing and deciding whether it is good or bad, and then making a credit decision based on what was discovered. The company's credit policy, corporate goals and the customer's application serve as the foundation of the case. Of course, the investigation becomes more involved as the dollar exposure increases.

Lujan outlined that the C's of credit, SWOT analysis (strength, weakness, opportunities, threats) and financial information are already ingrained into the credit decision process. The backbone of a case study presentation is inherent to the job function; it is cutting that information into digestible pieces.

"The foundation, the structure, the thought process is all the same, regardless of the industry and the dollar size," said Lujan.

Matthew Carr, NACM staff writer

October CMI Reports No Shortage of Dread in B2B Finance Sector

Few treats found as accounts placed for collection and other indicators hit record lows, again.

"The seasonally adjusted Credit Manager's Index (CMI) for October revealed an increasing sense of doom among the participants, mirroring conditions in the rest of the economy," said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the National Association of Credit Management. The combined index fell 2.6% to a record low of 44.8%. Eight of the 10 components fell, nine are now below the 50 level, indicating economic contraction, and eight set record lows. "The misery was spread all around but manufacturing fared the worst, losing 4.2%, while services fell 0.9%," said North. Both manufacturing and services were below 50% for the second consecutive month. "The 'accounts placed for collection' component was below 40% in both manufacturing and service sectors, suggesting that customers are trying their best to drag out terms in an effort to get credit in any form they can, because apparently banks aren't giving any," said North.

"Certainly the economy is in dismal shape after the effects of high energy prices and the housing market bubble burst have been dragging on for some time. Now the increasing number of job losses, shrinking GDP, negative real retail sales and a host of other indicators confirm that the recession has arrived. Perhaps most troubling though is the disruption in the financial markets which has severely curtailed the availability of credit. As a result, which credit managers are so clearly telling us, not only is the economy bad, but the credit situation is making it even worse," said North.

The seasonally adjusted manufacturing sector index fell 4.2% to a record low of 43.7%, North reported. Nine components fell, all 10 are below the 50% level and six set record lows. Weak collections, slow payment and tight credit bode poorly for the coming months as our participants from various industries tell us:

"Tight, tight money and now a new worry is the customer's bank." – Steel works
"The number of final demand letters has increased, indicating probable future deterioration in receivables." – Motor vehicle parts
"Reviewing credit limits and deciding to lower quite a few as a precautionary measure." – Fabricated rubber
"Our market condition is continuing to decline. Our sales continue to shrink." – Telephone equipment
"Projecting slow growth…" – Glass works
The seasonally adjusted service sector index fell 0.9% to 45.9%. Six components fell, eight are below 50% and five set record lows. "The climate in the service sector is decidedly more irritable than in manufacturing," said North. "The manufacturing sector seems more focused on weak demand, but service sector credit managers are more concerned about getting their money back."
Construction materials: "We are…filing more liens than we have ever done."
Electronic parts: "I fully expect bankruptcies and delinquencies to increase through 2009."
Seafood: "Our customers are seriously challenged by the current economic environment. Threatened credit cut-offs and actual credit cut-offs…are at an all time high."
Farm supplies: "Increase in the number of customers that are sending smaller weekly payments on account instead of paying invoices in full."
Metals service center: "We are beginning to see effects of economic downturn, i.e., slower payments, more unauthorized deductions, increased request for extended terms, request for price adjustment…"
"It's not surprising then, in this environment, to see that one industry in particular is doing well—legal services," said North. Said one respondent, "I expect this to be our best year in 25 years for new business and net revenue."

"On a seasonally adjusted basis over the past 12 months, the combined index has fallen 9.0%, with most of the decline coming in the most recent two months," said North. Services fell 8.7% and manufacturing fell 9.3%. Bankruptcies led the way in all three indexes, dropping 16.2% in services and 19.4% in manufacturing.

Source: NACM

Economy, Slower Payment Top List of Credit Professional Concerns

NACM's October Survey, which asked "Looking forward to 2009, as a credit professional, what are your biggest concerns?," showed that the struggling global economic situation is weighing heavily on the minds of credit professionals as 2008 winds down, with a whopping 88.1% of respondents listing "the state and future of the economy" as one of their three foremost concerns. In the survey, participants were asked to choose their top three concerns from a list of 10 options that included technology issues, job security and several other diverse concerns. Coming in at second place with 75.4% was "slower payment due to tightened credit," while other concerns receiving a significant amount of votes included "health and diversity of your customer base" (30.5%), "pressure to meet upper management expectations" (25.2%) and "job security or finding and keeping qualified staff" (22.8%).

As the survey closed just a few days prior to election day, politics were on several respondents' minds as indicated by the survey's comment section, where participants voiced their worries about the country's political leadership. "The existing and likely deterioration in U.S. Legislative, Executive and Judicial leadership gives me great concern," said one respondent. Others were more accusatory in their political assertions and some even expressed hopelessness at the government's potential response to the crisis. "Politicians are using the economic crisis, caused by their policies, as an excuse for even more regulation and a grab for even more government power, which greatly concerns me," said one participant. "With all the present federal and state regulators, they provided no warning or direction that would have helped us avoid the current crisis," said another, ominously adding, "They are good for one thing: to go onto the battlefield to bayonet the wounded."

Some survey respondents noted that many of their concerns stem from conflicts between the needs of the credit department and the needs of upper management or the company itself. "At a time when cash flow should be king, we are having layoffs company-wide; and the credit department is no exception. Customers are paying slower and we have fewer credit reps to contact the customers due to these recent layoffs," said one respondent. "Upper management has suddenly gotten on board with protecting assets and it is causing quite a flurry of initiatives that are in addition to already stressed normal workloads," said another respondent.

Another popular, albeit foreboding, theme that arose in the comment section was that participants couldn't limit their concerns to just three. "I would have checked each one of them if I could have," said one respondent. "They are all of great concern in 2009."

Other remaining responses were as follows:

Implementation of a new technology, such as a credit scoring model or ERP system (8.9%)
Compliance with impending or current regulations (7.8%)
A merger or acquisition involving your company (6.9%)
Other (4.8%)
Relationships with other company staff (3.2%)
Be sure to visit www.nacm.org to participate in NACM's November Monthly Survey, which deals with business expectations for next year.

Jacob Barron, NACM staff writer

NACM Credit Manager’s Index October 2008

“The seasonally adjusted Credit Manager’s Index (CMI) for October revealed an increasing sense of doom among the participants, mirroring conditions in the rest of the economy,” said Daniel North, chief economist for credit insurer Euler Hermes ACI, who analyzes the data and prepares the CMI report for the National Association of Credit Management. The combined index fell 2.6% to a record low of 44.8%. Eight of the 10 components fell, nine are now below the 50 level, indicating economic contraction, and eight set record lows.

“The misery was spread all around but manufacturing fared the worst, losing 4.2%, while services fell 0.9%,” said North. Both manufacturing and services were below 50% for the second consecutive month. “The‘accounts placed for collection’ component was below 40% in both manufacturing and service sectors,suggesting that customers are trying their best to drag out terms in an effort to get credit in any form they can,because apparently banks aren’t giving any,” said North.

“Certainly the economy is in dismal shape after the effects of high energy prices and the housing market bubble burst have been dragging on for some time. Now the increasing number of job losses, shrinking GDP, negative real retail sales and a host of other indicators confirm that the recession has arrived. Perhaps most troubling though is the disruption in the financial markets which has severely curtailed the availability of credit. As a result, which credit managers are so clearly telling us, not only is the economy bad, but the credit situation is making it even worse,” said North.

Download CMI_10_2008.pdf

“Red Flags Rule” Deadline Pushed Back

The Federal Trade Commission (FTC) has delayed the implementation deadline of its "Red Flags Rule" to May 1, 2009. Creditors and financial institutions were initially required to have policies for identifying, detecting and responding to patterns that could indicate identity theft by November 1, 2008. The delay is to allow affected companies to have more time to develop, have the board of directors or senior management approve and implement written identity theft prevention programs.

The Red Flags Rule was instituted under the Fair and Accurate Credit Transactions (FACT) Act of 2003.

Despite outreach efforts that began last year to explain and educate companies about the types of entities covered by the rules, confusion has persisted. The FTC's staff became aware that some industries and entities under the FTC's jurisdiction were uncertain about their coverage under the guidelines and were not aware that they engaged in activities that would cause them to fall under the FACT Act's definitions of "creditor" or "financial institution." Other companies indicated that since they had historically not been subject to the FTC's jurisdiction, they were not aware of the rulemaking and therefore learned of the Red Flags Rule too late to be in compliance by the November 1 deadline.

To view a copy of the FTC's release about the delay, and for more information, click here.

Matthew Carr, NACM staff writer

IASB, FASB Propose New Standards for Financial Statements

The International Accounting Standards Board (IASB), working jointly with the U.S. Financial Accounting Standards Board (FASB), recently published for public comment a discussion paper on financial statement presentation, marking the first step in the establishment of a somewhat elusive global standard governing the way business entities organize their financial statements. The discussion paper includes an IASB analysis of issues related to financial statement presentation and the boards' initial thinking on how to address them.

Neither International Financial Reporting Standards (IFRS), the system of accounting rules maintained by the IASB, nor U.S. generally accepted accounting practices (GAAP) include explicit directions on how financial statements are to be presented. The IASB and FASB have sought to establish a clearer presentation standard in order to quell user dissatisfaction with the variance and inconsistency that characterizes many financial statements.

"The credit crisis has highlighted the need for clear presentation of financial information that is often complex," said IASB Chairman Sir David Tweedie. "Early staff drafts of the paper that included an option to eliminate the 'net income' line were widely reported. However, the boards have chosen to proceed with proposals that build on established practice." Specifically, the IASB and FASB have sought to introduce two elements, cohesiveness and disaggregation, into all financial statements globally by using a principles-based format. Cohesiveness would ensure that users can follow information through the different statements of a business entity and disaggregation would ensure that items that respond differently to economic events are shown separately. 

Both boards are seeking public comment on the discussion paper from interested parties on both the objectives of the standard as well as the actual proposed format. "By working together to create one common, high-quality global standard for financial statement presentation, the boards are aiming to increase the usefulness of financial reports while enhancing their comparability across international capital markets," said FASB Chairman Robert Herz. "Extensive feedback from preparers, auditors, investors and other users of financial statements is welcome and vitally important."

Comments can be submitted at the IASB's website in the "Open to Comment" section. The comment period closes on April 14, 2009.

Jacob Barron, NACM staff writer

NACM’s Asset Protection Group Alert

Date: September 23, 2008

Company: AB Commercial Supply

Address: 6521 South Vermont Avenue, Los Angeles, CA 90044 & 3000 Westwood Blvd., Los Angeles, CA 90034

Phone: 323-759-2564       

Contact(s): Jason Taylor

Industry of Target: General

Reason(s): Unsuccessful contact made to subject; shipment delivered to residential location; unsuccessful collections attempts.

***APG requests that anyone having information on this entity contact us at 800-955-8815.***

Top 10 Chapter 11 Bankruptcies Has a New #1

With the failure of investment bank giant Lehman Brothers, the top 10 largest
Chapter 11 bankruptcies in the history of the United States has a new—even
record-holding—top spot holder, beating the previous #1, Worldcom, by over $500
billion. Analysts say the new records will be constantly set as Lehman goes
through its reorganization and bankruptcy proceedings.

All dollar
amounts are pre-bankruptcy assets at the time of the Chapter 11 filing.

  1. United Airlines, $25.2 billion (2002)
  2. Pacific Gas and Electric, $29.8 billion (2001)
  3. Global Crossing, $30.2 billion (2002)
  4. Refco, $33.3 billion (2005)
  5. Financial Corp. of America, $33.9 billion (1988)
  6. Texaco, $35.9 billion (1987)
  7. Conseco, $61.4 billion (2002)
  8. Enron, $63.4 billion (2001)
  9. Worldcom, $103.9 billion (2002)
  10. Lehman Brothers, $639 billion (2008)

Samantha Blaum,
NACM staff writer

Payments Beyond Terms Are Increasing

The seasonally adjusted Credit Manager’s Index has inched even closer to the neutral economic expansion/contraction point of 50%, creeping down 0.2% to hover at 50.7%. The manufacturing sector index slipped a full percentage point to 50.4%, as only four of its 10 components rose. The service sector index fared better, gaining half a percentage point, rounding out at 51.0% as six of its 10 components rose. All three indexes have six components at or below the 50% level.

"Overall, there were no dramatic changes from July’s report," said Daniel North, chief economist for credit insurer Euler Hermes ACI, who evaluates the data and prepares the report for the National Association of Credit Management. "However, in both manufacturing and service, dollar collections and the dollar amount beyond terms worsened," he continued. "The data suggest that tough economic conditions are strangling buyers’ cash flow. Buyers are stretching their payment terms beyond normal and even after that, it appears that they still cannot pay their bills."

The seasonally adjusted manufacturing sector index slipped 1.0% in August, leaving six of its 10 components below 50%. "Prices seem to be less of an issue this month in terms of hurting business, but instead they are inflating credit limits and sales," said North. "Slow pay seems to be the biggest problem." North noted that a manufacturer of valves and pipes reported, "Customers are looking for ways to slow payments." A plastics producer replied, "We are having to exert more effort to get payment for receivables," while a sheet metal firm reported, "We have some of the bigger customers attempting to extend terms." North said, "On the flip side, international business seems strong, probably due to the weaker dollar, which makes U.S. goods more competitive abroad." A food manufacturer responded that "international sales are increasing very fast," a furniture manufacturer noted, "Our sales are up on the international side," while a producer of carpeting reported, "sales to Latin and South America have increased."

The seasonally adjusted service sector inched up 0.5% to 51% as six of its 10 components rose. "However, the fact that six components are still at or below the critical 50% value seems to explain the more negative tone of the participants," said North. "Providers of HVAC and electrical equipment services noted that they are seeing more NSF checks than ever before," he said. Other survey responses that stood out include a supplier of transportation services that said, "Customers that have never been a problem are going beyond terms." A repair service stated, "Many customers are expecting us to be their bank!" And reflecting on the "credit crunch," a participant in the plastics industry reported, "We are seeing more companies close due to lack of bank funding."

"On a seasonally adjusted basis, the year-over-year comparisons for both the manufacturing and service sector indexes show a definitive downward trend, reflecting the deterioration in the overall economy," said North. "All 10 of the components in the manufacturing sector index fell, pushing the index down 4.6% to 50.4%. The service sector hardly fared better as all 10 components fell, driving the index down 4.2% to 51.0%. Both indexes hover just above the 50% dividing line between economic expansion and contraction."

Source: NACM

The Risks and Rewards of Selling Your Bankruptcy Claim

Concern over whether a customer is having financial problems has always been a central issue for credit managers. Their role is defined by being able to pick which companies are worth the risk. With bankruptcy filings rising, default and delinquency rates also trending upwards, its the issue of insolvency that’s getting the spotlight at the moment.

Even worse for credit departments is the customer on the verge of filing a Chapter 11 petition. These creditors face the risk of a decrease in or a substantial delay to the recovery of their pre-petition unsecured trade claim. Not to mention the additional risk of continuing to extend credit to the customer. 

But there are options. Creditors can gamble by selling their pre-petition unsecured claim or by entering into a put agreement that shifts the credit risk of dealing with a financially distressed company to a third party. Debt markets continue to flourish and over the last two decades have evolved tremendously with the amount of public information available through the Internet and services like PACER, providing an educated seller or buyer with a sizeable advantage. 

"It all sounds wonderful. And the market allows trade creditors to cash out of their claim," said Bruce Nathan, Esq., partner, Lowenstein Sandler PC. "But, when you get that offer to buy the bankruptcy claim you’ve got to tread carefully. You’ve got to do your homework and make sure you’re getting the best price."

Nathan talked about two options available to credit managers in the NACM-sponsored teleconference "Selling Your Bankruptcy Claim—the Risks and Rewards." First, there are buyers that will purchase a put agreement—a product equivalent to credit insurance—for a trade creditor’s claim in the event of their customer’s bankruptcy filing. 

A put agreement is an agreement for the buyer to purchase the claim in the future at an agreed-upon price. It’s used as protection against insolvency. They require the creditor that is entering into the put agreement with the buyer to pay a non-refundable fee, which could be as much as 1% to 3% per month of the amount being insured. They can be for a claim against a financially distressed company that has not filed bankruptcy yet, or they can be for an administrative claim where the creditor has sold goods or provided services to a company that is in Chapter 11.

"They are two very different products," explained Nathan. "There are more pitfalls for a put with respect to a Chapter 11 administrative claim if it is not drafted appropriately, but the benefit of a put agreement is that it induces creditors to continue to extend credit to a financially troubled company, whether that company is in or out of bankruptcy."

The difference between a put agreement and credit insurance is the credit insurance usually involves insuring a pool of receivables—good receivables and the more troubled accounts. Put agreements are insuring against the insolvency of a particular company that is in financial distress. Because of this, puts can be a lot more expensive than credit insurance.

"If you’re paying a hefty fee, you want to make sure you are getting the best for your bargain," said Nathan. 

As in all contractual environments, signers need to be wary. Some agreements may contain objectionable provisions that are intended to shift the risk off of a bad investment from the buyer back to the seller. Others may allow the buyer, in circumstances of their choosing, to force the seller to buy the claim back because of some breach of agreement. Nathan warned that there are many outs in these agreements a good claims buyer can take advantage of if they decided they no longer want to invest in the claim, or they found out information after the fact. So, the standard mantra applies: credit managers must review the documentation that they are being asked to sign. 

"The key is that if you are an informed buyer, or an informed seller, and you know what needs to be changed and what needs to be negotiated, with the help of counsel you can have an agreement that works really well for you," said Nathan. "One that allows you to liquidate your claim and to insure yourself against the risk of bankruptcy. But if you carelessly sign on the dotted line, you may find that while you sold the claim and realized some cash, or what you thought may have required a buyer to buy the claim in the event of a bankruptcy, you find out that there are lots of horrors and lots of outs."

Another option available for creditors is selling their claim against a financially distressed company to a prospective buyer. In cases of puts or a sale of claim, there is typically a discount in price if the company is already involved in a bankruptcy. In both products, there are a number of matters to be considered, as well as a cadre of pitfalls to avoid.

"When you are negotiating a put agreement, or for that matter a sale of claim agreement, you need to make sure that the debtor—the customer—is properly identified," warned Nathan. "In more and more cases, you are dealing with multiple entities where there may be lots of different companies that make up the debtor."

Matthew Carr, NACM staff writer

NACM Credit Manager’s Index for August 2008

The seasonally adjusted Credit Manager’s Index has inched even closer to the neutral economic
expansion/contraction point of 50%, creeping down 0.2% to hover at 50.7%. The manufacturing sector index
slipped a full percentage point to 50.4%, as only four of its 10 components rose. The service sector index
fared better, gaining half a percentage point, rounding out at 51.0% as six of its 10 components rose. All
three indexes have six components at or below the 50% level.

“Overall, there were no dramatic changes from July’s report,” said Daniel North, chief economist for credit
insurer Euler Hermes ACI, who evaluates the data and prepares the report for the National Association of
Credit Management. “However, in both manufacturing and service, dollar collections and the dollar amount
beyond terms worsened,” he continued. “The data suggest that tough economic conditions are strangling
buyers’ cash flow. Buyers are stretching their payment terms beyond normal and even after that, it appears
that they still cannot pay their bills.”

Download the full report.

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Some of the topics addressed in the course include:

    * The Credit Department and Export Credit Policies and Procedures
    * International Trade Law and the Legal Aspects of International Finance
    * Establishing and Monitoring Lines of Credit for Global Customers – financial statement analysis, credit limits, credit scoring
    * International Risk Assessment – risks and rewards in international credit, evaluation of risks, and terms of payment
    * Commercial Letters of Credit
    * Accounts Receivable – reporting, monitoring, forecasting and variance analysis
    * Structured Trade Finance
    * Monitoring Trade Loans – sharing the risk of financial exposures
    * Cash, Treasury and Foreign Exchange Management
    * Principles of and Tools for Financing International Trade
    * Export Credit Insurance and Risk Mitigation Techniques
    * …and much more!

Upon successful completion of the FCIB International Credit & Risk Management online course, you will have the opportunity to take a certification exam and be awarded the CICP professional designation – Certified International Credit Professional (CICP).


  Top 5 Reasons to Sign Up

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NACM September Survey – Re: The Government

Does your company do business with the local, state or federal government?

Click here to answer.

It only takes a minute!

Watch for a new survey question at the beginning of each month in your eNews Weekly Update or on the NACM homepage. In appreciation for your participation, you will earn .1 roadmap point toward an NACM designation and a chance to win a FREE teleconference registration.

Your voice counts too! If you have a suggestion for a survey question that you would like to be considered by the editorial staff, please email us at nacm_survey@nacm.org.

Legal Issues in Credit

A company’s credit department is often one mired in legal issues and while many
of them relate to reducing legal exposure and getting money when a customer goes
delinquent, many others are problems that could penalize the debtor due to
inadvertent unfair practices. Laws like the Fair Credit Reporting Act (FCRA),
multiple antitrust statutes and the Equal Credit Opportunity Act (ECOA) are all
geared toward preventing discriminatory, anticompetitive and unsafe privacy
practices and credit professionals up and down the corporate ladder need to be
aware of them to prevent legal woes.

In a recent NACM-sponsored
teleconference entitled "Legal Issues in Credit: An Update," Wanda Borges, Esq.
of Borges & Associates, LLC led listeners through these potential problems
and offered advice on how best to avoid these issues. "It is a way of being fair
in the extension of credit," said Borges of the ECOA, adding that many companies
who think they’re exempt from ECOA requirements are not in many instances.
"Those of you with large companies may think to yourself ‘you never have to deal
with this because you’re dealing with Fortune 500 companies, etc.’ Well, yes and
no. Anytime you make a credit decision that is ‘no,’ you need to stop and think
if ECOA applies to you."

The ECOA deals with discrimination in terms of
credit and the issue of when a vendor needs to notify a customer when denying
them credit or when reducing their current level of credit, referred to in the
law as "adverse actions." Borges went through what constitutes an adverse action
and noted the times when the law’s stipulations do not apply. "The ECOA means an
individual," said Borges. "That’s also your personal guarantor. So perhaps
you’re dealing with a large company and ask for a personal guarantee. Then you
need to think of the ECOA."

"Creditor [as defined by the ECOA] is anyone
in your company that makes the credit decision. It’s not just the director of
credit, it’s not just the CFO; it can be a credit analyst and they need to be
sure to know the ECOA and abide by its rules and regulations," she

Borges also discussed how to comply with the ECOA without having
to keep a list to check over and over again, and went on to address compliance
with the FCRA, the Uniform Commercial Code (UCC) and several antitrust statutes.

For more information on NACM’s teleconference series, or to register,
click here.

Jacob Barron, NACM staff writer

Credit Policy and Procedures

The economic outlook for the year ahead is bleak. Some analysts have forecast
that the second half of 2008 will stay mired in the doldrums with annualized
growth not returning to near-normal levels until sometime in 2010. Federal
Reserve Board Chairman Ben Bernanke has said the U.S. inflationary picture is
shrouded in uncertainty and the maelstrom that resulted in the housing market
buckle and the credit freeze has yet to subside.

Nonetheless, business
must press forward.

Most companies have set certain tolerance levels for
their risk appetite based on factors such as position in the marketplace,
margins, sales channels, as well as the creditworthiness of a particular
customer. For most credit professionals, the stark reality is that there are
simply accounts to which they must sell, no matter what. Credit reports are an
aid, as are other tools, but there also must be a tangible set of credit policy
and procedures in place.

"How many of us really decide which customers
are sold to?" asked Susan Delloiacono, CCE, director of credit, Brother
International Corporation, at the NACM-sponsored teleconference "Credit Policy
& Procedures." "In my experience, some of my customers are not my choice by
a long shot. Rather, I have to find a way to deal with everyone that’s presented
to me."

Delloiacono’s presentation focused on cobbling together the
"bones" for attendees to develop their own credit policies, instead of merely
creating a point-by-point template to which members could try and fit their
businesses. She discussed that it’s difficult as a credit person to try and
utilize a generic credit policy outline because factors like terms are typically
dictated by the sales department and there are accounts that executives will
press credit managers to accept. Furthermore, there are times when customer
delinquencies are viewed differently.

"A policy that mandates and
dictates certain behaviors always has to have an exception-based rule. At least
that’s what I’ve found in my experience," said Delloiacono. "We’re flooded with
information from the Internet, from alerts we’ve set up in the credit world.
It’s so much information that it’s hard to put that all into a funnel and have
it come out and translate into a one-size-fits-all policy."

She added,
"Money is tightening up. And credit is really getting a spotlight at this point
in time. I think we all agree that there’s tension within our own companies with
the attention on being paid. Accounts receivable and credit extension practices
are under scrutiny."

For most credit professionals, she suggested that
there has to be a sort of double-vision in place: one view that takes in the
macro economic picture, and one view that examines the micro or localized
picture, the structure within their own company.

"In the global
marketplace, many things from wars to fuel are creating uncertainty," said
Delloiacono, who suggested credit managers ask themselves: how does that affect
me? "Look at the global marketplace and be aware of what is around you.
Sometimes as credit people we can be very binary—just looking at the ‘yes’ and
‘no’ of a credit decision without really considering all of these external

With consumer confidence waning, consumer spending has been
reined in, with non-discretionary spending being severely impacted by surging
energy costs and plummeting home prices. The overall implications are broadly
felt as capital and cash flows of businesses in turn have continued to get

As to relationships within their own companies, Delloiacono
cited that credit managers need to consider broadening their view.

credit people, there are some departments that we don’t interact with, but we
should," said Delloiacono. "Our sales department; that’s a no-brainer. We know
we are dealing with sales; we know we are dealing with order management. Somehow
or another, we don’t look at product development as something we need to concern
ourselves with. And that’s a mistake for credit people to take that approach.
It’s important for you to understand where your company fits and what solutions
they have planned for in the future."

For developing a credit policy she
said this was paramount knowledge.

"My counsel to you is to know your
business," said Delloiacono. "Is your company sales- or top-line driven versus
profits, profits, profits? That dictates how you’re going to react in the credit
granting area. If you are really bottom-line driven, you may be really tough on
credit and softer on collections. If you’re soft on credit, typically you’re
working for a very marketing-driven company; a very sales-driven company that’s
like ‘ship it, ship it, ship it.’ If you have that kind of attitude, you better
be tough on the collections side."

Another consideration for credit
professionals is whether the company they work for is public or private. Do they
deal with Sarbanes-Oxley (SOX) issues? That will likely dictate how a lot of a
credit policy is interpreted and what procedures the credit manager is going to
have to have in place to support those overall SOX initiatives.

Delloiacono also said it was imperative that credit professionals know
their industry and become a member of an industry credit group, and that credit
managers incorporate their knowledge of how the current economic factors of
their company can be used to maximize sales, minimize carrying costs in accounts
receivable, minimize bad debt and monitor costs.

"If we look at what our
job is as credit people, it’s just those four things," said Delloiacono. "Those
four components are key to setting credit policy."

Matthew Carr,
NACM staff writer

Business Credit Magazine Short Story Contest

It’s a short story contest! Share your most memorable credit experience for a chance to win $250.
Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It’s not a perfect world, either. You can tell us about an unexpected turn in what should’ve been an easy task, or even a story of failure that will serve to help other credit professionals in the future.

Deadline: November 1, 2008.
Prizes: $250 for the winner; Two honorable mentions will receive $50 each.
Published articles will earn five (5) points on the NACM Career Roadmap or two (2) points towards CCE Recertification.

The possibilities are endless!
For more information, including Contest Rules, suggested story length and potential topics, click here.

Credit Manager’s Index for July Idles Near Neutral

The seasonally adjusted Credit Manager’s Index rebounded slightly in July,
gaining 0.8% as the manufacturing sector index rose 1.6% and the service sector
index crept up 0.2%. All three indexes—combined, manufacturing and service—are
hovering just above the crucial 50 value, indicating a slight degree of economic
expansion. “There was little in the data to provide a compelling picture of
credit conditions one way or another,” said Daniel North, chief economist for
credit insurer Euler Hermes ACI, who analyzes the data and prepares the report
for NACM. “For instance, for the combined index, six of the 10 components fell
and six remain below 50, yet the index itself rose and remained above 50.
Similarly, comments from the participants were a mix of good news, bad news and
price increase news.”

North said, “The report actually reflects very
closely the state of the business cycle and the Federal Reserve’s dilemma. The
Fed faces six straight months (seven as of August 2nd) of job losses, but also
faces consumer price inflation of 4.9%. Given that, either a rate cut or
increase could easily be the wrong move. The Fed’s assessment of the economy
will probably be the same as those of credit managers as a whole; it’s somewhere
right in the middle. And the best choice for right now might be to sit

The seasonally adjusted manufacturing sector
index rose above the 50% level in July, gaining 1.6%, but four of the 10
components fell and six remain below 50. Comments from survey participants were
similarly mixed.

Good News
“In the last 30 days,
have noticed an increased demand for our products.”
“More jobs
“Sales and production still very strong.”
“June was the first
positive month in a long time. Our customers are finally

Bad News
“Smaller businesses are
really struggling…”
“This economy is scary, and there are no historical
precedents to rely on.”
“…customers…hold onto the funds longer”
institutions requiring much higher dollar commitments”


“Fuel prices are having a major impact on business
“Steel price inflation has raised the dollar amount (of sales,
collections, etc.).”

The seasonally adjusted service
index eked out a 0.2% gain to the 50.5% level, but half of the
components fell, and six still remain below 50. Once again, the data is a mixed
picture, just as the commentary is.


“Business…increasing dramatically during the past four months.
Exports in particular have increased.”
“Sales have increased over any
previous year [’05 thru ’07] for the months of January through June.”
continue to manufacture at 100% capacity.”
“We have had excellent DSO over
the last two months.”

Bad News
“Be very careful in
this economy as professional debtors seem to rise to the top when dollars get
“We have a lot of companies paying off their accounts and closing
their doors. Also a lot of customers with health problems (under too much
stress). More verbal and actual fraud than ever before.”
“More bankruptcies
in last 3-4 months more that what I receive in a normal year.”
“…number of
returned checks has increased dramatically…the collection environment is worse
than I have ever seen in my 20 years in collection!”


“The cost on some of our items has increased
“Petrochemical product pricing is up…logistics is challenging with
rising fuel costs.”
“Price increases are testing the limits of credit
“Primary reason for higher sales continues to be high gasoline

“On a seasonally adjusted basis the year-over-year
comparisons show an undeniable downtrend,” said North. “The manufacturing sector
has lost 3.2% as all 10 of its components fell. The service sector fell 4.9% as
eight of its components fell. Clearly the strength of the economy has fallen
over the past year. After all, last August was when the subprime debacle started
to really rattle the global credit markets.”

View the complete July
report online here.

Source: NACM

NACM Survey Shows Proprietary Scoring Inappropriate, Impractical for Many Respondents

NACM’s July Survey question, “Do you use a proprietary credit scoring system in
your day-to-day evaluation of accounts?” showed that a majority of respondents
do not use a proprietary system, with 67.8% of participants responding “no” and
a still-significant 32.2% of respondents answering “yes.” Many respondents who
answered “no” indicated in their comments that they were either in the process
of creating their own proprietary scoring system or that they were looking into
it. Many also indicated that, instead of their own proprietary systems, they use
scoring systems offered by a number of different software vendors.

common refrain heard from a number of respondents who don’t rely on a
proprietary scoring model for their day-to-day evaluations was that the current
economic situation is preventing, rather than necessitating, the use of credit
scoring. “We do not have a large volume of applications and have been able to
process them without a scoring model since our industry is down right now and
nothing is following the old normal patterns,” said one respondent. “Because my
management has decreased staffing in the credit department, I have not had the
time to develop a credit scoring system. My department has gone from five people
to only my position,” said another respondent.

Several other reasons
were given for why credit scoring was impractical, including customer base and
industry concerns. “The nature of our customer base precludes such a scoring
system,” said one respondent. “Based on our volume (low) we find each credit
history check can be done with a complete review and not by scoring. The
diversified market we deal with also makes credit scoring impractical,” said
another respondent. One participant in the construction industry noted that the
nature of the business makes a proprietary scoring model unreasonable. “That is
a difficult type of measurement to apply to contracting firms,” said the
respondent. “The overall ‘food chain’ varies with each construction project and
determines the creditworthiness of each job individually.” This sentiment was
echoed by other respondents in the industry. “In the construction industry we
evaluate the credit standing of the customer very liberally, relying primarily
on the position of the parties on the project and the bond/lien laws for a
particular state,” said another respondent.

“We would use a scoring
system, but cost and the low number of accounts is preventative,” said one
respondent, in summary.

For those respondents who do use a homemade or
proprietary scoring system, the majority noticed that it was “only part of the
puzzle” and rarely used as the only indicator of a customer’s creditworthiness,
using credit scoring “not as an absolute, but a factor,” and referring to it as
“just one part of the evaluation process.” 

Jacob Barron, NACM staff writer

What Every Credit Manager Needs to Know About Escheatment

In lean economic times, states are often hard pressed to secure revenues.
Regulations, fees and fines that may not have been as strictly enforced in more
robust environments make their way to the surface to become key enforcements.

“When budgets are tight and states are looking to increase revenue, we have
seen unclaimed property enforcement step up,” said Valerie Jundt, senior
manager, Deloitte & Touche, LLP, during the NACM-sponsored teleconference
“Escheatment: What Every Credit Manager Needs to Know.”

Like many U.S. laws, escheatment and unclaimed property laws have roots that
go back several centuries to British common law. Under the regulations, after a
certain period of time, companies are required to turn over all unclaimed or
unapplied customer credit balances, rebates, dividends, un-cashed paychecks,
commissions, discounts and a host of other properties to the state. Escheatment
is actually the physical transfer of property to the state that has the effect
of making the state legal owner, rather than merely the custodian, of the
transferred property. More often than not, states are interested in cash or cash
equivalent property that can be liquidated quite easily.

Companies that are acting as holders for unclaimed property are required each
year to submit reports to the government outlining their unclaimed property
activities and to remit funds as necessary. The problem is that oftentimes,
companies are simply unaware of their unclaimed property responsibilities or are
culpable of some sort of infraction as laws and statutes vary widely from state
to state.

“What we’ve found is that oftentimes many companies who feel that they’ve
been filing reports for years are not in compliance; and that tends to be a
mess,” explained Jundt. “The reality is that all holders are likely to have some
unreported unclaimed property liability. And the larger you are, the more
complex you are, the more dispersement accounts, the more merger and acquisition
activities that you have, the greater the risk that you have. So, if you are a
very large company and have somewhat of a complex organization structure, the
likelihood that you are going to have unclaimed property issues is high.”

Unclaimed property fines are not a tax, though they are often perceived as
one. Both civil and criminal penalties can be applied for unclaimed property
violations. Fines can be assessed for not reporting unclaimed property, for not
performing due diligence or complying with state statutes or for not handing
over the property to the state. Knowingly filing a fraudulent report can have
devastating financial impacts. Fines up to $25,000 and interest up to 75% can be
tacked on to the property. Plus, failure to properly account for unclaimed
property liability can be viewed as a violation of Generally Accepted Accounting
Principles (GAAP) or Sarbanes-Oxley Act internal control and reporting
requirements. States are also vigilant for any warning signs from companies that
could trigger an audit on a company, resulting in unclaimed property laws

“The likelihood of you being audited is greater than it used to be,” said
Jundt. “Though from my experience most states are very reasonable.”

Matthew Carr, NACM staff writer

Construction Industry – Pitfalls to Avoid

For the most part, the construction industry is struggling through
lean times. According to the U.S. Department of Commerce’s U.S. Census
Bureau report for May, for the first five months of 2008, construction
spending totaled $416.6 billion, 5.1% below the total for the same
period last year. Residential construction spending continues to
topple, dipping to $378.9 billion in May, 1.6% below April and 26.9%
below May 2007. Private construction spending as a whole has shed
almost 10% year-over-year.

With standards remaining
tight in the credit markets, the impacts are being felt the length of
the value chain. There is a trickle-down effect from the creditors to
developers, from the developers to the builders—who are sitting on a
large inventory of homes—and from the builders down to the
subcontractors. In his NACM-sponsored teleconference "Pitfalls to Avoid
in Being a Subcontractor on a Construction Site," Byron Saintsing,
partner, Smith Debnam Narron Wyche Saintsing & Myers, LLP, shared a
wide range of information from lien claims and payment bonds to
bankruptcy issues to help subcontractors and other construction site
partners keep their heads above water during difficult times.


market out there today, at least on the residential side, is in pretty
bad shape and I think everyone knows that," said Saintsing. "If you are
dealing with and are selling to a subcontractor that’s on the
residential side of the market, chances are that they have hit some
bumps in the road and if they haven’t, they’re going to."


and foremost, Saintsing suggested maintaining high credit standards.
There is often pressure from the sales department when sales are down
to ask credit departments to cut corners, extend terms, create special
terms and simply relax standards across the board, but from the credit
managers’ perspective, this is the time to remain firm.


is not the time to loosen your credit standards," stated Saintsing. "If
you do, I’m afraid you’ll see your bad debt write-offs continue to go
up, not down."


Saintsing recommended that credit
professionals examine their documentation and make sure contracts are
being properly executed. If they are taking collateral, they want to
take a look at things like proof of delivery, verification of where
that collateral is and they want to make sure that their UCC-1
financing statements are properly filed. Customers need to be examined
to determine what kind of ability they have to repay the credit that’s
being extended to them. Due diligence needs to be practiced with credit
and trade references, as well as with financial statements and credit


"You want to take extra precautions in this
environment to verify who your customers are and what kind of entity
they are," explained Saintsing. "You really do need to know on the
front end who you are dealing with and what their ability to pay is.
The time to ask those questions is not on the back end when you have a
payment problem."


There are legal avenues available
if payment problems do occur. For example, if a bankruptcy has been
filed, or imminent, credit managers are eligible for reclamation rights
under the Uniform Commercial Code. Non-bankruptcy law reclamation
rights state that creditors have 10 days after their customers received
goods of sale to give notice of reclamation if the customer was
insolvent when they received them.


"That’s not very
much time, so reclamation rights, in the real world, are hard to
assert," said Saintsing. "It’s easy for a lawyer like me to say, ‘Sure,
go file a reclamation notice.’ But in the real world, not many people
are paying within 10 days, so it makes it tough to use reclamation
rights. But they are available."


Of course,
mechanic’s liens on private projects and payment bonds on public
projects are courses of action as well. But because statutes vary from
state to state, credit departments need to have resources that specify
all the nuances to ensure they are eligible to recover what’s due to
them. Tools like NACM’s Mechanic’s Liens and Bonds Services’ (MLBS)
Lien Navigator give detailed information on each state’s procedures and


Matthew Carr, NACM staff writer

NACM Survey: Sales Can’t Override Credit, Both Work Best as a Team

According to NACM’s most recent monthly survey, "In your company,
can a sales team overrule a decision by the credit department?" the
majority of respondents noted that sales cannot overrule their
department’s credit decisions, with 60.7% of participants answering
"No." However, while a still sizeable 39.3% answered "Yes" to the
survey question, many of these respondents noted that the occurrence of
a sales override over credit is exceedingly rare and happens when a
member of a sales team or upper management has a relationship with the
customer in question.

The type of account upon
which sales tends to override credit is also similar among
participants, with many of them noting that, in many instances, sales
will override a credit department’s decision regarding marginal
accounts. Many "yes" respondents also noted that sales overrides cannot
be done whenever sales finds it necessary; most of them require the
approval of a vice president or officer of the organization and some
also require that the customer meet certain previously agreed-on
creditworthiness criteria.


There were some
participants, however, who noted that, in their opinion, sales can
often function and overrule a credit department decision without any
prior approval whatsoever. "The local sales managers or the general
sales manager can and do override credit decisions with no impunity or
consequences," said one respondent. "Creditworthiness is not a concern,
only the sale." When asked to characterize their credit department’s
relationship with sales, the aforementioned respondent noted that the
relationship is "good, as long as sales gets their way." This sentiment
was echoed by a number of other respondents whose credit decisions can
be overridden by a sales team, with many noting that their relationship
with sales is "combative" and "adversarial." In one instance, a
participant simply responded by asking, "What relationship?" Another
respondent, who answered the question positively, noted that sales’
decisions to override have taken their toll: "After 20 years of dealing
with marginal credit and tons of collection problems, I am rundown and
about ready to give up and retire."


A large portion
of respondents noted that, while sales does have the ability to
override a credit decision and make a sale, for the most part, the
sales and credit teams work together to come up with an agreeable
solution to the problem. "The main objective is to find that unique
balance between sales and credit," said one respondent, who also noted
that, at their company, "There is mutual respect between credit and
sales. I am very fortunate to have the support of sales, as well as
upper management, especially in this economic climate we are currently
working in." The economic climate was also cited as a reason for why,
in the last several months, many sales people have stopped overriding
to make sales and taking greater heed of what the credit department has
to say. "It is not happening as much as it used to happen," said one
respondent. "Economic times are curbing their recklessness."


Be sure to visit www.nacm.org for this month’s survey question, "Do you
use a proprietary credit scoring system in your day-to-day evaluation
of accounts?"


Jacob Barron, NACM staff writer

FCIB California International Round Table

The FCIB California International Round Table that will be held at The Luxe Hotel Sunset Boulevard, located in Los Angeles, on Wednesday, September 17, 2008. FCIB Round Tables are exceptional educational and networking opportunities for the international trade professional.

Please invite your colleagues, clients and friends to join us as well – it is a great way to introduce new professionals to your association and invite them to share the wealth of knowledge and expertise FCIB members offer.

The Round Table Forum will include a lively, in-depth question and answer session, led by a moderator and a panel of experts — highly successful and recognized practitioners in the international credit, risk management and trade finance fields.  The agenda is derived from questions and topics of interest submitted by attendees.  Discussion of key issues and the exchange of information with industry peers are the highlights of FCIB’s International Round Table Forums.

To register click here.

FCIB is the premier Association of Professionals in Finance, Credit and International Business, serving the export community for 89 years.

NACM’s Credit Manager’s Index for June 2008 Reflects Torpid Times

"The seasonally adjusted Combined Credit Manager’s Index fell 0.9% in June,
setting or tying a number of unpleasant records in the process," said Daniel
North, chief economist with credit insurer Euler Hermes, ACI, who evaluates and
issues the report for the National Association of Credit Management (NACM). "All
three indexes tied their records for the most components below the critical 50
value indicating economic contraction: six for the combined and manufacturing
indexes, and seven for the service index," he noted. A record nine components
fell in the manufacturing index. The combined and manufacturing indexes reached
their second lowest levels ever at 50.1 and 49.8, respectively.

"What a difference a month makes. In contrast to last month’s cheery tone,
credit managers now seem downright depressed," North said and reported
"UGH…rough month!" from one survey participant. "While the housing market used
to be the single largest source of misery, fuel prices are starting to take
over," he said. "As gasoline continues to set record inflation-adjusted levels,
businesses from retailing to transportation to groceries are suffering. Given
that May was the fifth straight month for job losses, real retail sales and wage
growth are both negative year over year, foreclosures are at sky-high record
levels and business bankruptcies continue to rise, it’s no wonder that the
majority of credit managers are seeing tough times."

The seasonally adjusted manufacturing sector index fell 2.7% to 49.8%, only
the second time that the index has dipped below 50, indicating economic
contraction. Nine of the 10 components fell. Six are below 50. Two components,
dollar collections and dollar amount beyond terms, set record lows. A
manufacturer of audio tapes noted that their customers were "Going out of
business at a very rapid rate!" and a sheet metal company reported, "Customers
are attempting to stretch out their terms." North said, "Once again rising
prices affected the survey as one participant reported that higher sales figures
were due only to higher prices, not higher volume, and another explained that
his increased sales were due to customers rushing to purchase goods before a
price increase took effect."

The seasonally adjusted service sector index fell 1.2% to 50.3% as six out of
10 components fell, leaving a total of seven components below 50. Norh said,
"Once again survey participants noted difficulties caused by rising fuel prices,
but customer payment patterns were the source of an unusual number of
complaints: ‘very slow pay for big jobs,’ ‘customers experiencing cash flow
issues,’ ‘a rise in collection problems,’ ‘past-due accounts getting harder to
collect,’ ‘significant spike of cash flow problems,’ ‘more customers extending
out payment terms’ and ‘the number of accounts being placed for collections is

On a seasonally adjusted basis the year-over-year comparisons are grim. All
10 components in all three indexes fell. The combined index fell 6.3%, the
manufacturing index fell 6.9%, and the services index fell 5.7%. The drop in the
manufacturing and combined indexes set records.

The CMI, a monthly survey of the business economy from the standpoint of
commercial credit and collections, was launched in January 2003 to provide
financial analysts with another strong economic indicator.

The CMI survey asks credit managers to rate favorable and unfavorable factors
in their monthly business cycle. Favorable factors include sales, new credit
applications, dollar collections and amount of credit extended. Unfavorable
factors include rejections of credit applications, accounts placed for
collections, dollar amounts of receivables beyond terms and filings for
bankruptcies. A complete index including results from the manufacturing and
service sectors, along with the methodology, can be viewed at http://web.nacm.org/cmi/pdf/CMI_June2008.pdf.

This report and the CMI archives may be viewed at http://web.nacm.org/cmi/cmi.asp.

Source: National Association of Credit Management

SOX 404 Requirements Delayed for Small Businesses

The Securities and Exchange Commission recently approved a one-year extension of
the compliance date for smaller public companies to meet the auditor attestation
requirement of Section 404(b) of the Sarbanes-Oxley Act (SOX), meaning that
smaller companies will be required to start providing an attestation report in
their annual reports in fiscal years ending on or after December 19, 2009.
Additionally, the commission also announced that it had secured approval from
the Office of Management and Budget (OMB) to begin collecting data for an
analysis of the costs and benefits of the implementation of Section 404 and the
consequences that compliance may have for smaller companies.

An extension in the compliance date has been championed by congressional
small business leaders and regulators alike, with SEC Chairman Christopher Cox
first discussing the one-year delay in late 2007 and formally proposing it
before the House Small Business Committee in early 2008. The cost-benefit study
was first announced in February and is being led by the SEC’s office of economic
analysis with assistance from the office of the chief accountant and the
division of corporate finance. The study will include interviews and a web-based
survey in an effort to collect real-world data from a number of smaller
companies to determine what about Section 404’s requirements drive compliance
costs upward.

"Over the past few years, the commission and Public Company Accounting
Oversight Board (PCAOB) have committed extensive resources to improving the
efficiency and cost-effectiveness of the implementation of Section 404’s
requirements, particularly for smaller companies," said John White, director of
the SEC’s division of corporate finance. "I am optimistic that this study of
real-world data will help further inform our efforts to improve the
implementation of SOX 404."

Results of the survey are expected to be available before the new delayed
compliance date.

Jacob Barron, NACM staff writer

NACM Survey: “Fast-Track” Bankruptcy Proceedings Uncommon

Results from NACM’s most recent online survey show that the "fast-track"
provisions included in the Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005 (BAPCPA) that allow for expedited bankruptcy proceedings for small
business debtors have largely gone unused. When asked "Have you dealt with a
debtor going through a ‘fast-track’ bankruptcy, the provisions under BAPCPA
which allow expedited proceedings for Chapter 11 small business filings?," 95.1%
replied "no" and only 4.9% responded "yes."

According to one respondent who had recently gone through their first
"fast-track" bankruptcy, the court issued a settlement to all unsecured
creditors within three months of the debtor’s filing, which was pending an
anticipated sale of the company at the end of 30 days. "The only option was to
settle at 50% (pretty good concerning the circumstances) or try your luck at a
Chapter 7," said the respondent. "Since the company was owned by a venture
capital concern, we never did obtain any financials but were able to review them
prior to receiving the fast-track claim. The courts gave us a week to decide."
The respondent noted that the debtor had made payments within the 90-day
preferential period and that their company provided a part that was critical to
the debtor’s continued operation. "It made sense to settle," said the

"As for the ‘fast-tracking’ procedure, I believe it is viable where a company
can quickly maintain its position, settle and sell its assets to survive, as was
this case," they added. Other respondents noted that the fast-track procedure
had both advantages and disadvantages. When asked to rate the experience as
"better," "worse" or "about the same" when compared to a normal bankruptcy
proceeding, one respondent, who has gone through two "fast-track" bankruptcies
in the last eight months, replied "Worse from a standpoint, because I felt we
did not have the opportunity for input or options, and better because it
drastically sped up the process and I am not sure if we could have added or
changed anything to make a difference."

Other respondents noted that they were just currently getting involved with a
"fast-track" bankruptcy and couldn’t attest to the quality or efficiency of the
proceedings. Still, while the "fast-track" process may offer advantages to some
creditors depending on the situation, it seems that the occurrence of these
kinds of bankruptcies is decidedly rare.

Jacob Barron, NACM staff writer

Dealing With Difficult People

In almost everyone’s life, there is one person that irks them or gets under
their skin; that knows how to push their buttons. Often, this painful person can
be avoided or at least contact minimized for the sake of one’s sanity.

But the workplace provides a kind of conundrum. Difficult people can be on
all rungs of the ladder, from a supervisor, to a co-worker, to a member of a
different department, and the path of least resistance may not be an option at
all. But, as demonstrated at a recent NACM teleconference, blame is not to be
shouldered solely by a difficult person to get along or work with, and in fact
these turbulent relationships can be beneficial.

"At what cost do we put up with these behaviors?" asked Susan Fee, counselor,
Susan Fee & Associates. "These people can help us by exposing us to our own
weaknesses. They force us to define our boundaries."

Fee also said that interactions with "difficult people" could help
individuals recognize patterns. If they’ve felt these emotions before, then it
may not be the "difficult person" who is the problem since they are not the
common denominator through one’s life. She described a cycle that begins with
confronting a situation, a person’s automatic thoughts of that situation, which
lead to feelings/emotions, and ultimately to what sort of behavior is dictated.
So oftentimes, it is an individual’s outlook on life that has the most profound
impact on their attitudes toward a situation or person. "We clearly know that
people who are optimistic versus pessimistic deal with difficult people better,"
explained Fee. "Optimistic people tend to view difficult people or situations as
transient; they recognize what can’t be controlled. Pessimistic people feel that
a difficult person undermines their whole lives. They believe they are
completely uncontrollable."

She described a typical occurrence where people complain that "So-and-so
ruined my day." It’s an all too common lament where blame is placed on other
people for their impact on an individual’s life instead of that individual
taking accountability for their own happiness and taking the reins on what
affects them. Fee said that people need to "lose the victim mentality and focus
on what is controllable."

She stated simply, "It starts with you. Your automatic thoughts will lead to
how you deal with a situation. These feelings don’t come from outside of you.
They come from your thoughts."

"By blaming them, you are saying, ‘I can’t be happy until you change,’" Fee
added. "When people speak as victims, they perceive that they have no choice.
You can always change your thoughts. People can’t push our buttons unless we
reveal to them our panel."

Matthew Carr, NACM staff writer

Note: Susan Fee will be the closing speaker at the WRCC in October her topic: Project YOU! Developing Your Personal Success Program

Economist Notes That Global Downturn May Not Be Short-Lived

During his presentation at NACM’s 2008 Credit Congress in Louisville, entitled
"Outlook for a Global Economy—Implications of a Recession in the U.S.," Byron
Shoulton, vice president and international economist with FCIA Management, Co.,
Inc., noted that the current economic downturn plaguing the globe may not be as
short-lived as some would hope. "I think we’re really at a critical juncture in
the global economy," he said. "We are in a transition period."

Shoulton noted that over the last two years there has been a fundamental loss
of confidence in the U.S. financial system and while problems like a weak U.S.
dollar and inflation will eventually subside, the loss of confidence will not be
so easily restored and could prolong the current downturn. He also cited
problems with global rating agencies whose previous transgressions will, in the
future, be rewarded with what Shoulton considered to be a necessary increase in

"I believe we’re moving away from seven years of global growth," he said.
"We’re embarking on an era of high inflation, high interest rates and high

Going forward, he said, interest rates will rise and the concern of central
banks globally will become more inflation-oriented rather than growth-oriented.
He also referred to the banking sector’s recent write-offs, which he said would
top $1 trillion globally, as an indication of a weakened financial system that
may plague many other market actors. "Some of the good guys will suffer for some
of the excesses of the last few years," he said, adding that, overall, the
outlook is rather bleak. "It has all the makings of a prolonged recession."

On the brighter side, Shoulton was sure to note that, for U.S. companies,
overseas opportunities have never been greater. "It is a time of immense
opportunities for U.S. companies to expand in markets overseas," he said. A low
U.S. dollar coupled with strong global demand comes along every 20 years or so,
and Shoulton encouraged companies to take advantage of this. "U.S. exports will
thrive in this environment."

For continuous updates on this year’s Credit Congress and its educational
sessions, visit www.nacm.org and
watch for the July/August issue of Business Credit magazine for a full
wrap up.

Jacob Barron, NACM staff writer

Most Creditors No Longer Receiving Sub-$5,000 Preferences

The results of NACM’s first monthly survey question illustrated that preference
claims for under $5,000, forbidden by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA), have all but vanished since the law’s
enactment. Of the responses to the survey question, "Have you received a
preference claim for less than $5,000 since the passage of the BAPCPA in 2005?,"
95% answered "no" while the remaining 5% said the opposite. The topic of
trustees sending out unenforceable preferences demanding less than $5,000 had
been raised at several NACM events, but, according to the survey, the issue
seems to be isolated to a select few creditors.

Among participants that answered "yes," it was noted that while the amount of
preferences has decreased in the wake of the BAPCPA, problems still exist on
several fronts including Chapter 9 filings and the currently rising number of
business bankruptcies, which are starting to recover to pre-BAPCPA levels.
"Chapter 11 and 7 filings have decreased. However, Chapter 9 filings in my area
of the country have increased," said one respondent. A Chapter 9 bankruptcy can
only be filed by a municipality, political subdivision or public agency.
"Governmental agencies, particularly hospital districts are overly burdened with
debt coupled with decreased revenues. When government agencies file Chapter 9,
they are in control with few to none of the creditor protections in a typical 11
or 7. Creditor recoveries are virtually nonexistent, as are the available
revenue streams for pre-petition debt."

Another respondent noted that as bankruptcy filings continue to recover,
preferences are expected to increase for their company. "Now that we have passed
two years since BAPCPA, the number of preferences has dropped off," said the

"As more companies rushed to beat the October 2005 effective date of the new
provisions I had a surge in filings in the first three quarters of ‘05, which
resulted in a surge of preference challenges in the first three quarters of ‘07.
In the last 12 months, I’ve faced about four or five challenges. In the last 18
months I’ve faced about nine." "As bankruptcy filings are once again picking up,
I suspect that my preferences demands will follow suit in about 18-24 months,"
they added.

This month’s survey asks about your experiences with "fast-track"
bankruptcies, an option offered to small businesses in certain provisions of the
BAPCPA. To participate, visit NACM’s homepage at www.nacm.org.

Jacob Barron, NACM staff writer

NACM Credit Manager’s Index for April 2008

The seasonally adjusted combined Credit Manager’s Index rose slightly to 50.1, barely above the critical 50 level indicating economic expansion. The increase of 0.2% was a result of the manufacturing sector falling
0.8% while the service sector rose 1.2%. Five of the 10 components in the combined index fell, but six are below 50. Eight components fell in the manufacturing sector, leaving six below 50, the most ever. “However,
the service sector showed a rebound in April, breaking a six-month streak of decreases, which made it only the second month in the past 11 to show improvement,” commented Daniel North, chief economist with credit insurer Euler Hermes ACI. “Finally, note the respective levels of the combined, manufacturing and service indexes—50.1, 50.2 and 50.0—all perilously close to showing economic contraction,” he continued.

North said that comments from participants this month include the usual litany of slow paying customers and overall economic weakness, especially in businesses exposed to the housing industry. “However, there was a significant increase in comments about the negative effects of higher input costs, especially fuel,” he said. “No doubt the Federal Reserve will cite these inflationary pressures as a concern when it signals to the financial markets that the cycle of monetary easing is about to end.”

Access the full report for April 2008

“Red Flag” Regulations Approaching Quickly

While the Fair and Accurate Credit Transactions Act of 2003 (FACTA) doesn’t
expressly include business-to-business transactions in its identity theft
prevention provisions, companies whose customers include both other companies
and consumers may be required to comply with FACTA’s "Red Flag" regulations. The
regulations, listed in Sections 114 and 315 of the Act, require companies to
establish prevention and recognition programs and take note of certain "red
flags" that may be indicative of identity theft. While FACTA was signed into law
five years ago, compliance with the red flag provisions will become mandatory
beginning November 1, 2008.

Consumers are the Act’s main focus, but while they constitute the largest
group of the Act’s protected customers, the regulations are based on risk and
depend more on the type of transaction or account than the customer’s class. The
regulations cover continuing deposit or credit relationships designed to permit
multiple payments or transactions on the part of the customer like, for example,
credit card accounts, mortgage loans, installment credit, margin accounts, cell
phone service or other utilities, checking accounts and savings accounts. The
regulations also vaguely apply to any other account where there is a reasonably
foreseeable risk of identity theft for the customer. The guidelines apply to all
financial institutions and creditors with accounts like the ones listed above,
so not all trade creditors will be affected. For those that are, an implemented
and maintained plan will be necessary.

A compliant company’s identity theft prevention program must include an
established list of relevant red flags consisting of patterns, practices or
specific activities that may indicate the existence of identity theft, culled
both from the company itself and from the text of the legislation. Additionally,
the program must account for the ability to detect the aforementioned red flags,
respond to the appearance of a red flag and adapt on a regular basis to stay up
to date.

While the majority of these regulations may not apply to most B2B companies,
regulations such as these tend to start in the consumer arena before expanding
to include businesses. Companies that conduct business with consumers, or
traffic in personal data, should take note of FACTA’s guidelines and suggestions
for preventing the occurrence of identity theft. For more information on these
regulations and how they could affect businesses in the future, stay tuned to
NACM’s eNews.

Jacob Barron, NACM staff writer

Bankruptcy Point/Counterpoint NACM

Two of NACM’s most popular legal minds went head-to-head during the recent
"Bankruptcy Update: Point/Counterpoint" teleconference, where they discussed
several BAPCPA protections for trade creditors, along with the most current
related case law and the administrative ambiguities that accompany some creditor
defenses. Bruce Nathan, Esq. of Lowenstein Sandler PC acted as the voice of the
courts, while Wanda Borges, Esq. of Borges & Associates LLC acted as the
voice of the trade creditor.

Several topics were discussed throughout the program, most notably the
503(b)(9) 20-day administrative claim and the increasing use of executory
contracts among trade creditors. Speaking about the 20-day administrative claim,
Nathan noted, "This is one of the biggest amendments of the BAPCPA," adding,
"This has become a safety net for suppliers." He then discussed how trade
creditors have to go about getting the actual claim. "This 20-day priority is
not automatic," he said. "The Bankruptcy Code requires that this priority be
granted after a notice and a hearing."

Problems arise with the 20-day administrative claim in terms of when the
claim is actually supposed to be paid. "There’s nothing in the statute that
talks about when this claim is paid," said Nathan, noting that payment times
differ from district to district. "It’s the court that makes the decision."

Borges responded with her opinion of when the claim should technically be
paid. "The Code is silent, but I think it should be paid now and should be paid
in full," she said, offering advice to trade creditors when filing this claim.
"You’ve got to move, you’ve got to move fast, and you’ve got to move furious."
Later, Borges discussed her own personal experiences with executory contracts
and their idiosyncrasies. "In the last six months, I have seen more issues with
executory contracts with my clients and with trade creditors," she said. "It’s
effectively a contract where something has to be done on both sides. In order to
have a Chapter 11 debtor agree to stay in the executory contract, the debtor has
to pay, in full, all arrearages or provide adequate insurance that you’re going
to get paid." After hearing that, trade creditors might find the prospect of an
executory contract quite alluring, but Borges and Nathan discussed the other
issues and prerequisites that complicate the issue.

Other topics discussed included preferences, changes in the ordinary course
of business defense and issues associated with the contemporaneous exchange for
new value defense. For more information on NACM’s teleconferences, or to
register, click here.

Jacob Barron, NACM staff writer

Structuring LCs to Protect Your Company

"The letter of credit (LC) is an obligation that banks have to your company if
certain conditions set forth in the LC are met," said Robert Mercer, Esq. of law
firm Powell Goldstein, LLP. "This is an attempt to isolate your company from the

Mercer, a partner at Powell Goldstein’s Atlanta office who practices in its
Bankruptcy & Financial Restructuring Group, discussed LCs and the best ways
to structure them at a recent NACM teleconference entitled "Structuring Letters
of Credit That Won’t Leave You Stranded in a Customer Bankruptcy." Over the
course of his presentation, Mercer outlined common stipulations that creditors
should include as well as some that they should avoid when drafting their

Most importantly, Mercer noted, a vendor using an LC should be sure to
include a Bankruptcy trigger in the LC, rather than just in the supply contract.
Since the revisions made to the bankruptcy Code in the 1970s, provisions in
contracts that attempt to construe a customer bankruptcy as a form of default
have been unenforceable, meaning that when a customer files, the vendor is left
open to preferences and placed in the running with the rest of the customer’s
unsecured creditors. Still, these provisions are used very frequently. "You see
them in many commercial documents," said Mercer. "Put in the LC that, if the
customer files bankruptcy, it’s a basis under which your company can draw on the
LC." In this way, when a customer files bankruptcy, under the terms of the LC,
the bank is still obligated to pay your company.

"This is a really simple fix," he added. "That’s a provision you want in the

Mercer also discussed the importance of removing as many conditions as
possible from the LC, including provisions that require a vendor to give a bank
or the customer a few days notice before drawing on the LC or provisions that
require the vendor to seek consent before drawing.

For more information on NACM’s teleconferences, or to register, click here.

Jacob Barron, NACM staff writer

NACM BACPA Survey results & May Survey

The results of NACM’s April survey are in:

Have you received a preference claim for less than $5,000 since the passage of the BAPCPA in 2005?
Yes: 5%
No: 95%

Participate in the May Survey:

Have you dealt with a debtor going through a “fast track” bankruptcy, the provisions under BAPCPA which allow expedited proceedings for Chapter 11 small business filings?

Click Here

Are You Viewed As a Leader?

Company executives are fully aware of the impact sales has on their company’s
future, but many of them might not be so aware of how close accounts receivable
(A/R) relates to the organization’s sustainability and potential for growth.
"It’s really important to show them how credit can affect them," said Susan
Archibeque, CCE in a recent NACM-sponsored teleconference entitled "Credit

Archibeque noted that while sales may have the most obvious tie to a
company’s position, it’s important for the business’ decision makers to
understand how important credit is to help the company make more sound strategic
decisions and also to increase the profile and clout of the credit department
within the organization. Archibeque noted that the relationship between credit
and sales should be an equal and mutually-beneficial one. "The only way that we
can change perception of credit is to have a positive experience with sales,"
she said. "It’s important that sales and credit are on the same committee."
Archibeque even noted that, in some instances, sales should be tied to credit
and suffer the consequences when one of their customers fails to pay.

Before any of these options are put into place, however, Archibeque noted
that a credit department needs to take stock both of how they’re performing and
how they relate to the rest of their company. "We need to look at your company
internally," she said. "Look at the impact A/R is having. You need to know where
improvements need to be made… to change the philosophy of credit in [your]
organization." Archibeque also added that it’s important for credit staff to be
involved in the company’s future as much as its present situation. "You need to
be on the strategic planning committee so you can be in on your company’s
growth," she said. "You need to know where your company’s going in terms of

For more information on NACM’s teleconferences, or to register, click here.

Jacob Barron, NACM staff writer

House Committee Examines Small Business Credit Card Use

The House Committee on Small Business, chaired by Rep. Nydia Velázquez (D-NY),
recently held a hearing on the increasing role of credit cards in the financing
of small businesses. As the U.S. marketplace continues to weather a credit
crunch, small businesses have found affordable financing exceedingly scarce, and
have thus reached to credit cards to get the financing they need.

"When a small firm can’t buy equipment, or has to lay off its workers, our
entire economy suffers," said Velázquez. "These businesses are the principal
drivers of our economic growth, but without capital they can’t lead us back to

According to a Federal Reserve survey of senior loan officers, 65% of
respondents reported tightening standards in the first quarter of 2008, a
problem compounded by an increase in fees related to popular small business
loans, including the Small Business Administration’s (SBA) 7(a) initiative.
"With fewer options in the private market, and in the midst of an economic
downturn, it is inexcusable for SBA to make it tougher for small firms to get
capital," said Velázquez. "Affordable financing means access to opportunity.
That’s why many are turning to plastic—to keep their businesses and our economy

Witnesses testified that in the past five years alone, it is estimated that
small firms’ use of credit cards has jumped by 14% and that 70% of small
businesses pay off their full balances monthly, giving them the equivalent of
30-day interest-free loans.

"Small firms are facing a considerable financing gap," said Velázquez.
"Viewing credit cards as the tools they’ve become for small firms just makes

Jacob Barron, NACM staff writer

NACM Credit Manager’s Index for March 2008

or the first time since the seasonally adjusted Credit Manager’s Index (CMI) was calculated in February
2002, the combined index has fallen below the crucial 50 level, indicating an economic contraction. It was the
sixth decline in seven months, and a record six of 10 components fell. The service sector fell below 50 for the
second consecutive month, while the manufacturing sector tied a record low of 51.0. “It was an unhappy report,” said Daniel North, chief economist for credit insurer Euler Hermes ACI.

“The information in the report confirms other national data, such as negative growth in non-farm payrolls,
record home foreclosures and real retail sales falling year over year, which indicate that the economy is
almost certainly in recession,” North said. While the Federal Reserve Bank has reacted quickly to soothe the
turbulent financial markets, it takes up to a year for Fed interest rate cuts to have their full effect. “When that
happens, and when the housing market finally regains its footing, then the economy will begin to recover,
perhaps by the end of 2008 or the beginning of 2009,” he concluded.

Click here to download the full report in PDF

Three Percent Withholding Measure—Your Comments Needed

Over the past year, NACM has informed you that on January 1, 2011, a
mandatory 3% withholding measure on the value of most contracts for
goods and services sold by businesses to federal and state governments,
including local political subdivisions with contracting expenditures of $100
million or more, will go into effect.

NACM opposes this 3% withholding measure:

1. It will adversely impact businesses, which do not have
the administrative or financial capacity to withstand this new withholding

2. It will place a proportionately higher financial burden on all
engaging in commerce with these governments because it is
not a progressive measure and places an undue burden on the already-squeezed
cash flows of many small- and medium-sized businesses.

3. It may force those who currently do business with these
governments to cease doing so
, leading to less competition and driving
up prices that the government has to pay for goods and services.

4. It could further weaken the U.S. economy, which depends a
great deal on jobs and growth created by the business community, including the
small and medium-sized businesses that are responsible for the majority of new
job creation.

The IRS is now requesting comments about this mandatory withholding.
NACM urges you to email Notice.Comments@irscounsel.treas.gov
with your comments.
Be sure to include "Notice 2008-38" as the subject

You can also send a letter in opposition to the 3% withholding
measure to:

CCPA:LPD:PR (Notice 2008-38)
Room 5203
Internal Revenue Service
Franklin Station
P.O. Box 7604
Washington, DC 20044

Please act quickly! The comment period closes on April 25, 2008.

For your convenience, click
for a sample letter.

Learn more here.

Breaking Ground on UCP600

Somewhere between 11-15% of international trade uses letters of credit (LCs),
representing trillions of dollars each year. As such, there has been a need for
consistency in the rules and regulations that govern this form of documentary
credit. The latest in a long line of these standards is Uniform Customs and
Practice No. 600 (UCP600), which went into effect last July. After more than
three years of crafting and compiling feedback, it was the first revision to the
rules governing documentary credits since 1993, which began 60 years prior.
UCP600 is part of the International Chamber of Commerce’s (ICC) ongoing agenda
to help manage regulations governing the use of commercial LCs and to eradicate
some of the redundancies in older statutes as commerce changes.

In the NACM teleconference, "Everything You Wanted to Know About UCP 600, but
Were Afraid to Ask," JPMorgan Chase’s Madeline Sprague, CTP, vice president,
Global Trade and Logistics, walked members through the basics of the latest

"Electronic changes in commerce were the driving force behind the revision,"
commented Sprague. "The old UCP500 was very cumbersome and said the same thing
over and over again. UCP600 now provides for a variety of defaults and
conditions. By far and away, UCP600 is going to be the driving regulation and
it’s very easy to make an LC customized to your transaction. The previous
versions were very nit-picky and it drove beneficiaries insane."

Sprague said that it was imperative that members realize that a letter of
credit is fundamentally a specialized payment, and that UCP600 defines a large
portion of that payment as contract law. As such, LCs are not always intuitive
and are basically a conditional payment contract. The credit agreement is also
separate from any other commercial contract with payments made against the LC
only, but must be in sync with other commercial contract terms.

"The devil is in the details in letters of credit, as with any contract,"
said Sprague.

UCP600 is now the primary international regulation governing commercial LCs
although, in the United States, Uniform Commercial Code (UCC) Article 5 also
shares rule over the documents. The international regulation provides which
parties are committed to payment, what the obligations of banks are, which party
has the final say, as well as defines what types of payment commitments there
are and when they go into effect. Unlike UCP500, the new rule provides defaults
and standards for the styling of documents and what those documents must
contain. But it’s not something credit managers are going to conquer

"It’s really a version of contract law and you’re not going to learn it
quickly," explained Sprague. "You’re going to need someone to coach you through

She suggested that a good starting point is the ICC website, which provides a
wealth of information on the revision. The NACM Bookstore also carries The Comparison of UCP600 &
, published in 2007.

Matthew Carr, NACM staff writer

Credit Applications and Related Legal Issues

After a number of years in the industry, it might be easy for a credit
professional to overlook the credit application as something that’s more a part
of the landscape than anything else. However, if an account goes bad, a
haphazard credit application could make the collection process a lot more
difficult. “Credit executives seem to have an attitude of ‘I’ve been around for
a long time, I know everything there is to know about credit applications,’”
said Wanda Borges, Esq. of Borges & Associates, LLP in a recent
NACM-sponsored teleconference.

Borges noted that while this may be the case, she’s noticed seasoned credit
professionals in other presentations obviously being reminded, enlightened and
refreshed about some easily overlooked and commonly forgotten credit application
strategies. “I hope today for all of you on the line I will either refresh you
as to some things you forgot about or teach you some things you never thought
about with credit applications,” she added.

Borges delivered on this wish in her teleconference, entitled “Credit
Applications and Related Legal Issues,” by offering attendees a quick and
effective guide to all the ways a company should protect itself from customer
default and legal exposure using its credit application.

One of the first considerations to make when constructing a credit
application is what information needs to be collected. “My primary rule of
credit is ‘know thy customer,’” said Borges, who offered a thorough list of what
details should be collected up front to put the creditor in a more advantageous
position. Specifically, Borges discussed the importance of getting corporation
details, ownership details and to include stipulations about references.

Ownership details, Borges noted, can be of great use should a collection
effort be necessary. “You want that information so you can go find them,” she
said, adding that every application should require home addresses and ownership
interest information for each owner of the business entity. For references,
Borges suggested that credit grantors require at least three trade references
and also stipulate that they can get references from the customer’s bank. “The
trade credit reference is actually going to be the best of their trade credit
references,” she said. “You are not limited to the references they give

Borges’ presentation also offered participants text to include in a credit
application to protect a creditor from exposure to laws like the Fair Credit
Reporting Act, the Equal Credit Opportunity Act and the Fair and Accurate Credit
Transactions Act’s disposal rule. She also offered tips on how to clearly
organize the application to make sure the customer understands it and can’t
reasonably plead ignorance in a court case.

For more information on NACM’s teleconference series, click here.

Jacob Barron, NACM staff writer

Industry Day Sessions at NACM Credit Congress

Monday, May 19, 2:00–5:00pm

Industry day sessions are designed for attendees to gather and network by
like industries. Please note that these are not “closed” group meetings (unless
indicated) and anyone is welcome to attend any of these sessions, should the
topic/speaker be of interest.

10621. Advertising/Media
10622. Agri-Business
10623. Apparel/Footwear
10624. Building/Construction
10625. Drugs/Cosmetics/Pharmaceuticals
10626. Electrical Wholesalers & Distributors
10627. Food
10628. International
10629. Metals
10631. Publishing
10632. Wholesale/Distribution

10619. International Utilities Group Meeting
will be held 1:15-5:00pm. This is a closed meeting for those involved in the
International Utilities Group.

Please note that Industry Day topics and speakers are subject to change based
on circumstances beyond NACM’s control. You may check the NACM
for updates. Also, some Industry Day groups may opt to attend the
Executive Forum rather than holding a separate group meeting.

NACM Credit Congress – Early Bird Deadline

The Early Bird deadline for NACM Credit Congress is March 28, 2008.

Click here for full information.

The Credit Congress in Louisville marks 112 years of superior
conferences designed by the National Association of Credit Management
specifically for business credit and financial management professionals. In May
2008, NACM will once again present an exceptional event teeming with

  • Relevant, timely educational sessions, including industry
    specific programs led by the experts
  • Nearly 100 specialized companies on the Expo floor, showcasing
    the latest products and services for your profession
  • Countless networking and relationship-building events to
    promote and ease the sharing of best practices and expertise

By continually enhancing your skill set and expanding your
knowledge base, you will enrich yourself, strengthen your department and
ultimately add to your company’s bottom line.

The Illusion of a Good Deal

There’s no question that a lot people have a hard time wading through the confusing and overwhelming maze of data present on statements that they receive from their credit card processors. There’s a popular mental image that processors are merely robbing their customers, hitting them with a never-ending string of charges like convenience fees, access fees, risk fees, assessment fees, downgrades and the heavy-handed interchange.

"They do take advantage," said Robert Day, assistant vice president, Commercial Interchange, Third Fifth Processing Solutions at the recent NACM teleconference, "The Illusion of a Good Deal." "Interchange is where your focus needs to be. The issuing side of the house is where the money is made…they’re the ones that are driving the interchange."

Day warned that interchange, the fee collected by the acquirer from the merchant for every Visa and MasterCard transaction, can represent as much as 92% of a transaction’s costs. On commercial cards, the rate of interchange can be affected by the amount of detail a business can collect on the purchaser, such as zip code, location and tax ID as well as line item detail of the purchase, to lower the risk of the transaction being disputed. With lower risk comes a lower interchange rate, which can save anywhere from tens to hundreds of dollars on large ticket sales.

"Really, the key is getting the correct information and putting the information in correctly," said Day.

But even if a merchant does this, it could be moot.

Beyond the tangled mesh of fees upon fees, the problem for most businesses is that the account with their processor or gateway does not match their business’ needs or practices. Having an account that is set up incorrectly, which typically happens because of lack of experience or knowledge from the merchant or an Independent Sales Organization (ISO), like a local bank that re-sells the credit card processing, translates into wasted money and time. ISOs outnumber processors over 100-to-1 and are very common partners for business accounts, but their limited knowledge could mean that it would be nearly impossible for businesses to achieve lower interchange rates.

Day also warned that processors will simply try to take advantage of businesses. A common practice is that a processor will offer an attractive base rate, which will appear boldly on page one of a merchant’s statement, if the merchant will agree that the processor doesn’t have to disclose the rate they charge for downgrades. In this type of agreement, the processor will deliberately leave out the column for transaction volume on the statement so that the percentage charged on downgrades can’t be figured out. Day explained that if credit professionals see that this one column is absent, it might be time to take another look at the relationship with that processor.

"It doesn’t matter what discount rate is shown on page one," said Day. "Page one is there to humor you. Throw it away unless it aligns itself with page two. Otherwise, it just doesn’t matter."

Matthew Carr, NACM staff writer

Loose Lips…

Section 548, the fraudulent transfer portion of the Bankruptcy Code, is placing
more emphasis on the importance of what is said. The law firm of Powell
Goldstein, LLP highlighted two recent bankruptcy cases where loose lips from
defendants came back to bite them.

In the recent bankruptcy hearing for Teligent Inc. in New York, the former
CEO and chairman had in his employment agreement that a $15 million loan would
be forgiven only if he left the company for "good reason" or was terminated
other than "for cause." The company switched hands several years after the
agreement was signed and the CEO decided to part ways. He filed a separation
agreement which reasserted that the loan would be forgiven and was terminated
other than "for cause." The trustee sued the CEO under section 548, alleging any
forgiveness of the loan would constitute fraud. The reason being: at the time of
his departure the CEO gave an interview to a local newspaper and was quoted in
the article as saying he was dissatisfied with the new owners and wanted to
explore new opportunities. The court found this evidence persuasive and voided
the release, which deemed him liable for the loan. According to Powell
Goldstein, if the CEO had simply declined to comment as to the reasons for his
departure, the outcome would have been different. The law firm remained that "a
release can constitute a transfer under section 548."

The second case Powell Goldstein highlighted involved Student Financing Corp.
(SFC), which approached SWH Funding Corp.—the two having had a long-term
relationship—for an $80 million loan. There was an application fee of $400,000
required by SWH. A little while later, SFC changed its mind and backed out, only
to come back after a couple weeks to re-pursue the loan. SWH charged an
additional $250,000 application fee. In the end, the loan was denied. During
SFC’s bankruptcy case, the trustee sued SWH for the $650,000 on the grounds that
the lender was attempting to hinder, delay and defraud creditors.

The trustee’s case relied on an email written by SWH’s president to SFC’s
attorney that said, "No joke, you know from the last SFC deal we have no money.
We were just using the old ‘the documents aren’t done’ to get out of financing."
SWH’s president said that the remark was supposed to be sarcastic, and of
course, the bankruptcy case disagreed. Powell Goldstein reminded that, "the
moral of the story is to write emails cautiously."

Matthew Carr, NACM staff writer

Statistical Tools for Managing Accounts

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. The recent NACM teleconference, "Statistical Tools for Managing
Accounts," presented by 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 NACM
affiliates offer such services as well. The upcoming March issue of Business
magazine also explores credit scoring and the use of statistical

"The interesting thing about statistics 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 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

"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.
Many of the meetings and conferences held by NACM, such as the annual Credit
Congress, are often highlighted by Excel sessions and have proven to be very
popular among attendees.

"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

Matthew Carr, NACM staff writer

NACM Credit Manager’s Index for February 2008

The seasonally adjusted Credit Manager’s Index (CMI) remained unchanged in February, breaking a streak of five consecutive declines. A rise of 1.5% in the manufacturing index was offset by a decline of 1.6% in the service index. However, the dollar collections component in manufacturing distorted the totals, soaring 10.2%, the second highest jump ever. “Without that component,” said Daniel North, chief economist for Euler Hermes ACI, “manufacturing would have only risen 0.6%, and the combined index would have actually fallen into negative territory at -0.4%.” Five of the components in the combined index are now below the 50 level which would indicate economic expansion, tying the record set in November of last year. Six of the 10 combined components fell. “Perhaps most noteworthy,” North added, “the service index has fallen below 50 for the first time.”

“Overall, the combined index tells a story similar to the one we have been seeing for some time: a slow erosion of the combined index with more weakness in services than in manufacturing,” said North. “The performance of the macroeconomy continues to be dismal, and it is quite likely that a recession has already started.” The 49.5% reading in the service index clearly shows contraction and reflects the weakness of the overall economy. “In response, the Federal Reserve has slashed interest rates and will continue to do so in order to stimulate the credit markets and the macroeconomy,” said North. “However, Fed actions take six to 12 months to become fully effective, so this aggressive rate cutting is simply too late to prevent a recession, although it will help get the economy out of a recession sooner, perhaps as early as the end of this year.”

Download the full report, click here.

FCIB International Business Day – Santa Clara

FCIB’s California International Business Day
March 6, 2008 — 7:30am – 11:30am – Click here to Register
SVB Silicon Valley Bank – Santa Clara, California
FCIB is pleased to announce its International Business Day in California, sponsored by SVB Silicon Valley Bank.  Mark your calendars and plan to attend this educational and networking event!

This Business Day is led by a moderator and a panel of experts – highly successful and recognized practitioners in the international credit, risk management and trade finance fields. The agenda is derived from questions and topics of interest submitted by attendees. Discussion of the key issues of the day and exchange of information with industry peers and executives is the highlight of FCIB’s International Business Days.

SEC Proposes Delay of SOX 404 Requirements for Small Businesses

The Securities and Exchange Commission (SEC) unanimously proposed a
one-year extension of the auditor attestation requirement of Section
404(b) of the Sarbanes-Oxley Act (SOX) for small businesses, allowing
the commission to undertake and complete a cost-benefit study of the
requirements effects on smaller firms. SEC Chairman Christopher Cox
previously announced the extension in testimony before the House Small
Business Committee in December 2007. Under the proposed extension, the
Section’s requirements would apply to small public companies beginning
with fiscal years ending on or after December 19, 2009.

intended purpose of the cost-benefit study is to gather and analyze
real world information from companies currently in compliance with
Section 404. The study will consist of both a web-based survey of
companies subject to the Section’s provisions and in-depth interviews
with compliant companies and will be conducted predominantly by the
SEC’s Office of Economic Analysis and assisted by the Office of the
Chief Accountant and Division of Corporate Finance.

Commission believes that strong investor protection and healthy capital
formation go hand in hand," said Chairman Cox. "The study will give us
the opportunity to ensure that the investor protections of Section 404
are implemented in the way that Congress intended, and do not impose
unnecessary or disproportionate burdens on smaller companies."

to a release, financial data from the study will not be available to
companies until March or April of 2008, meaning the study is scheduled
for completion by late summer or early fall of this year.

Jacob Barron, NACM staff writer

PCAOB Adopts New Auditing Standard

In light of the Financial Accounting Standards Board’s (FASB) issuance of
Statement of Financial Accounting Standards No. 154, Accounting Changes and
Errors Corrections, the Public Company Accounting Oversight Board (PCAOB) has
adopted the Auditing Standard No. 6, Evaluating Consistency of Financial
Statements, as well as an accompanying set of amendments.

"Auditing Standard No. 6 will improve the quality of the auditor’s reporting
on items that affect the consistency of financial statements, such as a
company’s adoption of new accounting principle or its correction of a material
misstatement," explained Mark Olson, PCAOB chairman. "Investors should benefit
from these improvements."

The new standard and related amendments update the auditor’s responsibilities
to evaluate and report on the consistency of a company’s financial statements
and align the auditor’s responsibilities with SFAS No.154.

Also, PCAOB removed the hierarchy of generally accepted accounting principles
(GAAP) from its interim auditing standards. The GAAP hierarchy identifies the
sources of accounting principles and the framework for selecting principles to
be used in preparing financial statements. Because FASB intends to incorporate
the hierarchy in the accounting standards, it no longer needed to be in the
auditing standards.

Auditing Standard No. 6 and the amendments will become effective 60 days
after approval from the Securities and Exchange Commission (SEC).

Matthew Carr, NACM staff writer

NACM Credit Manager’s Index for January 2008

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fifth consecutive month in January, slipping 1.0 point to a record low of 51.4. The previous record had been set last month at 52.4. “Five of the index’s 10 components fell, and both the manufacturing and service indexes declined, indicating that the weakness was widespread although not terribly deep,” said Daniel North, chief economist with credit insurer Euler Hermes ACI. “The CMI’s steady decline has mirrored other macroeconomic data which suggests a sharp slowdown. For instance, fourth quarter GDP grew at an annualized rate of only 0.6%, well under expectations of 1.1% and the long-term average of 3.5%. The GDP report showed the economy as perilously close to the beginning of a recession.”

“Signs of the downturn are everywhere: terrible holiday sales, massive job losses in housing and in financial services, downtrends in volatile global financial markets, downgrades of bond insurers and many debt instruments, the Fed overreacting with cuts of 1.25% in eight days and an emergency stimulus plan in the works,” North said. “Clearly, these unpleasant trends in the macroeconomy are now well reflected in credit managers’ experience.”

Download the full report.

NACM Credit Congress Offers More Than Great Sessions

This year’s Credit Congress will not only offer attendees an opportunity to
network, grow and improve as credit professionals, but it will also give them
the opportunity to delve into one of the nation’s most culturally rich, and
often overlooked, cities. Often called either "the southernmost northern city"
or "the northernmost southern city," Louisville offers visitors both a quaint
sense of traditional charm and comfort and also a cutting edge, bubbling sense
of innovation. This contrast can be seen in the city’s cuisine, which varies
from classic comfort foods to new age delicacies, as well as the city’s
architecture and culture.

Dozens of world-class restaurants and eateries lie within a short ride of
both the Galt House—the main Credit Congress hotel—and the Kentucky Convention
Center, where a majority of the Congress’ sessions will be held. These include
Mazzoni’s Oyster Café, known for its rolled oysters, Primo, a popular Italian
restaurant, and 4th Street Live!, a collection of restaurants and

Louisville’s architecture is both elaborately charming in older parts of town
and decidedly modern in others. However, there is sufficient overlap between
both styles that molds the city into a uniquely cohesive experience. Old
Louisville, a cultural district just south of downtown, offers visitors a wide
array of Victorian architecture as well as several shops and local eateries. Old
Louisville also hosts a large student population, making it a lively cultural
spot with occasional concerts and theatre productions held during the

Just down the street from the Galt House is the West Main District, a popular
cultural center nestled in downtown Louisville. Credit Congress attendees will
have the chance to explore the district’s Museum Row, a collection of museums
located within walking distance of one another, including the Muhammad Ali
Center, the Frazier International History Museum and the Louisville Slugger

For more information on Louisville and also a complete look at the exciting
sessions to be offered at NACM’s 2008 Credit Congress, be sure to pick up a copy
of the February issue of Business Credit. Click here to get
your subscription started today.

Jacob Barron, NACM staff writer

Master of the Matrix, Master of the Cs

The entry level NACM teleconference, "The Art of Credit Management," presented
by Eddy Sumar, MBA, CCE, CICE, of ERS Consulting Services, was aimed at
providing the groundwork for success for credit department members. In it, he
discussed his theory of the 18 basic "Cs" of credit, the credit matrix and
creating a fundamental checklist that every credit professional should keep in

"I really believe, as credit professionals, we are artists," said Sumar.
"That’s why credit management isn’t a science, it’s an art."

The first step in Sumar’s process was to look at the word itself. Credit is
defined as a cooperative function between seller and buyer, or between creditor
and debtor, that is based on agreed upon terms and mutual trust for both parties
to deliver on their promises.

"This is how we define credit in the traditional way," explained Sumar. "But
in order to become masters of our destinies and masterful at the art of credit
management, we need to redefine credit."

He explained that credit is a sales tool and a marketing tool, and needs to
be recognized as four-dimensional as a financial vehicle and as a strategic
alliance. By looking at credit as possessing those four functions, he explained
that it creates a better understanding of the connections between the credit
executive, the credit department, the customer and the company.

"My motto is that as a credit person, I should be sales sensitive," explained
Sumar. "Likewise, a sales person should be credit sensitive."

He said that the primary objective of a credit executive is to understand the
vision of the company for which they work for, then figure out if there is a
vision for the credit department. Credit professionals must understand the
company’s culture as well, and its policies and procedures.

"It’s imperative, to be successful at credit, to understand the vision of the
company," said Sumar. "You’ll be surprised by what credit extensions you offer
and all the credit offerings that you have. They are linked—directly or
indirectly—to the vision of that company and to where the company wants to go.
By understanding the vision of the company, you will create and carve a vision
for your department."

Sumar’s credit matrix is a simple, fundamental chart with four quadrants:
"Able and Willing," "Able and Unwilling," "Unable and Willing" and "Unable and
Unwilling." The purpose of the matrix is to help credit executives and sales
people to make quick decisions on a customer.

"Now, I think this is a very crucial matrix because it is going to tell me,
how do I follow the lead? Where do I concentrate my efforts?" explained Sumar.
"Let’s say I am a sales person, credit person, or a collector. Where do I want
to target? I always recommend to go from Able/Willing to Willing/Unable."

"Ability and willingness ultimately fall onto character," added Sumar.
"That’s why I always say become a master of the matrix, because the matrix helps
you classify your customers as to character."

Matthew Carr, NACM staff writer

Advice from NACM Legal Workshop Credit Applications

On January 24th and 25th, attorneys Bruce Nathan, Esq., Lowenstein Sandler PC,
and Wanda Borges, Esq., Borges & Associates LLC, hosted the first of three
sessions in NACM’s 2008 Legal Workshop series. The two attorneys are familiar
faces in the association’s educational programs, and teamed up to speak in-depth
about credit applications and guaranties and the information that should and
should not be included in them.

The two-day session provided a wealth of information and advice on topics
ranging from references, stoppage of delivery, reclamation, compliance with
federal law and the "Battle of the Forms" to navigating antitrust violations,
and oft overlooked protections.

First and foremost, both agreed that every credit application should include
language, in bold, that verifies that the grantor adheres to the provisions of
the Equal Credit Opportunity Act (ECOA) and that there must be some reference to
the grantor’s standard terms and conditions, either by including them in the
credit application or noting that they are posted on the creditor’s website.

"Your terms and conditions have to be prevalent," said Borges. "If the first
time your customer sees them is on the back of an invoice, you’ve got a problem.
More and more companies are putting the data on their website. If you’re going
to put your terms and conditions on your website, you have to make them readily

Under Article II of the Uniform Commercial Code (UCC), the failings of which
took centerstage, if the first time a customer sees terms and conditions is on
an invoice, it won’t always serve as confirmation or agreement to those

"The thing I love about Article II is that everybody is right," said Nathan.
"There are court cases that say the invoice serves as confirmation of terms and
conditions, there are others that disagree. Do something such as posting them on
a website to lock in the terms and conditions."

In terms and conditions, grantors want to make sure that the laws of the
state where they are headquartered are recognized to rule in any legal
proceedings. The two also suggested that interest rate charges and the
reimbursement of at least a portion, such as 25%, or all legal fees are included
in the terms and conditions or on the credit application as well. Credit
executives need to be wary though that if they do include interest charges on
invoices they must make their best effort to collect on them. If they are only
collecting the charges from certain customers and not all, they may find
themselves facing antitrust violations of the Robinson-Patman Act.

Common practices, such as asking for the social security numbers and home
addresses of board members, officers and other executives may not always end in
results, as most credit executives will know. The new privacy laws provide
individuals protection against having to submit these on a credit application,
and denying credit because an application is without these pieces of information
may lead to violations. Though the majority of attendees of the workshop
included sections on their applications asking for the social security numbers,
they all agreed that it was irregular for those to be given.

Other basic measures Nathan and Borges discussed were the importance of
verifying a company’s legal name before granting credit, as well as verifying
that the individual signing the application or a personal guaranty has the
authority to do so. They suggested checking the Secretary of State records and
website, and touted a subscription with court document websites such as PACER as
a must.

The Legal Workshops will continue with Credit Enhancements, on March

Matthew Carr, NACM staff writer

NACM Resource Library

The quickest and easiest way to research the most current information on business credit topics is now a benefit of membership! (Formerly a subscription service, now available to members of record.)

Access this site using the same username (your e-mail address) and password as you currently use for all other services on the NACM-National and FCIB websites.

These publications are now accessible online at the NACM-National website:

    * Antitrust Guide for NACM Group Members (brochure)
    * Art & Science of Financial Risk Analysis
    * Bankruptcy Abuse Prevention & Consumer Protection Act of 2005
    * Construction Law Survival Manual
    * Credit Management: Principles and Practices
    * Equal Credit Opportunity Act (brochure)
    * From the Cutting Board to the Cutting Edge
    * Manual of Credit and Commercial Laws
    * Principles of Business Credit

Continually updated. Please visit www.nacm.org.

Woeful Farm Bill and Record Year Highlight Remarks by Secretary Conner

When Congress returns to session later this month, one of the pieces of business
to finish is the reconciling of the House and Senate versions of the 2007 Farm
Bill. Unfortunately, with the two versions suffering from some very fundamental
differences, the outlook for a successful conference seems farfetched.

"With all that has gone into this process, it would be great to stand up here
and be able to tell you that we were just a few short steps away from wrapping
up a final package that we can deliver to the President for his signature,"
Acting Secretary of Agriculture Chuck Conner told the South Dakota Corn Growers
Association. "Unfortunately, ladies and gentlemen, that is not where we are
right now."

Both House and Senate versions of the bill propose tax increases to fund
programs, something that doesn’t sit well with the Department of Agriculture and
hasn’t been done since 1933. Conner called the Senate version of the bill "full
of gimmicks" and "illusionary savings," saying that he did not believe other
sectors of the economy should be asked to pay additional taxes to support farm
programs. He also stated he was concerned about the "trade-distorting effects of
increasing target prices and loan rates" that the two versions contain and that
there is no inclusion of a meaningful income cap on farm program participation
or reform of the way that beneficial interest is applied in marketing loan
transactions. To make his point clear, he showed the audience a map of New York
City where a lot of farm program payments are handed out, saying "this has to

Conner and other senior agriculture officials will recommend that President
Bush veto any Farm Bill that does not rectify any of the mentioned points of

"Every farm bill is tough; every farm bill looks bleak until the last
minute," said Conner. "This one looks bleak from my vantage point; I will tell
you that. But I know that on the other side of that is an opportunity for us to
sit down and work together as we have done so many times in the past, come up
with the right plan, a reform-minded plan, one that’s fair to the taxpayers, one
that talks about the true costs of the bill."

Though the Farm Bill is a flop, there was good news.

For U.S. farmers, 2007 was an outstanding year, economically speaking. Corn
prices hit an 11-year high. Soybeans hit a 34-year high while wheat prices have
been at all-time records. U.S. agricultural exports topped $82 billion with
expectations that trade in 2008 will reach $91 billion, and the Department of
Agriculture is estimating that net cash farm income will be at $85.7 billion, up
$18 billion, by next July. It is also no secret that the 2007 Energy Bill signed
by President Bush on December 19 will be a boon for farmers as it is asks for
extraordinary increases in the Renewable Fuels Standard (RFS) over the next
several years.

"I remember the days not too long ago when we gauged our year in agriculture
by whether or not we broke $50 billion of net cash farm income," said Conner.
"We have not only broken that, we are way beyond anything historically ever used
as a benchmark of measurement."

Matthew Carr, NACM staff writer

NACM Credit Managers Index December 2007

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fourth
consecutive month in December. The index lost 0.7%, and dropped to a record low
of 52.4%. Six of the 10 components fell, including a 4% drop in dollar
collections. Daniel North, chief economist with credit insurer Euler Hermes ACI,
said, “While the manufacturing index actually gained 0.8%, it was overshadowed
by a loss of 2.3% in the service index. The deterioration in the combined index
matches that of other major indicators in the macroeconomy, including
disappointing holiday sales, a weakening employment market, accelerating
declines in housing prices, downgrades of banks and insurers, plummeting
consumer confidence, and a rapid increase in delinquencies and defaults on many
types of credit. It would appear that trade credit managers are now encountering
the same difficulty found in other credit markets, that is, the inability of
debtors to pay bills due to insufficient cash flow.”

Click here to view full CMI Report.

Recession Fears Mount as Holiday Shopping Season Hits Full Stride

Nearly One-Third of Americans Plan to Spend Less This Holiday Season;
Americans Show Signs of Financial Discipline in the New Year
economic conditions and fear of a looming recession are weighing on the minds of
Americans as they descend on shopping malls and online shopping sites this
holiday season. The majority of American workers (71%) and retirees (72%) said
they believe that the economy has fallen into a recession or fear that it is
headed in that direction, according to the latest Principal Financial Well-Being
IndexSM. More than one-third of workers (37%) expressed concern about
their own job security, up significantly from second quarter this year, when
only 22% of workers expressed concern.

According to the survey, if an economic slowdown forced workers and retirees
to reduce their spending, more than three-fourths of workers (76%) and 49% of
retirees say they would eat out less often. Both groups said they would cut back
on buying clothing and consumer goods (69% of workers and 49% of retirees).
Almost two-thirds of workers (63%) and more than one-third of retirees (39%) say
they would cut back on entertainment to reduce spending, such as going to movies
and concerts. Americans even indicated they would go as far as reducing their
coffee intake—more than one-fourth of workers (27%) said they would purchase
coffee less often. Finally, 11% of workers indicated they would lower their
retirement plan contribution rate.

"Uncertainty about the direction of the economy clearly is top of mind as
Americans navigate the holiday shopping season, which has turned into a gift
giving extravaganza," said Dan Houston, executive vice president of Retirement
and Investor Services, The Principal. "Americans are underestimating their real
spending. To get on solid financial footing, I recommend that every person set a
budget, prioritize gift purchases and use a high degree of fiscal

Spending for the Holidays
Americans are planning to
tighten their financial belts when it comes to spending during the holidays.
When asked about their intentions for spending this holiday season, 29% of
workers and retirees indicated they plan to spend less money than last year.
More than half of workers (59%) and nearly two-thirds of retirees (64%) plan to
spend the same amount as last year while 12% of workers and 7% of retirees plan
to spend more money. According to the survey, nearly half of workers and
retirees (49% and 46%, respectively) are planning to spend between $101 and $500
throughout the holiday season. Just more than one-fourth of workers (27%) and
less than one-fourth of retirees (22%) plan to spend between $501 and $1,000
this holiday season.

Stepping Into the New Year—Financial Resolutions

Americans were given a list of potential financial resolutions they intend
to make as New Year’s resolutions in 2008. The top two resolutions selected by
workers were paying off credit card debt (40%), followed by putting a set amount
of money into savings each month (39%). Compared with fourth quarter 2006,
significantly more workers are making resolutions to save more each month (39%,
up 6 percentage points from 2006) and to stop using their credit cards (22%, up
4 percentage points from 2006). Less than one-fourth of workers (23%) indicated
they do not intend to make a resolution, and nearly half of retirees (49%) have
no such plans.

"There still may be a financial hangover from last year’s holiday season,"
Houston said. "American workers need to put retirement savings before buying the
next plasma TV or cashmere sweater."

Too Much Plastic?
The index also reveals that more than
one-third of workers (39%) report having credit card debt between $1 and $5,000
compared to just 21% of retirees. While retirees have significantly more credit
cards in their name for personal use than do workers, significantly more
retirees than workers report having no credit card debt (66% versus 33%). More
than one-third (34%) of retirees and 29% of workers reported they have five or
more cards. However, when asked how many of these cards they use on a regular
basis, only 5% of retirees and 2% of workers reported using five or more cards
regularly. On average, retirees report having 4.4 credit cards in their name for
personal use compared with workers (3.7).

Know Your Credit Score?
At least six out of 10 workers
(66%) and retirees (62%) have ordered a credit report in the past. However, more
than half of workers (51%) and six out of 10 retirees (61%) do not know their
credit score, despite the fact that Americans can request a free annual credit
Source: The Principal Financial Group®

Hidden Gold for Trade Creditors

When dealing with an insolvent or bankrupt debtor, creditors will do everything
in their power to reclaim the money they were owed. Whether securing
transactions prior to sale or using specific legal defenses in the courtroom,
every credit manager can get hit by a debtor who won’t or can’t pay, so it’s
best to have as many tools available as possible to better protect a company’s
assets. Two of the most overlooked options that creditors can use to get back
part of what they’re owed are setoff and recoupment.

"What I find interesting in all of these conversations is the lack of
knowledge that creditors have of this right," said Bruce Nathan, Esq. in a
recent NACM-sponsored teleconference entitled "Setoff and Recoupment: Hidden
Gold for Trade Creditors." Nathan noted that setoff, although not explicitly
listed in the Bankruptcy Code, is a state law right that is viewed as a
self-help measure that creditors can use whenever they’d like. It can be used
when a creditor and debtor are doing business with one another and owe each
other money. It makes little sense to pay a debt when the payee owes the payor
money, so setoff allows both parties to reduce their obligations to one another
by setting off one claim against another.

There are, however, legal requirements that need to be satisfied for
creditors to use setoff, and, in his presentation, Nathan discussed these,
making certain that attendees knew how to avoid any legal missteps that might
preclude any successful setoff. Nathan also noted that after a debtor has filed
for bankruptcy, setoff needs court approval before it can be used. "Once a
debtor files for bankruptcy, setoff rights are restricted," said Nathan. "The
automatic stay arising under Section 362 of the Bankruptcy Code would prevent a
creditor from unilaterally exercising setoff rights." Nathan also noted several
other legal hoops that creditors have to jump through prior to successfully
reducing their claim using setoff, whether before or after a bankruptcy

Recoupment, said Nathan, is very similar to setoff but with one important
difference. "All that is required for recoupment to take place is that it arises
from a single claim or transaction," he said. "Recoupment is essentially a
defense to a debtor’s claim against a creditor." Nathan also noted that
recoupment is a slight improvement over setoff, because it is not governed by
the automatic stay rule and does not require a creditor to get the permission of
the court to exercise the right.

Jacob Barron, NACM staff writer

New Bankruptcy Amendments Effective December 1st

An amendment to bankruptcy Rule 3007, which went into effect on December 1st
along with several other new amendments, takes away some of the frustration and
anxiety for creditors seeking to collect on debts, especially those involved in
large bankruptcy proceedings.

Historically, in massive Chapter 11 cases, Omnibus Objections to Claims,
allowed under Rule 3007, are standard practice for debtors. The rule was
criticized for allowing huge inclusive objections that were so weighty and
difficult to traverse that it ultimately resulted in failures of appropriate
notice to creditors because it was arduous for claimants and their counsel to
determine if their claim was even being objected to. There was no cap on the
number of claims a debtor could clump together. A claimant was often required to
wade through a number of omnibus objections, which were bogged down with layer
upon layer of exhibits stacked with hundreds of claims leading to an unwieldy
number of pages of documents to peruse. These omnibus objections could wipe out
hundreds of claims in a single stroke and the missing of response deadlines by
creditors was all too common.

Last September, the Committee on Rules of Practice and Procedure of the
Judicial Conference decided to level the playing field for claimants.

The amended rule does not allow omnibus objections to claims for the most
part, unless a court orders otherwise. It strictly prevents debtors from
combining objections to more than one claim into a single objection.
Furthermore, under the new amendment, an omnibus objection is allowed only if
all the claims included within the objection were filed by the same entity, or
duplicated other claims; have been amended by subsequently filed proofs of
claim; are interests not claims; were not filed on time; the claims have been
satisfied; the validity of the claims cannot be determined because of
noncompliance with applicable rules or assert priority in an amount that exceeds
the maximum amount under Section 507 of the Bankruptcy Code.

The amended rule also helps creditors in case an omnibus objection is
permitted by having claimants listed alphabetically. Previously, claimants were
only listed by number, with a cross-reference to the claim number. And, if
possible, the claimants are to be listed by category of claims. Amended Rule
3007 also puts a cap that a debtor can only include 100 claims at a time in a
single omnibus objection.

The new amendments also provide a new Form B10 for filing proofs of claim,
which claimants can obtain from the bankruptcy court or online at http://www.uscourts.gov/rules/BK_Forms_08_Official/Form_10_1207.pdf.
Carr, NACM staff writer

First Contraction in Credit Manager’s Index Adds to Recession Fears

Columbia, Maryland: December 3, 2007—The seasonally adjusted Credit Manager’s Index (CMI) fell for the third consecutive month in November, losing 0.7% as both service and manufacturing sector indexes declined. Although the drop was relatively small, all six unfavorable factors components fell, leaving five below the 50 level, indicating economic contraction. “This is the first time that there has ever been more than four components indicating contraction since the inception of the CMI in 2002, and it could well be a harbinger of things to come,” said Daniel North, chief economist with credit insurer Euler Hermes ACI.

North listed current conditions: gasoline prices are high, housing prices are low, the dollar is crumbling, consumer confidence is plummeting, holiday sales have been mixed at best, credit is drying up, bankruptcies and foreclosures are on the rise, the employment situation is decaying and conditions in the housing industry are getting worse. “It is a potent combination which could lead the economy into a recession in the first half of next year, yet both the economy and the CMI have remained resilient so far,” he said. “However, cracks are starting to show and the Fed will almost certainly cut the Fed Funds rate again at its December 11th meeting in an effort to forestall a recession. In all likelihood, the Fed will have to continue to cut the Fed Funds rate well into 2008, perhaps as low as 3.5%. Credit managers are facing tougher times ahead.”

The manufacturing sector fell 0.3% in November to a seasonally adjusted 52.7. Five of the 10 components fell, with bankruptcies plummeting 7.9%, the second largest drop on record. “As has been the case for months now, comments from the survey participants were mostly about the terrible conditions in the housing market, but this month there are some unhappy comments from other industries as well indicating more widespread weakness,” said North. Of note, a manufacturer of nuts, bolts, screws, etc. responded that manufacturing is cutting back to a four-day week. A petroleum refiner said, “We are seeing stress across industries due to rising energy and raw material costs.” And a manufacturer of cookies and crackers commented how the housing crisis is now directly affecting even the food industry: “We’re affected by the trauma of home builders, mortgage banks and title companies.” North commented that the bright spot of the report was that the sales component erased all of last month’s 5.2% fall.

The service sector index fell 1.1% on a seasonally adjusted basis in November. The decline was widespread as six of the 10 components fell. “Like in the manufacturing sector, bankruptcies led the way down, falling 5.9%,” North said. “Also like the manufacturing sector, most comments were negative ones about the housing industry, but downbeat comments from other industries are now ringing in.” North summarized the responses, saying, “One participant from the photocopying industry replied, ‘Even our best customers are paying beyond 100 days past due.’ Another from the plastics industry, referring to the impact of higher oil prices, said, ‘We have had several customers close their doors as a result.’ Finally, another from the tire industry described the state of the economy perfectly: ‘There appears to be no question that the economy is turning negative. With the housing industry in a slump and the price of gas over $3.00 a gallon, individuals simply do not have the money they once had to make retail purchases.’”

The Credit Manager’s Index over the past 12 months has fallen 2.2%. North said, “Although there were no dramatic year-over-year movements in any of the components, the decline was widespread as all 10 components fell. Manufacturing fell 2.4% and service fell 1.9%. In both indexes, eight of the 10 components fell, supporting the notion of a pervasive but slow decline.”

The CMI, a monthly survey of the business economy from the standpoint of commercial credit and collections, was launched in January 2003 to provide financial analysts with another strong economic indicator.

The CMI survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies. A complete index including results from the manufacturing and service sectors, along with the methodology, is attached or can be viewed online at http://www.nacm.org/resource/press_release/CMI_current.shtml .

The National Association of Credit Management (NACM), headquartered in Columbia, Maryland supports more than 22,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services which improve the management of business credit and accounts receivable. NACM’s collective voice has influenced legislative results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy.

NACM Credit Managers Index November 2007

The seasonally adjusted Credit Manager’s Index (CMI) fell for the third consecutive month in November, losing 0.7% as both service and manufacturing sector indexes declined. Although the drop was relatively small, all six unfavorable factors components fell, leaving five below the 50 level, indicating economic contraction. “This is the first time that there has ever been more than four components indicating contraction since the inception of the CMI in 2002, and it could well be a harbinger of things to come,” said Daniel North, chief economist with credit insurer Euler Hermes ACI.

North listed current conditions: gasoline prices are high, housing prices are low, the dollar is crumbling, consumer confidence is plummeting, holiday sales have been mixed at best, credit is drying up, bankruptcies and foreclosures are on the rise, the employment situation is decaying and conditions in the housing industry are getting worse. “It is a potent combination which could lead the economy into a recession in the first half of next year, yet both the economy and the CMI have remained resilient so far,” he said. “However, cracks are starting to show and the Fed will almost certainly cut the Fed Funds rate again at its December 11th meeting in an effort to forestall a recession. In all likelihood, the Fed will have to continue to cut the Fed Funds rate well into 2008, perhaps as low as 3.5%. Credit managers are facing tougher times ahead.”

Click here to access the full PDF version

NACM Scholarship Foundation Taking Applications

The NACM Scholarship Foundation welcomes applications for partial financial scholarships toward designated educational programs.

The Foundation is pleased to introduce two categories of scholarships acknowledging two esteemed facets of the credit community. They are:

  • The Credit Management Studies Scholarship (CMSS) or Empowerment Scholarship
  • The Executive Endowment Scholarship (EES) or Enrichment Scholarship

To review the eligibility criteria for each and to access the application form, please visit here. Applications for the CMSS and the ESS are due by January 11, 2008.

Year End Special – NACM Bookstore

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As important as ever before, this exclusive resource will help you meet the challenges of credit granting in today’s tumultuous business environment. Find what you need with the latest information regarding credit and commercial statutes and regulations – an indispensable desk reference.

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Preliminary Trade Creditor Remedies

With uncertainty hovering over the economic health of the nation, there has been
no shortage of troubled industries. Most notably, the automotive and subprime
mortgage lending industries, which are bound to have an impact on the consumer
level, have taken center stage for the ailing state of the economy.

"All of this is being affected by raising energy prices, over-leveraged
companies, tightening credit, increased payment defaults and, of course, that
dreaded increase in bankruptcy filings," Bruce Nathan, Esq., partner in the law
firm Lowenstein Sandler PC, told attendees of a recent NACM teleconference.
"Business bankruptcy filings in 2007 have increased significantly from the prior
year, and that just leads us to these reclamation, stoppage of delivery rights
and new trade creditor priority claims for goods shipped within 20 days of
bankruptcy, which are still the tried and true methods that an unsecured
creditor has to enhance the ability to obtain payment of their claim."

During The 20-Day Administrative Claim and Reclamation: An Added Dividend
for Unpaid Goods Suppliers
audio conference, Nathan laid out
several avenues like reclamation, stoppage of delivery and the new trade
creditor priority introduced by bankruptcy amendments two years ago, that
creditors should use to enhance their recovery from a troubled customer that has
either filed for bankruptcy or is on the verge of filing for bankruptcy. Though
all of these avenues specifically cater to suppliers.

"For those of you in services," said Nathan. "It is unfortunate that these
rights do no affect you. And you’re dealing with a situation where a certain
group of trade creditors—goods suppliers—actually have priority over unsecured
claims because you are not beneficiaries of this right."

Reclamation has been the tried and true remedy and is the law under the
Section 2-702 of the Uniform Commercial Code (UCC). If a creditor shipped goods
to an insolvent debtor, the creditor can reclaim the goods if it sends a
reclamation demand to the debtor within 10 days after the debtor’s receipt of
the goods.

"So long as you satisfy the requirements for state law reclamation, you can
exercise the rights regardless of whether a bankruptcy has been filed,"
explained Nathan.

The state law does not require a written reclamation demand, but Nathan
always suggested that creditors do so for purposes of proving that the demand
was made, also in bankruptcy proceedings creditors have to prove that they have
sent a written reclamation demand.

"The other side of the coin to reclamation is stoppage of delivery," said
Nathan. "Again, this is a state law right. Reclamation kicks in when the debtor
receives the goods. But before the debtor receives the goods—if the goods are
with a carrier or if the goods are still in the possession of the creditor, the
creditor also has the right to, under the UCC, to stop delivery of goods due to
insolvency or due to a breach of contract."

The creditor can withhold delivery until they are paid, or for any other
goods received under the same contract. Nathan explained that the more typical
scenario is when the stoppage of delivery of goods right is exercised while the
goods are in the possession of a carrier, warehouse or other third party, just
as long as the debtor has not yet received the goods. This forces the carrier to
hold them pending instructions. The automatic stay does not preclude stoppage of
delivery of goods, but it does preclude from any further recovery.

"Having exercised the stoppage of delivery right, gives you a lot of leverage
to get paid for those goods if the debtor needs them badly enough," stated
Nathan. "This right of stoppage of delivery, a state right, is cut off if the
debtor has received the goods. Then reclamation kicks in."

He explained that stoppage of delivery rights are not cut off if title
passes, or risk of loss passes from creditor to debtor. Most importantly, Nathan
said, stoppage of delivery rights are not cut off where the debtor, not the
creditor, had engaged the carrier.

"As long as it’s not actually a truck owned by the buyer, as long as it’s a
common carrier—whoever is engaged is irrelevant—the seller still has the right
to stop delivery," explained Nathan. "Unless there was a negotiable document of
title involved, which you are rarely going to see for a truck bill of lading or
an air bill of lading. Perhaps you will for an marine or ocean bill of

Nathan also made available a couple of generic forms for pre-bankruptcy and
bankruptcy reclamation demand, as well as explained in detail a number of cases
that highlighted the power and vulnerabilities of these creditor courses of
Matthew Carr, NACM staff writer

Using Staff Evaluations to Motivate

Managers are faced with the task of making sure that members of their department
are operating at the highest level possible. A pay raise isn’t always the
answer, though that probably never hurts, while not all employees are on the
fast track to a management position. One of the most influential tools can be
periodic performance evaluations and feedback, which the majority of employees
find valuable.

"Performance reviews are very powerful this way," Fred Getz, executive
director at Robert Half International (RHI), told attendees at a recent NACM
teleconference entitled Using Staff Evaluations to Motivate Your Team. "They
open up the doors to higher performance levels and really strengthen the
relationship between you as managers and your employee."

According to a RHI survey, 77% of employees responded that they found the
feedback during performance reviews somewhat valuable to very valuable. The
majority, 66%, of executives surveyed by RHI said they give evaluations once a
year. Getz said there is no ideal number for the frequency of appraisals;
managers have to make their own judgment calls depending on staff. He did
suggest that annual compensation reviews and performance reviews be separated,
allowing managers to conduct performance appraisals more frequently, while
keeping performance reviews focused on the job. There is often a shared dread of
evaluations by both employees and the managers who give the appraisals, but the
time provides a perfect platform for a candid discussion about an individual’s
performance as well as an opportunity to reinforce their strengths and inspire
better performance.

The first thing Getz recommended was that managers not treat staff
evaluations as mere formality or a time consuming burden. Managers should
approach the prospect of appraisals with a positive attitude with fair,
well-thought out and well-prepared insights into that individual’s

Getz explained that evaluations are a great time to point out mistakes,
though managers need to avoid making it a mistake-list session. It should be
about overall performance. He suggested that managers keep a folder on each
employee that includes notes, strong work samples, complimentary letters from
clients and other relevant information. The idea is that this process doesn’t
take up much of the manager’s time and that any time something positive or
negative takes place in an individual’s job performance a small note is dropped
into the file. This will avoid focusing too much on the most recent successes
and failures at the appraisal and will give a broader, fairer overview. Only 41%
of employees surveyed said that they felt their evaluations were fair.

"It’s easy because you’re just dropping stuff in there as you gather it,"
said Getz, adding that there’s a natural tendency to stick to original judgments
and overlook accomplishments, as well as failures, of top performers. "The idea
is that when it comes time to do the performance review on this employee, you’ve
got the folder all ready. All you have to do is open it up and walk down memory
lane with them and more things will come back to you."

Getz also suggested that managers instruct employees to keep their own folder
on themselves. That way, at review time, the individual can bring up what they
thought they did or did not do well, and the two views can be shared.

"In the end, it’s what’s important to both of you that sort of has to come
together and be discussed," added Getz.

One of the biggest problems Getz said that managers tend to have is inflating
reviews to avoid conflict, while being more apt to put criticism of an
employee’s performance in writing while discussing strengths face-to-face. He
explained that this can be confusing, and though negative criticism is hard to
deliver, employees have the right to know, and often the desire to know so they
can improve. He also pointed out that many times, managers fail to ask
open-ended questions in an evaluation, making it unpleasant for the

"Keep in mind you don’t talk too much," stated Getz. "Many of you managers
make the mistake of sounding patronizing by speaking at length about a problem
and sounding accusatory. It’s better to ask questions that will prompt employees
to start analyzing the situation rather than them becoming
Matthew Carr, NACM staff writer

New Office at SEC Works to Expand Interactive Data Filing

Securities and Exchange Commission (SEC) Chairman Christopher Cox
recently announced the formation of the commission’s Office of Interactive
Disclosure. The office’s goal will be to direct the SEC’s global effort to
enhance and expand interactive financial data filing.

The commission appointed David Blaszkowsky, an 11-year veteran of
McGraw-Hill, as director of the office. Blaszkowsky will coordinate the SEC’s
disclosure modernization program and, according to the commission, “work with
investor groups, analysts, journalists and preparers of financial statement as
well as other key public and private sector stakeholders in the U.S. and around
the world to advance the use of interactive data in financial reporting.”

“David’s combination of capital markets and technology development
experience will be a tremendous asset to the commission as we transform
disclosure to make it easier for filers and more useful for investors,” said
Cox. “Helping improve our capital markets through lower-cost, faster and more
useful information is the heart of this mission, and it’s a mission he is
uniquely qualified to lead.”

Blaszkowsky served at McGraw-Hill’s Standard and Poor’s
(S&P’s) division as director of global market development for institutional
market services and as a senior director in equity research sevices.

The establishment of the office follows in a long line of
commission efforts to increase the use and awareness of interactive data filing,
involving the use of the eXtensible Business Reporting Language (XBRL), a
computer software language that labels certain elements of a company’s submitted
financial data with codes from standard lists called “taxonomies,” making it
easier for investors and analysts to locate, analyze and compare financial
information from a public company.

Jacob Barron, NACM staff writer

Avoid Exposure: Creating a Defense Against Preference Payments

According to Robert Mercer of Powell Goldstein, the process for a company trying to protect itself from preference and fraudulent transfer exposure can be a tightrope walk. There must be balance between what makes the most business sense for the grantor’s firm, while not destroying that firm’s access to powerful tools like the ordinary course of business defense.

"There is one thing that I have learned from representing trade creditors and that is the absolute frustration at dealing with fraudulent transfers and preferences," Mercer told attendees during "Preferences and Fraudulent Transfers: The Basics and Beyond," part of NACM’s Audio Teleconference series.

A preference is a payment from a customer on an existing debt during the 90 days before the customer files bankruptcy, provided that the customer is insolvent at the time of the payment. Fraudulent transfers are a payment from any entity other than the company’s customer at a time when such an entity is insolvent, such as when a corporate affiliate of a customer pays that customer’s invoice. In either case, the ultimate goal is maintaining a "business-as-usual" course.

"The first thing is, when looking at the payments that were received during the 90 days before your customer filed for bankruptcy, you want to see if those payments were consistent or were ordinary when you compared them with the historic payment pattern before your customer filed for bankruptcy," said Mercer. "The main focus is how many days after the invoice day do you normally receive payment."

The recent change in the Bankruptcy Code has made it substantially easier for firms to protect themselves against preference and fraudulent transfer exposure. If a customer’s underlying bankruptcy was filed on or before October 17, 2005, to establish an ordinary course of business defense, a firm had to prove that the payment received in question was "ordinary" in respect to the customer’s historical payment pattern and with that of the relevant industry. Now, firms just need to prove one of those elements, with 95% of cases decided by the first-mentioned prong.

According to Mercer, companies and credit department members need to think about minimizing preference exposure, while maximizing the ordinary course of business defense, by approaching the matter in three separate phases: pre-bankruptcy, bankruptcy and receiving of the demand letter. But being practical up front can be the most effective and can avoid a lot of headaches later.

He noted that the single most effective way to reduce exposure on the front end is by simply getting paid in advance, not only by a customer that a grantor feels might be financially distressed or possibly at risk for filing for bankruptcy, but for all customers if possible.

"Why is that so important?" said Mercer. "Because, if you’re getting paid in advance, you’re not getting paid on a debt, so it will not constitute a preference. Second, if you’re getting paid in advance by your company’s customer, you won’t have any fraudulent transfer exposure either."

Though that approach is extremely difficult, and not likely to be obtained across the board, the next best practical solution for a grantor is to apply customers’ payments in a way that strengthens the ordinary course of business defense. For example, a firm has three outstanding invoices of $100,000 each from a particular customer: one that is 30 days old, the second that is 60 days and the third is 90 days old. When that customer calls and says they are going to send a payment of $100,000, and in fact they do, more than likely, 99% of companies will allocate that payment to the 90 days invoice.

Mercer also advised that companies don’t apply payments too soon, because that payment can also be considered a preference.

Other simple tactics like making a phone call instead of writing a collection letter can also keep a company from destroying its chances of protecting itself from making a preference repayment.

Mercer continued to lay down basic strategies like weighing the risks of changing payment methods with a customer, for example changing from a check to a wire transfer, because this dilutes that ordinary course of business defense. He also suggested that a firm never let a customer dictate how a received payment is to be applied.

Before there is even the hint of bankruptcy, there are even more tools companies can use to set up ramparts. In terms of credit documents, Mercer suggested that all guaranties include a provision that for whatever reason, if a debtor’s payment gets disgorged, through a preference lawsuit or otherwise, the guarantor remains liable. He said that some courts have already held that this is the case.

"But you don’t want there to be any room for doubt," said Mercer. "You need to have a provision in your guaranty that says that the guarantor is responsible for making sure you get paid, and almost as importantly, that you stayed paid."

The final pieces of building an initial defense so that a company won’t have to be faced with painful preference repayment demands is to ensure in a letter of credit that the issuing bank is using its own funds, and not the customers’ funds, to make payments and that credit applications contain an arbitration provision.

During the bankruptcy phase, Mercer suggested that a company might not want to rush ahead and file a proof of claim, especially if that company has large preference or fraudulent transfer exposure. If a company files a proof of claim, it waives the right to a jury trial, and that may lead to not being able to have the case transferred from bankruptcy court to district court.

And finally, after companies have received a demand letter, Mercer suggested that a company might want to challenge the insolvency of a debtor, because such a presumption can be rebutted. Once insolvency is rebutted, it is more expensive for the trustee to pursue the litigation and will encourage the trustee to settle because it could hurt all of the trustee’s avoidance actions and may require the trustee to retain an expert to establish insolvency.

Source: Matthew Carr, NACM staff writer

NACM Credit Managers Index September 2007

The seasonally adjusted Credit Manager’s Index (CMI) fell 0.3 points in September to 54.8. Dan North, chief economist with credit insurer Euler Hermes ACI pointed out that while the loss was small, it was definitive as seven of the 10 components fell. “The data showed mixed conditions since small gains in the service sector were offset by modest losses in the manufacturing sector,” he said. “While this month’s data does indicate a slight decay, only two components have slipped below the 50 level indicating expansion,” he continued. “So far, trade credit conditions seemed to have weathered the storm which recently roiled the public debt markets. The turmoil has been only one of several indicators which have many economists starting to feel increasing discomfort about the economy’s future.” North notes that slower growth and more difficult business conditions almost certainly lie ahead. “The credit managers who have done so well keeping problems to a minimum up until now might find a more challenging environment in the rest of 2007 and into 2008,” he concluded.

Click here for the full PDF of the CMI Report.

Dealing with Distortion on Financial Statements

“You’ve got to look for the numbers,” said Dubos Masson, Ph.D,
CTP. “You’ve got to be aware that there are problems.”

Credit and financial managers use financial statements on a
regular basis, operating under the belief that past financial performance tends
to be a good indicator of future financial performance. However, as Masson
indicated in his recent NACM-sponsored teleconference, “Advanced Issues in
Financial Analysis,” what’s on the statement might not always be the truth.
Masson noted why customers creatively adjust their numbers, also called “window
dressing,” in order to paint a prettier picture for their vendors, analysts and
shareholders and how these alterations don’t always necessarily constitute

Masson noted that the four primary reasons that companies use
“creative” accounting methods on financial statements are to positively affect
company share prices, the cost of borrowing, bonus plans and political costs. He
also discussed the specific ways that companies engage in these alternative
accounting methods, including premature recognition of revenue and aggressive

In his presentation, Masson noted that these misleading changes
are often the result of the general nature of guidelines like U.S. Generally
Accepted Accounting Principles (GAAP) in addition to the pressure put on
companies to make their expected earnings. “The thing we want to understand with
GAAP is that they’re general guidelines,” he said. “At the end of the statement,
there is still management discretion. A lot of times they’re trying to meet a

Fraud, as Masson noted, only occurs when there is intent to
defraud the company, making many of these misstatements the result of a lack of
control. “Some cases may appear to be fraud, but when we go back and look at
them, they’re not,” he said, citing the instance of Tyco International, whose
CEO and CFO were found guilty of financial fraud. “It was a lack of control” in
this instance, said Masson.

The presentation also offered attendees tips on what documents
offer the best company financial information, other sources for tips on how to
approach financial analysis and also trends and changes in accounting

Source: Jacob Barron, NACM staff writer

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 her recently delivered NACM teleconference, “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

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.

Delloiacono took questions at the end of the presentation and
also offered recommendations of other valuable resources to help when it comes
to mutually beneficial customer visits and enhancing customer service. For more
about NACM’s teleconference series, or to register, click here.

Source: Jacob Barron, NACM staff

NACM Credit Managers Index August 2007

The seasonally adjusted Credit Manager’s Index (CMI) crept up .2% in August even though six of 10 components fell. The manufacturing sector rose 0.4 points, but the service sector slipped 0.1. “The data in the survey doesn’t provide a compelling picture of current business conditions, which is backed by comments from the survey respondents,” commented Dan North, chief economist with credit insurer Euler Hermes ACI.

“Some trade credit managers seem to be experiencing the same difficulties currently seen in virtually all credit markets,” North said. He noted that the rapid rise in delinquencies and defaults in the subprime mortgage market have sent a contagion of fear into other mortgage-backed securities, corporate bonds, leveraged buy-out financings and now even the safest of commercial paper markets. “If the highest quality credits are having difficulty securing financing, then smaller businesses will be even more strapped to find financing of any kind, including financing of trade credit as suggested by the respondents to this survey,” he said. “Conditions in the credit markets are likely to force the Fed’s hand at the September meeting when a new cycle of monetary easing is likely to begin.”

Click here to download a full PDF of this months CMI Report.

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 her recently delivered NACM teleconference, “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

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.

Delloiacono took questions at the end of the presentation and
also offered recommendations of other valuable resources to help when it comes
to mutually beneficial customer visits and enhancing customer service. For more
about NACM’s teleconference series, or to register, click here.

Source: Jacob Barron, NACM staff

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

Hesse recently delivered an NACM-sponsored teleconference 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.

Source: Jacob Barron, NACM staff writer

ECOA and FACTA – Old Tools, New Laws

Wanda Borges, Esq. of Borges & Associates, LLC recently offered credit
professionals legal tips for mitigating the sometimes cumbersome regulations
imposed by recently passed or updated laws like the Equal Credit Opportunity Act
(ECOA) and the Fair and Accurate Credit Transactions Act of 2003 (FACTA).
Borges’ presentation, "Old Tools, New Laws," was part of NACM’s ongoing
teleconference series, which offers credit professionals a convenient and
effective way to improve their practices and educate their staff.

Borges began by discussing the ECOA, which was originally passed to ensure
that credit decisions were not based on sex, race, color, creed, national
origin, age or marital status, but was updated in 2003 to more clearly define
certain terms. According to the law, customers must be notified if a vendor from
whom they’ve contacted for credit issues an adverse decision, which, according
to the updated law, includes a refusal to grant the credit requested, a
termination of an account, an unfavorable change in terms and a refusal to
increase the amount of credit available.

"What becomes harder to understand is what happens when things change," said
Borges. "If [the customer] is not worthy of a $50,000 credit line, but they’re
worthy of a $20,000 credit line, go back to the customer." The ECOA states that
when a creditor denies a request but counteroffers, and the customer agrees to
the change, it does not constitute an adverse action and no formal notification
is required. "You’re required to get this in writing though," said Borges. She
suggested that in today’s digital business environment, an email indicating
agreement would hold up in court.

Borges noted another instance in which no notification is required. "If
they’re currently delinquent," she said, "you can cut off credit and you don’t
have to worry about any notification." She warned, however, against companies
who are lax about their notification policies. "Some companies, because they
receive so many credit applications, will deny a customer and [the customer]
will never hear from them again," Borges added. "Technically, you have to notify

As for FACTA, a piece of legislation that comes in a long line of recent data
security laws, Borges discussed the Act’s disposal rule which requires any
entity holding any consumer info to protect that data from the hands of identity
thieves. "The data belongs to you and only you, and shouldn’t be given to anyone
else," said Borges. "If you get rid of this company’s file, you cannot throw it
out." The disposal rule requires that either the data remain in a safe place, or
that the information be permanently destroyed. "Everything has to be shredded
burned or pulverized," she said.

Borges also discussed secured transactions under Article 9 of the Uniform
Commercial Code and offered tips to creditors who have been looking to sell
their claims. For more information on NACM’s teleconference series, go to www.nacm.org.
Source: Jacob
Barron, NACM staff writer

Help Provided for How to Handle Unclaimed Property

Credit professionals and other company officials may not spend
much time considering what to do with their unclaimed property. However, there
are legal responsibilities for the accounting and reporting of this company
asset that could result in significant civil and even criminal penalties if not
met. NACM recently held an educational teleconference by Valerie Jundt, Senior
Manager, Deloitte & Touche LLP, who has extensive knowledge and experience
on the subject.

The July 11, 2007 teleconference, entitled, “The Credit Manager’s
Guide to Unclaimed Property/Escheatment,” offered a detailed definition of what
constitutes unclaimed property as well as the precise legal responsibilities
associated with it. Jundt noted that unclaimed property is an intangible asset
that has gone, for a period of time, unclaimed by its rightful owner. Some
examples of unclaimed property that she gave where uncashed checks, safe deposit
items, utility deposits, insurance proceeds, accounts receivable credit balances
and refunds and rebates.

Holders of unclaimed property must perform a degree of effort to
track down the rightful owner of the unclaimed property. This effort or due
diligence is set forth in state law. “As a holder of funds, you want to make
sure you get the property back to the rightful owner,” Jundt said. Also, after a
period of time in which efforts to locate the property’s rightful owner have
been unsuccessful, the property is considered abandoned. After this time, the
property must be returned to the proper jurisdiction. The rules for when
property is considered abandoned and what state to report unclaimed property are
contained in state law. Generally, state laws require that unclaimed property be
reported to the state of the owner’s last known address. If that is unknown,
then the report would have to be sent to the state of the holder’s incorporation
or domicile. Jundt pointed out that there are a few exceptions to this, such as
in the case of travelers’ checks that are sent to the state where the original
transaction took place. When unclaimed property is properly turned over to the
correct state, the state is obligated to release and indemnify the holder from
liability, secure the funds in a custodial capacity, make efforts to locate the
owner and pay rightful claims on that property. 

The concept of escheatment means, in the case of unclaimed
property, the transfer of the title or ownership of property to the state. Most
states however, only remain custodians of unclaimed property submitted to them.
Generally, corporations are not legally entitled to private escheatment of
property. For example, Jundt said, “Just putting in the words on a check ‘void
if not cashed within 90 days’ does not necessarily mean the owner of the
property(payee of the check) doesn’t have a legal claim on it.”

Jundt offered some important advice to companies that are advised
they are going to be audited by a state on their unclaimed property. Most
importantly, Jundt advised taking such audits seriously. Then, she recommended
assessing the company’s potential liability with respect to unclaimed property.
She also noted that it is important not to ignore an audit notice or to assume
you don’t have a liability. Jundt advised not to give the auditor unsupervised
access to company records, but, instead assign a company official as a point of
contact to assist the auditor.

Source: Tom Diana, NACM staff writer

NACM Credit Managers Index July 2007


The seasonally adjusted Credit Manager’s Index (CMI) fell 1.2% in
July, the first decline in four months. While the drop-off was not dramatic, it
was widespread as eight of the 10 components fell. “The housing market was once
again a major drag on the respondents’ businesses,” said Dan North, chief
economist with credit insurer Euler Hermes ACI, “and there appears to be little
relief in sight as homebuilders continue to report bleak conditions.” North said
that housing starts, permits and unit sales are all down dramatically from last
year while the supply of unsold homes is growing. “And large homebuilding firms
are reporting losses and forecasting continued weakness,” he noted, “However,
commercial construction activity remains strong.” Even though the report shows
signs of erosion this month, North noted that 29 of the 30 total components are
still above the 50 level, indicating economic expansion.

Click here to download the full CMA Report.

Creditors Get Sound Legal Advice on Bankruptcy Issues

Knowing the law can help creditors enhance their chances of getting paid or
overcoming a preference demand from a bankrupt customer. Important legal tips
and advice on the subject were provided to attendees of an NACM educational
teleconference July 16, 2007 entitled, "Bankruptcy — The Nuts and Bolts for
Credit Professionals," presented by Robert Mercer, Esq.

Mercer, partner in the national Bankruptcy & Financial Restructuring
Group at the law firm of Powell Goldstein, LLP, has an active Chapter 11
practice, which includes the representation of unsecured creditors’ committees.
A large portion of Mr. Mercer’s practice is focused on representing trade
creditors around the country both inside and outside of bankruptcy.

A number of strategies to better position creditors for payment from a
financially distressed or bankrupt company were offered. For example, when using
a Letter of Credit (LC), Mercer advised including language in the agreement with
the issuing bank that will trigger payment in the event of a bankruptcy, rather
than in the agreement with the customer. Such language should define that
payment on the LC is to be made from bank funds. Also, Mercer said, "Make sure
there are no notices that have to be given or no approval that has to be made
[from the customer]." Such notices or approvals could tie up funds due to the
automatic stay provision in the bankruptcy law. As for guarantees, Mercer said
that a provision should be placed in the guarantee that "the guarantor is
responsible for [payment] if the customer sues the creditor for a preference."
On security deposits Mercer said, "The beautiful thing about a security deposit
is that if it is larger than any debt at the time of bankruptcy, it will ensure
you get paid and insulate you from your preference claims."

Mercer outlined a number of strategies to use in order to manage preference
exposure. One way to help eliminate preference exposure is to not extend credit
to a financially distressed company but instead get paid in advance or COD.
"Make sure when you get paid, you get paid by your customer," he added. He
pointed out that if a debtor gets paid by an insolvent subsidiary of the
customer, it could result in a successful preference demand. Another tip he
offered was that if an insolvent debtor makes a payment, the creditor should
apply the payment to the most current debt, not debt outstanding on 60 or 90
day-old invoices. By doing this, Mercer noted this could bolster the claim that
the payment was made in the ordinary course of business, which is one of the
defenses against a preference claim. He also advised requesting payments by
phone instead of in writing. "There’s no reason to create of paper trail of
evidence demanding payment." He also recommended keeping good records of payment
history, especially within 90 days of the filing of bankruptcy by a company.
Even if a debtor is to get paid by a bankrupt company, Mercer advised checking
PACER (http://pacer.psc.uscourts.gov/), the online source of the
Administrative Office of the U.S. Courts, for that particular bankruptcy filing
status to make sure the payment was included in the budget by the bankruptcy
Source: Tom Diana, NACM staff writer

Congressman Praises NACM’s Grassroots Efforts

The efforts of NACM to repeal a 3% withholding tax on the value of
most government contracts where recognized recently by Rep. Kendrick Meek
(D-FL). Meek, along with Wally Herger (R-CA), sponsored H.R. 1023, the
Withholding Tax Relief Act of 2007, which, if enacted, would repeal
this withholding tax scheduled to go into effect Jan. 1, 2011. Meek pointed to
the importance of the grassroots efforts of various businesses, business
associations and state and local government coalitions that have mobilized to
support H.R. 1023. “NACM is really doing a great job in building support for
this legislation,” Meek said. “To move this legislation, we’re going to need all
the support we can get, and grassroots lobbying from your membership is a
central piece of that effort.”

The work of Meek and Herger, as well as the numerous groups who
support their legislation, has apparently gotten the attention of many of their
Congressional colleagues. The bi-partisan bill has, as of July 13, 2007, 179
cosponsors, which is equal to 41% of the entire 435-member U.S. House of
Representatives. H.R. 1023, which was introduced Feb. 13, 2007, is still in the
Committee on Ways and Means where it was originally referred.

Click here to read more about 3% withholding.

NACM Credit Managers Index June 2007


The seasonally adjusted Credit Manager’s Index (CMI) rose a modest 0.5% in June as a 1.1% increase in the manufacturing sector offset a 0.2% decrease in the service sector. Results throughout the survey showed mostly small changes from the previous month. “The decimated housing market once again weighed heavily on suppliers of building materials in the service industry,” said Dan North, chief economist with credit insurer Euler Hermes ACI. “This condition seems likely to continue, given an increasing supply of homes for sale, sharp declines in housing permits and starts and the unprecedented fall of median year-over-year house prices for 10 consecutive months. Somewhat surprisingly, the manufacturing sector continues to expand on the back of an economy which continues to grow, albeit slowly.” Overall the report was moderately positive, reflecting the state of the economy as a whole.

California Unclaimed Property Update

An injunction was recently issued against the state of
California forbidding it to collect any unclaimed property funds until
stronger controls and due diligence procedures are implemented. A
preliminary injunction was ordered on June 1st and has since sent major
waves through the world of unclaimed property.

had fallen far behind in putting data into the system and is failing to
perform statutory requirements like actively seeking out owners
entitled to unclaimed property. As a result, a group of citizens filed
a class action suit against the state for failing to perform its
responsibilities as a custodian to their unclaimed funds. After winning
the case, the U.S. District Court ordered the state to put a halt on
collecting unclaimed property until the problem was resolved. Companies
should, however, be aware that just because the state isn’t collecting
the property, doesn’t mean that a business can be lackadaisical about
reporting any unclaimed property. For most states, including
California, the deadline for filing unclaimed property is on or before
November 1st.

While the state is still in the process of
formalizing next steps and procedures, the following guidance has been
provided to the holder community. This is not the final plan but it
gives an idea of what to expect so that companies can develop new

The new policy has received partial approval
and the budget committee is reviewing the dollar impact. The change
doesn’t apply to life insurance companies as they are on a different
reporting cycle.

  • All holders will be required to submit the October 31st preliminary report    on remittances only
  • State will send out a due diligence mailing within 165 days (tentative date set for January)
  • Stop date for inquires will be April 14th
  • Owners are referred to as Holders
  • Final reports due between June 1-15.

Stay tuned to eNews and Business Credit for more updates.
Source: Jacob Barron, NACM staff writer

APG Warns of Unsuccessful Collection Attempts, Possible Skip

APG requests that anyone having information on this
entity contact us. The results of this inquiry will be released as soon
as it is completed.

DATE: June 26, 2007
COMPANY: Middle Neck Road Company

21777 Ventura Blvd., Ste. 212
Woodland Hills, CA 91364

NUMBERS: 818-992-4665
818-712-0006 (FAX)

Bart Zena, President

REASONS: Unsuccessful collection attempts;
Possible skip;
Subject of previous departmental release.

APG today to receive full details and updates of future progress on
this case, along with many others that result in law enforcement
actions. Take a step towards protecting your company’s assets and call APG for membership information at 800.955.8815.
Source: NACM’s Asset Protection Group

Credit Congress Hits the Jackpot

NACM’s 111th Credit Congress in Las
Vegas was a rousing success. It was the best-attended congress in several years
and the consensus from attendee feedback was overwhelmingly positive. For
example, Sam Smith, Regional Finance Manager for Crescent Electric in East
Dubuque, IL and first-time Congress attendee, said that it turned out better
than he expected — and he had high expectations going in.

As usual, the General and Super Session speakers were inspirational and
provided most attendees with words of wisdom to apply in their business and
personal lives. Elaine Cooper, Operations Manager for Cascade Windows of
Spokane, WA, who was attending her sixth Credit Congress said, "The opening
speakers were great. I really liked Mark Sanborn and how their books were
available (for purchase and to be autographed)."

There were also other great events that made Credit Congress special, like
the Annual Golf Tournament and Silent Auction — both of which raise money for
the NACM Scholarship Foundation — various receptions, the Expo Hall that
featured various credit-related vendors and a multitude of other events. Even
those attendees hoping for an Elvis sighting weren’t disappointed, as a talented
Elvis impersonator provided the entertainment at the opening General Session.

Of course, the backbone of Credit Congress, the educational sessions, once
again provided a vast array of information and advice critical for credit
professionals who want to expand and refine their expertise in the field of
business credit. John Bouldin, Jr., Credit Manager for Robertson Ceco Corp. of
Rocky Mountain, NC and first-time Credit Congress attendee said, "I’ve enjoyed
the classes. I wish there was more time to attend more classes. All the
presenters were first-class professionals."

Those who could not attend Credit Congress may now purchase a DVD of the
recorded educational sessions. Be sure to check the NACM website in the coming
days for a link to an order form. Also, look for additional coverage in the
July/August issue of Business Credit and online at www.nacm.org.
Source: Tom
Diana, NACM staff writer

Work Per Case Jumps in Bankruptcy Courts

Preliminary information released by the Administrative Office of the United States Courts suggests that in the wake of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the amount of work per case has risen significantly for bankruptcy courts. While filings have decreased sharply since the Act’s passage, each case seems to cost clerks and judges more of their time.

“The number of filings alone… should not be viewed as the sole indicator of overall workload,” said Judge Julia Gibbons of the 6th District. “BAPCPA created new docketing, noticing and hearing requirements that make addressing the petitions more complex and time-consuming.”

“The nature of our work shifted; it did not go away,” said George Prentice, a clerk of court for the Bankruptcy Court of the Western District of Texas. “More documents are filed in each case, reflecting the fact that the new law carries more requirements.”

“The number of externally filed documents has increased,” he added. “We quality control almost every document filed in a case, particularly if it is user-entered. That has to be a daily function of automated courts, because once something is filed it is instantly public and transparent.”

Other respondents echoed Prentice’s statements, noting that, since the BAPCPA, they’ve noticed an increase in pro se filings, which are filed without the help of a lawyer and require a more stringent quality review.

“More areas of the law are unsettled,” said Prentice. “More hearings are required to determine the proper way to interpret the new law.”

Source: Jacob Barron, NACM staff writer

Credit Managers Index for May 2007


The seasonally adjusted Credit Manager’s Index (CMI) crept up 0.1% in May as a decline in the manufacturing sector of 0.7% was offset by a gain in the service sector of 0.9%. The report showed mostly small changes in the 10 components, with the number of increases and decreases evenly split. “The 0.1% increase for the combined index was hardly robust since it would have actually fallen 0.3% without the sharp increase in the amount of credit extended in the manufacturing sector,” reported Dan North, chief economist with credit insurer Euler Hermes ACI.

“Except for hints of improved cash flow in the service sector, the data suggest that conditions were only slightly improved from last month; however, the small improvement came off of a good base, pushing all of the components above the 50 level indicating economic expansion,” he said. “Overall, credit managers are currently reporting good business conditions.”

Click here to read the full report.

UCP600 Prep Given to Teleconference Attendees

Credit professionals who use or may consider using commercial letters of credit (LCs) in their sales should mark July 1, 2007 on their calendars. That is when the new UCP600 (Uniform Customs & Practice for Documentary Credit) rules for LCs take effect, replacing the UCP500 which has been in effect since 1994. Buddy Baker, vice president, sr. sales rep., financial solutions for Atradius Trade Credit Insurance, presented a sold-out FCIB audio teleconference that explained the changes that will take place and the process for developing the guidelines that most parties adhere to when issuing and receiving payments from LCs.

Baker, an FCIB Board member and expert on LCs with 25 years of experience in international trade finance, outlined the history of rules that govern these financial instruments. He pointed out they do not have the force of law, but are widely accepted by the international banking community. They were first written in the 1920s for New York banks that primarily handled international financial transactions. In the 1930s, the International Chamber of Commerce (ICC) published the standards of procedures involving LCs. The UCP is drafted by the ICC’s Banking Commission and gets revised periodically, Baker said, about every 10 years or so. He noted changes are made to it when issues need to be addressed. Specifically, some confusion over UCP500 provisions has led to some of the changes reflected in UCP600. Some of these areas of confusion have even resulted in lawsuits. The ISBP or International Standard Banking Practice, issues opinions and interpretations of UCP standards. “Some of the interpretations of the ISBP have been incorporated into the UCP600,” Baker said.

“There were a lot of discrepancies in LCs under UCP500,” Baker said. He noted that according to a study conducted by Michigan State University, 4 out of 5 documents (invoices, bills of lading, etc.) do not comply with what’s stated in the LC. “It was mainly a case of people not being careful when they prepare their documents.” Most of these discrepancies do not derail payment of the LCs, though. “If there are discrepancies, the applicant must waive them or have them fixed,” Baker said. It is the banks that are responsible for refusing documents that they deem do not comply with the LCs.

Baker said of the many changes to UCP600 there were three major ones. One is that banks, which under UCP500 had a “reasonable time” to review documents and decide if there are any discrepancies “without delay”, now have five days to examine documents and assert any discrepancies. This change should eliminate any differences in opinion on what constitutes a reasonable time. The second major change is that addresses in documents and the invoice do not have to exactly match as long as business addresses are in the same country. Baker pointed out that because companies often have several addresses, there were often different addresses for the same company listed in different documents. Under UCP600, they don’t have to match as long as the addresses are in the same country. However, this relaxation of address requirements does not apply to transport documents. The third major change under UCP600 is that issuing banks are allowed to refuse documents and then release them upon obtaining a waiver of discrepancies.

Source: Tom Diana, NACM staff writer

Letters of Credit As Credit Enhancements Explained

Letters of credit may be a good credit enhancement for credit professionals to consider in their sales—especially those involving buyers in foreign countries. For those wanting to learn more about letters of credit (LCs), NACM provided a timely audio teleconference on the topic entitled, “Letters of Credit as a Credit Enhancement.” Presenting the May 23, 2007 event was Mark Berman, Esq. of Nixon Peabody LLP. Berman is a partner at Nixon Peabody LLP, resident in its Boston office. His practice concentrates on business restructurings, creditors’ remedies, securitizations and the negotiation and documentation of certain aspects of financing transactions and is a renowned legal expert in his fields of expertise, which includes bankruptcy law.

One aspect of note about LCs pointed out by Berman is, “(They’re) putting a bank’s credit at risk as opposed to the purchaser of goods.” However, he issued some cautionary advices when agreeing to a sale backed by an LC: “Care has to be taken that you precisely follow the rules of the LC.”

Berman pointed to the two types of LCs. There are Documentary LCs, which are mainly used in international transactions, and Standby LCs, which prompt a payment to the seller when the buyer doesn’t make a payment. In such a cases of nonpayment, the seller must present documents required by the LC that, among other things, establishes that the buyer has not made timely payments. The governing rules for commercial LCs are the UCP500, which stands for Uniform Customs and Practices for Documentary Credit. These rules are published by the International Chamber of Commerce (ICC) and are generally followed by banks and applicants for LCs. The UCP500 will be emerge in a revised form as the UCP600 on July 1, 2007. The ISP98 or International Standards and Practices are rules that apply to standby LCs. Berman also mentioned that Article 5 of the Uniform Commercial Code (UCC), which exists in state laws, applies to LCs used in domestic transactions. He also explained the difference between irrevocable and revocable LCs as well as confirmed and unconfirmed LCs and how the banks process each of them.

The courts view a sales contract as being between the seller and buyer but an LC is treated as a contract between the bank and seller, independently from the sales contract. Therefore, Berman said that any financial difficulties of the buyer do not affect the LC’s relationship between the seller and bank. “No matter what happens to the buyer, the beneficiary (seller) is going to get paid.” He added that the proper documents must be submitted in good order before a bank will pay on an LC.

If an LC was issued at the beginning of the transaction, and not at the end, usually the seller will get paid even if the buyer enters Chapter 11 Bankruptcy. Berman pointed out that as long as the LC is issued more than 90 days prior to the bankruptcy—or one year if the beneficiary is an insider of the debtor—then the payment made by the issuing bank pursuant to the LC cannot be recovered by the trustee in bankruptcy. In other words, the LC payment cannot be recovered or taken back by a bankruptcy trustee in a preference action.

In answer to questions from teleconference attendees, Berman said that fees for LCs can be negotiated. Generally, the amount of the fee is related to the size of the issuing bank and the creditworthiness of the applicant. On the question of whether a payment pursuant to a standby LC can be claimed as a preference payment, Berman said, “You should have no fear. It was used to secure a future debt that the buyer is going to make. The payment from the bank to you cannot be a preference.” On the question of what to do if payment terms are changed, Berman advised getting the LC amended to reflect those changed payment terms. Audio teleconference attendees also received a PowerPoint presentation with detailed information on what Berman covered.

NACM teleconferences are an inexpensive way to learn more about topics important to credit executives. For information on future NACM teleconference subjects, go to NACM’s website at www.nacm.org and click “teleconferences” or just point your browser to: http://www.nacm.org/education/teleconfs/schedule.shtml.
Source: Tom Diana, NACM staff writer

Tips Offered for Snagging Deadbeats

For those creditors who have been in the unfortunate position of having a debtor suddenly disappear from the scene, an NACM audio teleconference on May 9, 2007 offered advice on how to relocate the creditor and his or her assets. The teleconference entitled, "Tips for Tracking down Deadbeats," was presented by Bruce Dubinsky, president of Dubinsky & Company, P.C., a nationally recognized consulting firm located in Bethesda, MD that specializes in providing expert witness and forensic accounting services. Dubinsky, a CPA and certified fraud examiner, has been involved in helping to locate assets for creditors for 25 years.

Trying to find debtors, and the businesses they control, after they have quietly slipped out of town to leave behind a pile of debts requires a methodical approach to searching for and finding them. Once debtors are found, the next step is to find assets they may have that can be used to satisfy the debts they owe to creditors. The creditor also must determine where in line he or she is in relation to other creditors who have a claim on any assets found. The best approach to take in such a search is not readily available in "how to" guides. "There is no one book or manual in how to track down assets," Dubinsky said. However, he pointed out that the Internet has made searching much more convenient. "You can easily do it sitting at your own desktop in your own office."

Debtors sometimes will close down a business, move to a new location and open up under another name, confounding creditors. "You can move the bricks and sticks and the next day you’re up and running with a new phone number and letterhead," Dubinsky said. Before deciding to dedicate the time and manpower or cost of hiring an outside firm to track down debtors, Dubinsky recommended a cost-benefit analysis be conducted first. If the debts owed aren’t large enough to justify the commitment of time and resources to try to get paid, it may be better not to pursue it. "If it’s a $3,000 debt, it may not be worth it."

"What clues are available that are going to lead you to track down the deadbeat?" Dubinsky asked rhetorically. He advised one the first places to start would be the credit application and credit file. He suggested creating a spreadsheet listing that the clues that are revealed during the search to find the debtor, such as names and addresses of owners and co-owners of businesses, banks where accounts and loans are held and any other pertinent information. Some of the found assets that may be used to pay debts include tangible personal property, copyrights, patents, royalty agreements, promissory notes and accounts receivable. Personal financial statements may offer information and clues on how to find a debtor, a spouse’s name, for example. He also said debtors will often use the names of their spouses or something of significance in their lives as acronyms for their new businesses. For example, a wife named Helen J. Smith may be the inspiration for a new business called HJS, Inc. "Fraudsters aren’t very creative." A tax return can provide valuable clues such as a spouse’s employer. Also, invoices may provide clues to the whereabouts of a missing debtor, such as delivery or warehouse addresses.

One of Dubinsky’s tips was to send mail with "address correction requested," which might provide a new address for the debtor. Or, contact the post office and ask if that person or business address has a new forwarding address. Searching public records can be quite easy over the Internet. Dubinsky pointed out that now about 50% of public records may now be accessed online. Hovever, a personal visit to various town, city and county offices may be required to obtain some information. "The offline public record searching is still important." He noted that there are about 43,000 public jurisdictions that store records in the United States.

Dubinsky offered teleconference attendees an array of Internet search engines and search sites that may be used to help track down deadbeats and their assets. He also noted that there are various ways debtors can hide the assets they have. Such tactics include putting assets into a spouse’s name and hiding assets in home mortgages, life insurance policies, traveler’s checks, overpayments to the IRS and offshore bank accounts. For offshore bank accounts, Dubinsky said, "Don’t waste too much time with locating overseas bank accounts. Even the FBI has a hard time getting that." Finding available assets of debtors is only half the battle. "In most cases, you’re going to have to file a lawsuit to get your money," he said. "You really want to work with a well-seasoned collections attorney."
Source: Tom Diana, NACM staff writer

Delta’s Reorganization a Lesson for Other Companies


Delta Airlines is expected to emerge from Chapter 11 bankruptcy
April 30 and re-list on the New York Stock Exchange on May 3. The third-largest
U.S. airline, as measured by passenger traffic, filed for bankruptcy Sept. 15,
2005, having been financially devastated by a spike in jet fuel prices and
growing competition from lower-cost, low-fare carriers such as Southwest,
JetBlue and AirTran. The 19 months the company was under Bankruptcy Court
protection was, at times, tumultuous. During that time Delta survived a hostile
takeover attempt, a major strike threat, soaring fuel prices and deep cuts in
jobs and paychecks.

The future prospects for Delta look promising. In an April 24,
2007, article in USA Today, entitled, “Delta expects to soar
after exiting Chapter 11,” it stated; “(Delta) might also get to claim the
airline industry’s second-highest market value after Southwest Airlines and the
lowest debt burden of any traditional hub-and-spoke airline, analysts say.” It
also appears that Delta’s emergence from bankruptcy will be smoother than what
was experienced by other airlines. The same USA Today article stated
that, “Atlanta-based Delta will have accomplished this in less time, with less
acrimony and at less cost than any of its bankruptcy brethren: US Airways,
United Airlines and Northwest Airlines. Delta’s relatively swift, successful
turnaround is attributed to skillful lawyering, management focus and lessons
learned from other airlines.”

Delta has implemented significant changes in business strategy
such as not focusing as much on the East Coast and Florida, where it took a
beating for years from low-fare competitors. Now there’s more of emphasis on the
more profitable international flights. It’s reported that its percentage of
total revenue from international flights has grown to 35% from 20%. Also, jets
have been assigned to routes differently than before in order to better utilize
their capacity.

Delta management was determined to get through bankruptcy in about
1.5 years and it did just that. This was attributed, in large part, to the
efforts of Delta’s bankruptcy court advocate, Marshall Huebner, whom
American Lawyer magazine just named one of its 2006 "Dealmakers of the
Year.” Media reports state that Huebner, a partner at law firm Davis Polk &
Wardwell, settled many of the claims of creditors instead of having to proceed
with bankruptcy court hearings that can stretch on for months. "Fundamentally,
we’re here to cut deals," Huebner was quoted in the USA Today article.
"We took a proactive approach to listening to what people wanted." USA
also reported that Huebner’s legal fees were much kinder to Delta’s
treasury than other fees to other companies involved in high-profile bankruptcy
cases. The article stated, “In the end, Huebner says, Davis Polk & Wardwell
expects to bill Delta about $40 million for its efforts the past 19 months, less
than half the nearly $100 million Kirkland & Ellis charged United for its
38-month bankruptcy. Although United is a larger and more complex airline with
multiple labor unions rather than Delta’s one, the contrast in fees is
Most of the creditors appear to be satisfied with Delta’s
reorganization, too, according to the USA article. It stated, “In
voting two weeks ago, 95% of creditors’ ballots backed Delta’s reorganization
plan, a strong vote of confidence.” Delta’s reorganization plan will give
unsecured creditors between 62% and 78% of the value of their allowed claims as
shares of new Delta stock. It remains to be seen if Delta’s business model
changes, such as the realignment of jet models to more appropriate passenger
routes, help to sustain a financially healthy airline into the future. However,
it does appear that how Delta conducted its reorganization under Chapter 11
bankruptcy protection may serve as a positive example for other large
corporations to follow.

Source: Tom Diana, NACM staff writer

Statistical Tools Help To Manage Accounts


Attendees of an NACM audio teleconference, April 25, 2007 got an opportunity to learn about key statistical concepts and tools that can provide a way to analyze and manage the financial accounts of companies. The teleconference, “Statistical Tools for Managing Accounts,” was presented by Jack Williams, a professor at Georgia State University College of Law, a director in the Financial Recovery Services Group at BDO Seidman, LLP and the Scholar in Residence at the Association of Insolvency and Restructuring Advisors.

“All data tells a story,” Williams said. He pointed out that statistical analysis is a way to determine trends and glean other information from a set of financial data. “Statistical techniques can help get a better prospective of customers,” he said. With statistics, he noted, customers could be evaluated with other like customers or with the industry as a whole. Williams pointed out that conducting statistical analyses does not necessarily require having a statistical background, just an understanding of the mathematical concepts they present. Statistics can measure central tendencies and the variability of different financial values. “Statistical tools are the steady hand maidens to the credit profession,” Williams said. “They are efficient and they are reliable.” However, he pointed out, “They won’t displace your discretion or your gut feeling.” “All professions use statistics to manage uncertainty,” he added.

Financial statement analysis can present the true picture of a company’s liquidity, it’s debt and it’s financial performance. Statistical ratios are a set of tools designed to help present this picture. For liquidity there are the current ratio, quick ratio, payables deferral period, working capital and short pays. For debt ratios there are debt to equity and times interest earned. The performance ratios include DSO period, inventory carry period, profit margin, ROA and ROE. Williams explained each of these ratios. “My research shows that short pays are a good indicator of liquidity problems,” he said. “All of those ratios are designed to show us if we’re going to get paid.”

Williams explained various statistical measures of averages that are used to summarize data—the mean, median and mode. “When we summarize data we lose some specificity, but it becomes more manageable.” The data and what one wants to get from their analysis determine what kind of average to use. The mean can be presented on an arithmetic, trimmed or weighted basis. He noted that a trimmed mean is one that discards outlying values in a data set. A weighted average is one that assigns a higher value to certain data elements. A median is the value where an equal number of data points are of higher and lower value. “Generally you should be going to the mean unless you have good evidence to use something else.” Williams also explained measures of variability in data such as range, quartile and percentile and standard deviation. He defined standard deviation as the dispersion of values around the mean. He then used some data sets to present and explain various types of statistical calculations and how they may be analyzed. These are the same methods that would be employed with data found on financial statements. He explained how to interpret the results.

In response to a question from a teleconference attendee on how to statistically evaluate a seasonal business, Williams advised splitting the financial data into “on” and “off” cycles and compare past years’ on cycles to each other and past years’ off cycles to each other. “Statistics can only help in apples to apples comparisons,” he said.

NACM teleconferences are an economical and convenient way to learn from the experts about the important topics many credit professionals must address. To find out about upcoming NACM audio teleconferences, go to NACM’s website at www.nacm.org. On the top of the page, place your cursor on the “Education” tab, then scroll down to “teleconferences.”

Source: Tom Diana, NACM staff writer

NACM Credit Managers Index April 2007


The seasonally adjusted Credit Manager’s Index (CMI) rose 1.6% in April, recouping last month’s losses as eight of the 10 components of the Index rose. The increase was driven by gains in the sales component and in both collections components.

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“While overall the report was positive, there was a disparity between the manufacturing sector, which rose 3.3%, and the service sector, which was unchanged,” stated Dan North, chief economist with credit insurer Euler Hermes ACI. He noted that comments from the respondents echo a familiar refrain that the demise of the housing market has been a major drag on distributors of goods into that industry. “Median prices on existing homes have now fallen for eight consecutive months on a year-over-year basis,” he noted. “This is an unprecedented event since house prices almost never fall, and they have never fallen for more than two months in a row in the 38 years that records have been kept.” The continued deflation of the housing market bubble as seen in this data, combined with the lagged effects of monetary policy tightening and the prospect of higher gasoline prices, suggest that the economy will continue to slow throughout the year.

Bankruptcy Law Update Provided by Experts


Two experts in bankruptcy law provided attendees of an NACM audio teleconference with updates to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. BAPCPA was a major amendment to the federal bankruptcy law that, while making major changes to consumer bankruptcy provisions, also made changes relevant to commercial creditors of insolvent debtors.

The presenters of the teleconference, Wanda Borges, Esq. of Borges & Associates, LLC and Bruce Nathan, Esq. of Lowenstein Sandler PC, are also advisors and teachers for NACM. They discussed topics relating to several important past federal bankruptcy court cases. They noted that BAPCPA is approximately 1.5 years old, pointing out that there is little case law yet regarding the new provisions implemented by BAPCPA. On the subject of reclamation, which is treated differently under BAPCPA than it was prior to its enactment, Nathan said, "It will be interesting to see what happens in case law to reclamation." Both discussed several major federal bankruptcy court cases involving reclamation and preferences. Preferences were also addressed in BAPCPA and changes were made as to how they are applied to commercial creditors. Under BAPCPA, Nathan pointed out that there is a new 20-day administrative expense claim for goods received within 20 days of bankruptcy in the ordinary course of business under section 503(b)(9). "The first 20 days of bankruptcy should be covered by the 20-day administrative expense claim," Nathan said. "You don’t need to send a reclamation demand for this claim." Borges noted, however, that administrative claims are usually not paid out until the end of a bankruptcy case.

Creditors under BAPCPA can now more easily defend against a preference demand. Nathan said that a creditor might choose a defense that asserts the alleged preference payment was made in the ordinary course of business or in the ordinary terms of the industry. Prior to BAPCPA, a creditor had to prove both conditions existed in order to be able to successfully defend against a preference demand.

As in all NACM audio teleconferences, time was reserved at the end for participants to phone in questions to the presenters. A participant asked about the legitimacy of offers by companies to buy claims. A procedure in bankruptcy law allows a creditor to buy claims, Nathan said. "My advice to you is you should seek professional help to determine if the claim buyer is legitimate and also to check out the agreement to make sure it’s advantageous to you." "Ask fellow NACM members about a claim buyer," Borges added.

Another question was which is better to use in a preference defense — the normal course of business or the new value defense? "Use all your defenses," Nathan said. "The new value defense could allow a reduction of your expense exposure. At the same time, you should be doing an analysis of the ordinary course of business defense. I have used ordinary course of business defense in tandem with the new value defense." A participant also wanted to know whether he should file a reclamation claim even though he has an administrative claim under section 503(b)(9). Borges noted that a grant under section 503(b)(9) is not automatic. "You’re going to have to file a motion before the court."

Source:  Tom Diana, NACM staff writer

Good Treasury Management Can Reduce DSO


Credit professionals can help reduce Day Sales Outstanding (DSO) not only by setting credit terms that are appropriate to the creditworthiness of customers, but also by good treasury management practices. Advice and information about the topic was provided during an NACM audio teleconference, March 28, 2007. Madeline Sprague, CTP, of JPMorgan Chase, presented the teleconference entitled, "Treasury Management for the Credit Professional."

Sprague explained various forms of payment such as checks, drafts, wire transfers, Automated Clearing House (ACH), Electronic Funds Transfers (EFT) and payment to vendor websites. She noted that time is money, and the longer the money takes to actually get into a company’s bank accounts, the more it costs in terms of interest on borrowed funds or lost interest in invested company funds. She pointed out that every day DSO is reduced, it translates directly to the bottom line profitability of a company. Therefore, Sprague said the goal of treasury management is to optimize profitability by improving the payment cycle, increasing efficiency and managing processing costs.

Some of the factors involved in the amount of time it takes a check payment to translate into useable cash is the mail float, the processing float — getting it through company channels — and the check float from the depository bank to its final availability. She said by shaving a day off here and there on these float times, a company can reduce DSO. In order to reduce mail float, lockboxes can be located strategically closer to customers. Sprague explained the various ways to set up a lockbox system to reduce the amount of time it takes to process a check. She advised checking into the various bank fees to determine exactly what level of service would be most cost efficient. A company can also turn a desk into a teller window through the use of a bank-approved scanner that allows the scanning of check information and transmits it directly to a bank, reducing the time it would take for a physical check to be mailed or delivered. "You may want to look at a desktop deposit option," Sprague said.

Sprague explained the differences between ACH and fed wire and the costs of each. She pointed out that ACH takes about two days and has lower fees than fed wire. "You now have another option besides fed wire." Payroll direct deposit is a form of ACH. She noted that more information about a payment is provided with ACH. "When you receive information, you get plenty of information which cuts down on payment posting time."

As with all NACM audio teleconferences, time was reserved at the end to receive and answer questions from the participants. On a question about ACH Debit, Sprague noted that it has been very slow to develop. "Your ability to reach into [a customer’s] account and debit is going to be very limited internationally." On the question of the legality of an emailed copy of a check, Sprague said, "An emailed copy of a check does not have the same legal standing as one scanned into a bank’s proprietary scanning system." On the question of what to do with paper checks that have been converted to legal imaged copies under Check 21 provisions, Sprague said, "Once a check is converted into a substitute, at that point you can do whatever you want with the paper check. We recommend you keep the paper items for at least two weeks. You do have to have a destruction plan." And on the question of whether the United States would be adopting the International Bank Identifying Number IBIN used in Europe Sprague said, "I’m not aware that the U.S. is thinking about changing to that."

Source: Tom Diana, NACM Staff Writer

NACM Credit Managers Index March 2007


The seasonally adjusted Credit Manager’s Index (CMI) fell in March for the seventh time in eight months, losing 1.6%. The decline was driven by the dollar collections component, which fell a record 7.8%, but the weakness was widespread. "Even without the drag of the dollar collections component, the combined index would have fallen, as a total of eight out of the 10 components fell," said Dan North, Chief Economist with credit insurer Euler Hermes ACI. "Collections problems also appeared in the accounts placed for collection component, which is now below the 50 level, signaling economic contraction," he noted. "The weakness in collections suggests that businesses are having cash flow problems, reflecting the erosion of the economy as a whole."

"Certainly credit managers are starting to feel the effects of a deflating housing bubble and a slowdown in the economy caused by the Fed’s tightening," North continued. "Businesses in both services and manufacturing have been particularly hard hit by the slowdown in construction spending and the dramatic fall-off in the demand for building materials. With the median price of existing homes falling for seven consecutive months on a year-over-year basis, it would appear that the effects of the bursting housing market bubble will continue for some time. In the meantime, the plethora of negative data from the first two months of 2007, such as weak job growth, a dramatic fall in durable goods orders, slack retail sales, and of course deteriorating conditions in the sub-prime mortgage market, all reflect an economy sure to continue in slowing."

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Facilitate More Productive Meetings


Credit professionals can gain valuable knowledge and information from well-run meetings whether they be industry trade groups, or just brain-storming sessions with other business professionals. In order to get maximum benefit from a meeting, certain care, planning and executing the meeting should be taken in order to reduce the chances of it degenerating into a non-productive session of bickering or off-topic discussions. Those that tuned into an NACM audio teleconference March 12, 2007, learned how they can steer clear of meeting disasters and increase their chances of holding a productive and positive meeting.

Susan Fee, a licensed professional counselor and executive business coach, conducted the audio teleconference. She specializes in helping clients build strong personal and professional relationships by developing effective communication skills. An author of publications that offer tips on better communications and conflict resolution, Fee’s past clients include NACM, Motorola, United Airlines and Disney.

"What you allow is what you teach," Fee said. This advice is the foundation of her quest to discovering how to best conduct successful meetings that precisely direct people to the issues which the meeting was intended to address in order to produce positive results for all involved. It is the facilitator’s job to ensure that a meeting runs efficiently and effectively. First of all, it is important to determine when a meeting is necessary. "People complain about too many meetings," Fee said. "If the situation can be covered by a memo, then a meeting is not required." She also suggested determining who needs to be at a meeting. "The fewer people who are there, the more that will get done."

Fee laid out a step-by-step guideline for the planning, execution and follow-up of a meeting. She gave very specific advice that included many details, any one of which could derail a meeting if not executed properly. For example, she pointed out that it is essential for the facilitator to start the meeting on time. Otherwise, it will set a bad precedent for others as far as keeping within the time frame of the meeting. Fee offered tips on getting the meeting participants to feel comfortable and more likely to all participate in the discussion. "An ice breaker of some sort may help," she said. "It could be just introductions or something fun." Fee also gave tips on how to facilitate lively debate and differences of opinion without it degenerating into acrimonious disagreements. "Conflict is where new ideas come from." However, she added, "You need to intervene when the conflict gets the group off-topic." Fee also gave tips on how to steer problematic meeting participants into a more productive and relevant mode of discussion.
Source: Tom Diana, NACM Staff Writer, and Susan Fee

Economist’s Prediction to NACM for 2007 Right on Target


Credit managers should view their credit decisions in the larger context of the overall U.S. and global economies. Economic trends may affect how generous or tight their credit decisions are. Credit and other business professionals must rely upon economic forecasts to determine what to expect from the economy weeks or months into the future. The problem is that long-range economic forecasts are as unreliable as long-range weather forecasts. However, sometimes an economist’s long-range prognostication turns out to be right on target with the economic outcomes that later unfold. One economic forecaster that NACM relies on appears to be on the road for an accurate prediction of 2007, even though he offered his economic forecast back in December 2006.

In an article entitled, “Global Economy to Slow in 2007: Asia Emerges as Driving Force,” in the January 2007 edition of Business Credit, NACM obtained the views of several economists. A quarter of the way through 2007, it appears Dan North, Chief Economist for credit insurer Euler Hermes ACI, is the most accurate. At the time the economists were interviewed in December 2006, North predicted the smallest GDP for the U.S. at 2-2.5%. One of the factors he cited in his less optimistic view of the United States economy in 2007 was the declining condition housing market. In view of grim information on the U.S. housing market coming to light in mid-March 2007, North’s views three months earlier appear prescient. In the Business Credit article North said, “If you look at any measure of the housing market, the numbers are grim.” North pointed out that year-on-year housing starts were down 22 percent, new and existing home sales were down, and in September 2006 there was a drop in the median price of homes. North said that has happened only five months in the last 35 years. Even back in December, North didn’t view the housing market as bottoming out yet nor was he expecting a recovery any time soon.

The recent news on the U.S. housing market centers on the collapse in the sup-prime mortgage market. Subprime mortgages are those that are written for consumers who have less than solid credit. In fact, media reports show that some mortgage companies didn’t even verify the information on the mortgage applications, such as whether or not the applicant’s employment status was accurate. A March 12 article by Bob Ivy on Bloomberg.com provided a good analysis of the crisis facing the subprime mortgage sector that will likely have reverberations throughout the housing market and the general economy. The article stated: “As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.”

As for the near term prospects of the U.S. housing market the Bob Ivy, Bloomberg.com article stated: “The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.” Of the subprime mortgage dilemma North said, “When times are good, you start extending credit to people to whom you wouldn’t normally extend credit.” North also pointed out year-to-year housing prices fell in the last six months, with four of six months being the largest declines ever. “This is unprecedented.” He said from the peak of the value of the housing market that value has dropped a total equivalent to 15% of GDP. Another negative impact on the economy that can be caused by declining house prices is that less home equity borrowing will take place, which could result in less consumer spending. “If the consumer can’t spend any more, then that will slow down the economy,” North said. He noted that 2/3 of the economy is driven by consumer spending.

Another factor of weak growth in the U.S. economy cited by North back in December was the inverted yield curve. Essentially, the yield curve charts interest rates over time and North said that the inversion of the curve indicates that interest rates on shorter term notes are yielding more than for longer notes. While not predicting a recession, North noted that in the last 35 years every time the curve is inverted a recession followed. The trend of the yield curve has gotten worse since North spoke to NACM in December. “The yield curve has gotten more inverted since then,” North said. “You can’t have that without having a dramatic impact on the economy.” Another factor cited by North back in December was the previous interest rate increases by the Federal Reserve. Even though the last several meetings of the Fed resulted in the rate remaining unchanged, North pointed out there is a 3-5 quarter lag on the effects of these rate changes in the economy so the Federal Reserve interest-raising decisions that ended several months ago may still be having a drag on the U.S. economy.

In early March 2007, former Fed Chairman Allen Greenspan addressed a group in public and referred to the possibility of a recession. This statement sent the world stock markets in a significant decline. Greenspan cited possible declining corporate profits as the main reason for the recession possibility. “I was a little surprised when Greenspan came out and used the ‘R’ word,” North said. North does not predict a recession in the U.S. economy in the near future, which he defined as two successive quarters of negative GDP growth. He did, however, revise downward his December prediction of the 2007 U.S. GDP growth rate from 2-2.5% to a lower rate of 1-1.5%. On the global economy North said, “I don’t see an ominous forecast for the world as a whole.”

Source: Tom Diana, NACM Staff Writer

The Aging Business Credit Workforce


Recently, Federal Reserve Vice Chairman Donald Kohn testified before the U.S. Senate Special Committee on Aging. "The share of the adult population that is aged 62 and older, now at about 19%, is projected to rise to more than 22% by 2015," said Kohn. "The rising share of older individuals has important implications for the nation’s labor supply. In particular, the aging of the population will put significant downward pressure on the total labor force participation rate in coming rate."

Employers will, in the future, be forced to replace their aging staffs with newer and younger employees; unless, of course, they take steps to curb the impending wave of retirees now. "It’s really about planning ahead," said Fred Getz, Executive Director of Robert Half International’s Salaried Professional Service. Getz suggested that, before going out to hire a number of fresh graduates, take stock of who in the company will be eligible for social security benefits and see where they stand. "If you’ve got an older person in your department, go talk to them to see what they’re thinking," he said. "A lot of older people feel they might have to save some money." Getz said that, given the current trend of shrinking pensions and rising healthcare prices, "everyone’s nervous" and suggests that companies ask these employees what their plans are and how long they plan to stick around. Cutting turnover by offering raises, better benefits and flexible work schedules to older employees will also help to curb your labor losses, said Getz.

"They’ve got to look at how they’re staffing," said Getz. "Are we just hiring people to fill people’s jobs?" Companies that hire people just fill holes in the staff are missing out on a key opportunity to nip the retirement boom in the bud. "[Companies should] work a little harder at getting people in that are promote-able," he said, adding that the best solutions to the staffing question usually come from within the company.

If the company’s willing to flex a little bit, Getz said, then they could consider hiring people with relevant skill sets and spend more time on training. Getz noted that people in bookkeeping, accounting and sales positions could all have the potential for a successful career in commercial credit and also noted the other benefits of hiring from within the company’s ranks. "I think it’s always a great measure of good will," he said. "It shows loyalty to the employees."

When hiring newer, younger employees, Getz recommended that companies offer prospects a position that promises the possibility of growth and advancement. "That’s the kind of thing that younger people are craving," he said, suggesting that employers offer a clear path to greater success for candidates. Getz also recommended gauging the interest of seasoned employees, and potential retirees, in being mentors for new hires.

Some companies also might be tempted to make a minimum number of hires and increase the use of automated operations like credit scoring and other technologies. "While that reduces the number of lower level people," said Getz, "a lot of companies are finding they need higher level skill sets."

"All they’re doing is hiring more sophisticated people," said Getz. "Losing those lower level jobs isn’t a bad thing."

Kohn’s testimony before the Senate ended with a brief but grim reminder: "If we do nothing, it will, by default, fall entirely on future generations." This statement applies to individual citizens as much as it does to companies, and it makes sense to take action now, rather than scrambling for employees once the retirement wave hits.

Source: Jacob Barron, NACM Staff Writer, and Fred Getz, Executive Director of Robert Half International’s Salaried Professional Service

SOX Fit Into Credit Professionals’ Operations


The certification process required under the Sarbanes-Oxley Act of 2002 (SOX) has ramifications for credit departments, even though the act doesn’t specifically single out credit professionals. Scott Blakeley, Esq., of Blakeley and Blakeley LLP, pointed out that some public companies are requiring sub-certifications related to SOX that sometimes filter down to credit departments.

CEOs and CFOs are in the crosshairs of liability under SOX, Blakely noted. They are required to certify the accuracy of their financial records and validity of their company’s internal accounting controls. Therefore, in order to protect CEOs and CFOs from the representations of lower-level officials that they must rely upon in the financial reporting process, a system of sub-certifications has evolved. Sub-certifications involve others in the chain of command that have control over the accounting process to certify that the reports and numbers accurately reflect the true financial picture of the company. Blakeley pointed out this pushes the risk resulting from fraud or false information down to the level of those charged with providing it. Some sub-certifications reach into credit departments of public companies. For example, credit departments are often involved in determining if all revenue that is recognized actually earned or if it be adjusted for estimated rebates and discounts. Credit professionals may be responsible for certifying the accuracy of receivables too. In doing so there must be, for example, adequate provisions for doubtful and uncollectible accounts. On the issue of whether company officials can be compelled to sign sub-certifications Blakeley said, "A company can be in its right to require you to sub-certify or they can remove you."

On the issue of how SOX directly impacts credit departments, Blakely also pointed to Section 409 of the act that requires prompt disclosure of a material event. Such a material event could be the removal or resignation of a corporate director, termination of a material contract or delisting from a stock exchange. "If you’re a credit professional, learning of (a customer’s) section 409 disclosure may cause you to re-evaluate (that customer’s) credit risk." He advised inserting language in credit applications that give the company the right to elect to switch a customer from credit to cash terms in the event of a section 409 disclosure.

Source: Tom Diana, NACM Staff Writer and Scott Blakeley, Esq.

Communications to Competitors Bring Antitrust Potential


For credit professionals, danger could be lurking in a casual conversation at an after-meeting get-together at a local tavern, or it could be present in a remark made at an industry credit trade group. The danger comes in the form of engaging in a communication with a competitor that could be construed as a violation of federal or state antitrust laws, which can subject an alleged offender to felony criminal charges. How to ensure that credit professionals don’t unintentionally end up in that predicament was the subject of an NACM teleconference, Feb. 26.

The teleconference was presented by Wanda Borges, Esq., of Borges & Associates, LLC of Syosset, NY and was entitled, "Communicating With Competitors: Risks and Safeguards to Protect Your Company." Borges focused on two major antitrust statutes that she said impact the daily lives of credit professionals. The Sherman Antitrust Act of 1890 was the first major piece of federal antitrust legislation enacted in the United States. Referring to the act, Borges noted that, "It prohibits contracts, conspiracies or collusion of any kind that will reduce competition, restrain trade or monopolize an industry." A violation of the provisions of this act could result in a felony conviction. In order to emphasize how important it is to always be aware of the provisions of this law, Borges said, "Any time you are together with another competitor, you run the risk of conversations in violation of the Sherman Antitrust Act."

The other major federal antitrust statute that Borges pointed to was the Robinson-Patman Act of 1936. One distinction of that act noted by Borges is, "You can violate that (act) all by yourself without anybody else being involved in that activity." She said under this statute it is unlawful for any person engaged in commerce to "discriminate in price between different purchasers of commodities of like grade and quality where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce." "Agreements between competitors can raise antitrust suspicions," Borges said. "Agreements on price and credit terms are potentially the most serious." A restraint of trade takes two or more parties. She provided an example of seven movie theaters in a state that were supplied with movies from a particular movie distributor. They were all sent a letter by the movie distributor requiring them to raise their ticket prices by $2. Six of the movie theater operators complied with the demand. The seventh objected on the grounds that the people of that community couldn’t afford the higher prices and the loss of first-run movies would result in a loss of business for that movie theater. That seventh movie theater sued the distributor and the other six movie theaters for restraint of trade. The court declared that the six movie theaters knew that their actions would restrain the trade of the seventh.

Borges reminded teleconference attendees that credit terms are an indispensable component of price. Although commerce across state lines is required for a federal antitrust violation, there are various state laws that mimic the federal antitrust statutes. She pointed out that those companies that are selling purely services do not come under the provisions of the antitrust statutes. She cited some examples of under what circumstances different prices could be set for customers. For example, if a supplier in New York had two identical customers, from a credit and financial perspective, with one in Washington and one in Connecticut, Borges said that the supplier could set different prices if that supplier pays for shipping. "If you are paying for or sharing freight costs, they are no longer identical customers," Borges said. Also, if one customer buys in quantities that make it more economical to ship to them, such as buying a full freight car that makes one stop — as opposed to one that makes multiple stops to multiple customers — then different prices can be set for those customers. Also, she pointed out that if customers have very different credit situations, different credit terms can be offered to them, as in the case of one customer that is heavily in debt versus another that carries no debt.

A company may meet the competition but not beat the competition. "You must establish that generous terms (given to a customer) are those given by your competitors," Borges said. She advised trying to get a customer to reveal, in writing, the generous terms offered by other companies. That way it can be better documented that you relied on your customer’s representations of other generous offers in the event your generous pricing offer comes into question in terms of an antitrust violation. "The best evidence is always good documentation." Borges recommended not divulging credit references telephonically as the representations made about a customer could be distorted or misrepresented. She said, however, that exchanging credit information is legal. "I strongly recommend you do it by fax or electronic transfer as proof of what information was exchanged," she added. As far as credit information kept by a company on its customers, Borges said, "You have to keep and safeguard your information to prevent it from falling into the wrong hands or being altered."

Trade group meetings are events where credit information may be exchanged among companies about customers. Borges recommended following the NACM Antitrust Guidelines in order not to do or say anything with respect to a customer that could be construed as an antitrust violation. She pointed out that these guidelines are read before the commencement of all NACM industry credit group meetings. During these meetings Borges noted that it is not legally permissible to discuss price or credit terms or credit lines given to customers. She warned to be careful about discussions held outside the confines of the meeting itself. "Most unlawful discussions are not going to take place at the trade group meeting. It’s at lunch, dinner or at the bar when unlawful discussions take place." Borges told of an incident where she was at a social gathering after an event and overheard two credit professionals engaged in a conversation that appeared to be heading toward the discussion of future credit intentions directed to a common customer. She said she interrupted them and asked them if they really wanted to be talking about that, which got them to cease that particular line of discussion. "You cannot discuss future activity, including discussions relating to an involuntary petition of bankruptcy." As far as filing an involuntary petition for bankruptcy she said, "There are very strict criteria on how to file an involuntary petition for bankruptcy. You need three or more creditors to file the petition. She advised anyone considering such an action to analyze the situation on an individual basis regarding whether it is appropriate to file such a petition against a customer.

Several teleconference attendees phoned in questions to Borges after her presentation. On the question of whether print advertisers (as opposed to radio or television) fall under commodity rules Borges said, "I would treat it more like a commodity." On the question of whether different terms can be set for customers that use credit cards, Borges said, "You don’t have to give the same terms as credit customers but you are not required to give the same terms as cash." However, she advised that all credit card customers should be treated equally.

Source: Tom Diana, NACM Staff Writer and Wanda Borges, Esq.

NACM Credit Managers Index February 2007


The seasonally adjusted Credit Manager’s Index (CMI) crept 0.6% lower in February. It was the sixth decline in seven months, and five of the Index’s 10 components fell. Much of the fall was driven by sharp decreases in the new credit applications component of all three indexes. “Indeed, without the slide in new credit applications, the combined index would have risen 0.3%. The data suggests that businesses are curtailing their spending in anticipation of an economic slowdown, a notion confirmed by January’s durable goods orders report, which showed that business orders for items meant to last more than a year dropped sharply last month,” said Dan North, Chief Economist with credit insurer Euler Hermes ACI. He noted that the combined sectors’ results reflect conditions found throughout the economy: continued economic momentum accompanied by stubborn signs of deterioration; the Institute of Supply Management’s (ISM) manufacturing index fell below 50 for the second time in three months; median housing prices have fallen for six consecutive months (an unprecedented event); and the U.S. Treasury yield curve has become increasingly negative, a strong indicator of a future slowdown.

Download the full report in PDF.

NACM Teleconference on Facilitation Skills


Facilitation Skills

If you’ve ever sat through boring, unproductive meetings, you know that facilitation is an art! Learn how to manage and organize group activities and meetings to make the best use of time and resources while achieving the group’s desired outcome. You’ll gain valuable tips for how to run effective meetings, increase participation, handle difficult personalities, manage conflict, and encourage brainstorming.

Here’s one tip: gather questions ahead of time! So, if you have a question or situation you would like addressed, submit them now to Susan_Fee@msn.com.

Date: Monday, March 12, 2007 3:00 – 4:00 pm Eastern

Cost: $59.95 per line

Presenter:Susan Fee, M.Ed., LPC

To register now, click here.

Expert Explains the Basics of Financial Statements


One of the important skills business credit professionals must master is how to understand financial statements. Another valuable skill is to know what types of financial indicators can be used to gain valuable insight about a company’s financial status as presented in its financial statements. Attendees of an NACM teleconference on Feb. 21 got an opportunity to learn some of the basics of reading financial statements and performing various calculations. The presenter of the teleconference was D.J. Masson, Ph.D., CTP, Cert ICM.

Masson is President of The Resource Alliance, a training and consulting firm specializing in treasury management, electronic commerce, international finance, sales and sales management, retirement investments and planning and business process redesign. Over the past 20 years, he has been providing business and financial consulting and training services to a wide variety of corporations, financial institutions and not-for-profit organizations in the U.S., Canada and abroad. Masson has an extensive resume that includes teaching, speaking and writing articles and books on various financial subjects.

He mentioned that there were three types of accounting: managerial, tax and financial. In managerial accounting, the goal is to provide information to the company’s executives about the financial strengths and weakness of the organization. "It’s considered proprietary and internal to the company," Masson said. Tax accounting is done primarily "to minimize a company’s tax liability." Financial accounting is used to produce the books that are provided to the general public, to the investors and to the SEC. "Companies use different types of accounting for different purposes," he added. He provided the example of the depreciation of assets. For tax purposes, accelerated depreciation may be used to reduce the tax liability of the company in the first few years, while for investors, straight-line depreciation may be used.

There are two types of accounting methods, which are cash and accrual accounting. Masson said that cash accounting recognized expenses and revenues when cash is actually brought in or paid out, while accrual accounting recognizes these entries when they are booked. "In accrual accounting, we have a disconnect between cash flow with the accounting of that cash flow." Under Generally Accepted Accounting Principles (GAAP), Masson noted that flexibility is allowed in accrual accounting. He pointed out that cash flow analysis is used to try to understand the true cash position or liquidity of the company. "Liquidity of any company is its life’s blood."

The four types of financial statements required by GAAP are: income statements, statements of retained earnings, balance sheets and statement of cash flows. Masson said the income statement, or P&L (profit and loss), is a record of revenues and expenses showing the net change in shareholder equity from operations over a specified period. The statement of retained earnings shows how net income for the period was used. A balance sheet presents a snapshot of assets and liabilities, and the statement of cash flow reconciles all information back to what is the cash position of the business. In describing the difference between income and cash flow statements, Masson said the statement of cash flows provides an indication of cash flow and how it is being used while the income statement is an indication of performance.

There are various financial ratios and performance measures designed to reveal various aspects of the financial status of a company. The most common of these were presented and explained with accompanying examples. The most commonly used are liquidity, activity, debt, profitability and market ratios. Masson pointed out there are advantages and disadvantages offered by these ratios. Among the advantages are that they are easily computed, they are widely used, the information is easily obtained, they allow assessments of historical performance and they allow for comparisons between companies. Some of the disadvantages these financial indicators present are that they summarize accounting information and do not reflect economic value, they express static, not dynamic, relationships, they cannot reflect qualitative value such as managerial talent and other intangibles, they often miss variability of cash flows and are not necessarily indicative of future performance and their use of different accounting methods or "window dressing" can distort calculations.

In response to an attendee question on what financial ratios are the best predictors for bankruptcy, Masson pointed to the Z-score developed in 1968 by Dr. Edward I. Altman, a financial economist and professor at New York University’s Stern School of Business. The Z-score is a predictor of the likelihood that a company will go bankrupt in the near future. He also advised of comparing the current and quick ratios of a company to others in the industry. He also said, "You may just want to do a Google search." Other advice he offered regarding the possibility that a company may go bankrupt is to view rating companies, such as Standard & Poor’s and using credit scoring models to evaluate the creditworthiness of the firm.

Source: Tom Diana, NACM Staff Writer, and D.J. Masson

FCIB New York Roundtable Presents Global Outlook


Global economic trends and threats were the main topic of the FCIB New York International Roundtable Conference that took place on February 21, 2007. The event drew attendees from several states on the eastern half of the country and professionals from a diverse collection of industries including chemicals, foods, electronics, credit insurance, financial services and many others.

Keynote speaker Byron Shelton, an International Economist for FCIA Management Co., noted that the global economy has, overall, performed well over the past several years with growth averaging out to 4%-5%. Record numbers of jobs have been created and countries that were once failing, namely India and China, have vaulted to the forefront of the global market. However, Shelton said, there is a remarkable dichotomy in this amount of global growth when considered with the simultaneous rise in political insecurity and still high levels of poverty that effect even the strongest nations.

Shelton noted that high levels of poverty have often led to an increase in authoritarian regimes that are far less open to foreign investment, citing Hugo Chávez’s Venezuela as an example. The oil-rich Latin American nation that recently re-elected Chávez by a landslide was a hot topic for discussion at the meeting. Many attendees citied troublesome payment experiences and concern for what’s to come of the country now that Chávez has announced a plan to nationalize a number of the nation’s most booming industries.

After Shelton’s presentation, the floor was opened up for a roundtable discussion of attendee experience with customers in a number of different regions and countries. The discussion also included a diverse collection of panelists: Glenn Lifrieri, Director of Corporate Credit and A/R at Arch Chemicals, Inc.; Paulo Menezes, Senior Manager of Risk Management at the Sojitz Corporation of America; and Andrea Ratay, Vice President of HSBC Bank USA. The discussion was moderated by John Rossini, Director of Credit at Central-National Gottesman, Inc.

Conference Attendees were allowed to submit questions prior to the event that would be addressed during the roundtable and these provided a the discussion with starting points for relevant discussion about payment experiences in a number of different regions. While Latin America was the most-talked about region, other areas including Asia, the Middle East, Africa, Europe and North America were all discussed, as well as general questions pertaining to best practices, changes and trends affecting the world of international credit.

For more information of FCIB’s other upcoming events, visit their website at http://www.fcibglobal.com.

Source: Jacob Barron, NACM Staff Writer

Antitrust Issues for the Credit Professional


While the laws governing antitrust practices have been around decades, issues as to what constitutes a violation of these statutes still come up on a regular basis for business credit professionals. The Robinson Patman Act of 1936, The Clayton Act of 1914 and even the Sherman Antitrust Act of 1890 still beguile creditors today about what constitutes a violation of these laws and what the laws allow.

“I keep getting calls from creditors asking when must they adhere strictly to Robinson Patman [or] when can they change their terms,” said Wanda Borges, Esq. of Borges & Associates, LLC. Robinson Patman makes it illegal for any person engaging in commerce to “discriminate in price between different purchasers of commodities of like grade and quality” and was designed to prevent discriminatory practices that adversely affect competition. In essence, this means that credit terms are required to be a condition of price and charging different customers different prices is legally questionable.

However, credit professionals do this all the time and it’s become common business practice to offer better terms to some customers and other terms to the less worthy ones. Antitrust law also governs the exchange of information, particularly at industry meetings and trade groups. Borges noted that, for the most part, credit professionals at trade groups have become pretty stable in regard to what can and cannot be said. “However,” she said, “the issue still comes up as to who may be a member of a credit group.”

Borges noted that, for credit professionals, these antitrust issues could have “a real impact on their companies.”

Borges will deliver an NACM-sponsored teleconference on the subject February 21st, 2007 entitled “Antitrust Issues for the Credit Professional.” For more information or to register, click here.

Source: Jacob Barron, NACM Staff Writer, and Wanda Borges, Esq.

How to Better Prepare Against Preferences


Preferences can be a daunting challenge for creditors but Bruce Nathan, Esq., of Lowenstein Sandler PC of New York, presented information on how to better defend against them. The information was disseminated during an NACM teleconference Feb. 12, 2007 entitled, "Preferences: Defenses That Can Reduce Exposure and Case Law Update."

Nathan, a private attorney and an NACM advisor who specializes in bankruptcy law, noted the large amount of case law on preferences over the last year, and noted how bankruptcy cases are now making their way to court under the authority of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). One big change under BAPCPA cited by Nathan was that the "ordinary course of business" defense against preferences is more advantageous to creditors. In defining a preference, Nathan said that generally it is a transfer of property of the debtor to or for the benefit of the creditor on account of existing debt owed by the debtor before the transfer was made. Furthermore, to be a preference, the transfer has to be made while the debtor is insolvent, it must have been made within 90 days before filing of the bankruptcy petition and the transfer must enable the creditor to receive more than he would receive in a liquidation.

Defenses to preferences are found in section 547(c) of the Bankruptcy Code, Nathan said. He pointed out that generally no preferences are applied to COD payments. Also, creditors can rebut the presumption of insolvency that is afforded debtors within 90 days of a bankruptcy filing, although that may be difficult to prove. "If you have financial statements that show a company (filing bankruptcy) was solvent close to that 90-day period of presumption of insolvency, you may make a case," Nathan said. "A court, in determining insolvency, may include assets and liabilities that aren’t on a balance sheet." Nathan also noted that those creditors defined as insiders, are exposed to a longer preference period of one year. Nathan advised creditors who receive preference claims to review their payments from that debtor within the last 90 days prior to the filing of the bankruptcy. He pointed out that some trustees just look at the check register of the debtor and send out preference demand letters to those creditors listed on the debtor’s check register during that 90-day period. However, while a payment may have been listed on a debtor’s check register, the creditor may not have received it. On the extemporaneous exchange of a product, which is new value, for payment, as in COD transactions, Nathan warned that if the check bounces and is replaced, the replacement of the check is considered an extension of credit. In that case, a preference claim could be made on that transaction. He also said, "The COD claim is only for goods that are exchanged for payment, not for the payment of old invoices."

The ordinary course of business defense against preference claims has now become easier under BAPCPA Nathan said. "Under the old statute, there were a number of things that could cause the loss of the ordinary course of business defense." Under the old law, a creditor had to prove a payment was made in the ordinary course of business with that customer and within the industry. He noted that if a creditor was doing business for the first time with a customer, there would be no payment history to establish an ordinary course of business with that customer. "Some courts would say the first transaction couldn’t be viewed as ordinary course of business." Now creditors have to show that a payment was ordinary between that creditor and customer or that it was ordinary for the industry.

One of the attendees of the teleconference asked Nathan if trustees couldn’t be sanctioned for merely sending out preference demand letters from a debtor’s check register. "This is an abuse and it’s unfortunate," Nathan said. "There are some circumstances where sanctions can be assessed. There are a few judges that have ruled that with obvious defenses, abuses have been committed." However, he noted that it is difficult to have a judge sanction a trustee regarding sending out preference claims. "A judge would only sanction if you went to trial and won." Another attendee asked a question about preference claims having to be related to a payment in the amount of $5,000 or more and whether that amount refers to individual payments or total payments? Nathan answered that it refers to lump sum and not each individual payment from a debtor.

Source: Tom Diana, NACM Staff Writer and Bruce Nathan, Esq.

Spotting 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 an NACM teleconference presented Feb. 7 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, Dubinksy 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."
Sources: Tom Diana, NACM Staff Writer and Bruce Dubinsky, MST, CPA, CVA, CFE

NACM Credit Manager’s Index January 2007

The seasonally adjusted Credit Manager’s Index (CMI) rose 2.5% from 54.7 in December to 57.2 in January, erasing all losses from the previous four months. All 10 of the combined index components rose, indicating economic expansion — none are currently below the 50 level. “The service sector led the way in January, rising 3.4%, while the manufacturing sector rose 1.6%,” said Dan North, Chief Economist with credit insurer Euler Hermes ACI. “The CMI gives a similar impression to much of the other better-than-expected economic news, painting a picture of a resilient economy that has so far weathered the headwinds of a tightening monetary policy and a decimated housing market,” he continued. “It is quite likely, however, that the unusually warm weather in the densely populated East gave an extra boost to most recent economic indicators, including the CMI.”

Download the full report in PDF.

Reducing Your Exposure


When a creditor gets hit with a preference claim,
there may be a number of thoughts that occur to the credit manager responsible
for dealing with it. These could range from paralyzing terror, accompanied by
blood-curdling screams, to moderate displeasure, accompanied by an exasperated
sigh and a resignation to payment.

While the former option might be less likely, the latter could be
far more dangerous. Bankruptcy law includes a number of defenses for creditors
hit with preference claims and a number of credit professionals might not even
be aware of them. “The preference defenses are like gold,” according to Bruce
Nathan, Esq., partner in the Bankruptcy, Financial Reorganization and Creditors’
Rights Department of Lowenstein Sandler PC. Nathan, who will host an
NACM-sponsored teleconference on the matter, said that credit managers will
often debate whether they should go through the trouble of getting counsel
involved or just pay the claim.

When a creditor receives a demand letter, Nathan suggested “They
should never pay it, and they should never ignore it.” Upon receipt of the
demand, creditors should become like investigators to see if they ever received
the full amount of the demanded payment or whether or not the claim is invalid
due to a certain defense.

Nathan noted that a trustee will often use a check register to
find companies from which to draw money for preference claims. However, a
register doesn’t indicate if a check has bounced, meaning that a trustee will
send a demand letter for a larger amount that was actually ever received from
the debtor. Trustees also send claims to companies for amounts that they don’t
legally owe and Nathan pointed out that claims under $5,000 are ineligible under
bankruptcy law. Additionally, claims between $5,000 and $10,000 must be filed in
the state of the creditor, rather than the state of the debtor, otherwise they
are invalid.

A number of other defenses exist to reduce a creditor’s exposure
as well, including the new value defense, the contemporaneous exchange defense
and the ordinary course of business defense. For more information on how to
reduce your company’s exposure, be sure to attend Nathan’s teleconference,
“Preferences: Defenses that Can Reduce Exposure and Case Law Update,” on
February 12, 2007 from 3:00–4:00pm. Click here to register.

Source: Jacob Barron, NACM Staff Writer, and Bruce Nathan,

Dos and Don’ts of Construction Contracts Discussed

Credit managers of businesses, especially suppliers, involved in construction projects learned a lot of valuable advice from James D. Fullerton, Esq. about how to structure contracts and credit applications during a recent NACM teleconference. As an attorney and President of the law firm of Fullerton & Knowles, PC, licensed in Virginia, Maryland and the District of Columbia, he has acquired considerable knowledge in the field of construction law. His firm represents suppliers, subcontractors, design professionals and other members of the real estate and construction industries.

Fullerton said that when doing business related to a construction project, it is essential to be fully protected by a well-written contract. However, he mentioned that it still doesn’t guarantee that problems will not be encountered. “Contracts are not going to solve all the problems and they’re not going to prevent problems.” “Contract terms are about costs, terms and risks,” Fullerton added. “You want to be sure you are one of the first people paid off if there are problems.”

One provision that Fullerton recommended putting in sales contracts is one that allows for the payment of a sellers attorneys’ fees if there is a late or nonpayment by the debtor. “Just having an attorneys’ fees provision will make it more likely they will pay you rather than some other creditor.” Another important provision in a contract is a trust fund agreement. In such an agreement, Fullerton said the customer agrees that all funds owed to the customer from anyone or received by the customer, to the extent those funds result from the labor or materials supplied by seller, shall be held in trust for the benefit of seller only. These funds are, therefore, held in trust for their beneficiary, which is the seller. And, pointing to another benefit of trust fund agreements Fullerton said, “It’s a terrific defense of a preference case.”

Another contract provision recommended is the right to verify funding. This gives the seller the right and opportunity to verify credit and funding before the obligation to ship the products. Fullerton also recommended including a provision in a contract that requires reimbursement of the seller in the event goods have to be stored for a period of time because of construction delays. “It is important to state a storage fee if you have to store goods before delivery. It’s very hard to collect any storage fee if the buyer hasn’t agreed to it.”

Various provisions to limit damages were explained, such as, to include a contract provision that would limit the amount of damages to an amount equal to the price of the products delivered. He described a situation he encountered where a supplier sued for the value of products delivered to a construction project, which was $1.5 million. The supplier was counter-sued by the project owner for $3 million for damages related to the products allegedly being defective. However, because the supplier had contract provisions that limited liability to the value of the products and also had a contract provision that included reimbursement of legal fees, the project owner then sued the manufacturer of the products instead. “We got our money within 90 days and got out of litigation. That’s what limitation of liability clauses will do for you.”

Source: Tom Diana, NACM staff writer, James Fullerton, Esq.

B2B Credit Card Transactions Explained

How credit card processing charges are levied and how a business can reduce their costs in processing credit card transactions were some of the topics discussed during a recent NACM teleconference. "The Evolution of Credit Cards in B2B Transactions," was the title of the session conducted by Robert Day, Fifth Third Bank Processing Solutions Officer and Commercial Merchant Analyst.

Day pointed out that there are essentially three major parties in a credit card transaction that make money from credit card transactions. There is the issuer of the card, an acquirer or processor—of which Fifth Third Bank is an example—and the interchange or network, such as Visa and MasterCard. As far as what party is making the most money on credit card transactions, Day said, "A good chunk of money is going back to the bank." The most variable aspect of the fees involved in such transactions is involved in the network or interchange. "You need to manage the interchange," Day said. In an example of a $50 Visa charge, Day said that the interchange represented 92% of the cost of the transaction. Depending on the level of information provided by the merchant or selling business in a credit card transaction, credit card transactions are classified as level I, II or III. The more detail provided in the transactions the higher the classification. The higher classifications are charged lower fees. "It’s more important now than ever to be at level III," Day said.

Day also advised to be prepared for rule changes to be implemented by MasterCard and Visa on April 13. "There’s going to be 11 new interchange categories," he said. "We still don’t know the details of how the card types will play out. You’ve got to make sure you’re set up to handle the situation." Day noted that it’s important the processor or acquirer you choose is diligent in trying to drive your interchange costs down. "You need somebody who’s going to be proactive to make sure the interchange is working for you. You must get a processor who explains the interchange fees. It’s the processor’s responsibility to get you a lower rate." He noted that some processors do not break out the fees so it’s difficult to determine the rates being applied to the transactions. There are also statements that are misleading, making it difficult to compare what other processors are charging for the same types of credit card transactions. "You have to be cautious with statements that do not list all the interchange fees." He also warned against processors that quote low rates for transaction types the merchant will rarely have, which will result in the actual rates being much higher than the quoted rates. For example, the processor may quote a rate involving transactions where the cardholder is present and signs a receipt even though most of the merchant’s transactions will be of a different and more costly type.

Source: Tom Diana, NACM staff writer and Robert Day, Fifth Third Bank

Credit Card Use in Business Transactions

While many of us use credit cards in our daily lives for purchases at grocery stores, gas stations and other consumer venues, a number of businesses have begun to use and accept credit cards for payment. Over the past several years, business credit card use has ballooned and a number of companies are making the change to cash in on the benefits.

“So many more companies are using them,” said Robert Day, Commercial Merchant Analyst for Fifth Third Bank Processing Solutions. “It’s practically doubled in the past years.” Day noted that the use of credit cards in business transactions is ultimately a cheaper way of doing business. It also cuts back on the paperwork and printing hassle that goes along with the use of checks.

Most business conducted with credit cards is done at the second level, which is a level of security that requires a business that accepts credit card transactions to provide certain information prior to approval. Information like merchant zip code, location, description and tax info is included on the second level. There is, however, a third level of transaction, which is increasingly being used, and often required in order to do business, by larger corporations. Level three transactions not only provide the buyer with general information, but also a line item guide of what was purchased with the credit card. Currently, only about 1% of business is conducted at level three.

However, the higher the level of your transaction and the greater amount of data a merchant provides, the lower the interchange rate. Interchange rates are fees levied on a merchant after a transaction is completed—and how credit card companies make their money. The more information you provide, and the more you accept credit cards at level three, the less money you need to give to a credit card company.

On January 10, Day will deliver a teleconference on credit card processing in business-to-business transactions. The presentation will focus on both payment and acceptance of business credit cards and will, most importantly, give you tips as to how you can lower your interchange rates and save your company money.

Source: Jacob Barron, NACM Staff Writer and Robert Day

NACM Credit Manager’s Index December 2006

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fifth consecutive month in December, and now stands at its lowest level since April 2003. "The Index fell 0.5% as seven of the 10 components declined," said Dan North, Chief Economist with credit insurer Euler Hermes ACI. "Four of the components are now under the 50 level signaling contraction, the most since March of 2002." The CMI data strongly suggests a slowing economy, and remains consistent with data from the rest of the macroeconomy indicating a slowdown: weak GDP growth for two consecutive quarters, durable goods orders (ex-transportation) falling for two second consecutive months, modest holiday sales and signs of weakness in the labor markets.

Download the full PDF report, click here.

House Passes Ex-Im Extension

The House of Representatives recently passed a bill authorizing the extension of the Export-Import (Ex-Im) Bank’s charter for another five years. It also provides for the restoration of a Small Business Division to operate within the bank.

In a release, the House Small Business Committee said “the legislation also includes provisions… to give the restored Small Business Division more teeth by authorizing small business specialists within each division of the Ex-Im Bank the ability to approve loans, guarantees and insurance at recommended levels up to $10 million.” These provisions will reportedly speed up the consideration of small business loans.

Additionally, the bill allows the Senior Vice President of the bank’s Small Business Division to advocate for small business exporters in specific transactions and enhances Ex-Im’s delegated loan authority to private banks for medium-term transactions.

Ex-Im Bank was created in 1934 as an independent government agency that provides export credit guarantees, insurance and direct loans to allow American companies to more easily do business overseas. Earlier in 2006, the Government Accountability Office released a study showing that the Ex-Im Bank had consistently missed its statutory 20 percent set aside mandate for small business since the mandate was increased in 2002.

The bill was authored by Sen. Mike Crapo (R-ID) and is expected to be approved by the Senate and signed into law by the President.

Source: Jacob Barron, NACM Staff Writer and the U.S. House Small Business Committee

Creditor’s Rights Discussed In NACM Teleconference

Rather than a standard presentation, an NACM Teleconference held on December 7th took the form of a question-and-answer session with Lowenstein Sandler PC Partner Bruce Nathan, Esq. Nathan took both extemporaneous questions and ones that had been submitted earlier that dealt with bankruptcy and other issues pertaining to creditors’ rights. Nathan likened the format to a creditor forum and mentioned that this was the first time NACM had organized a teleconference this way.

"You are part of history," Nathan said to the attendees.

Many of the questions asked focused on the sale of claims and the legal rights of creditors who choose to do so. "Sales of claims is really an area that has developed over the past 20 years," Nathan said. "In deciding when to sell your claim… the first thing you should do is check the docket of the case." Doing so allows a creditor to see a lot of information that could weigh heavily on their decision to sell, said Nathan.

In addition to looking up the case, Nathan advised claim sellers to always review the sales contract because they can often be designed to give the buyer an unfair advantage. "People buy claims in order to make money," Nathan warned, adding that, if possible, claim sellers should take sales contracts to an attorney before signing them. Sellers should even consider taking the offer of one buyer to another potential buyer and asking if they can offer a better price.

Also discussed were items that have changed under the Bankruptcy Abuse Prevention and Consumer Protection Act, which turned a year old in October. Under the new act, there have been changes in preferences, like who receives insider status and who doesn’t, utility rights in a bankruptcy case and the ordinary course of business defense, which has become easier to prove under the new law.

According to Nathan, pre-BAPCPA cases required that creditors prove both that the debt was incurred in the ordinary course of business of the debtor and creditor and that it was incurred according to ordinary business terms. The BAPCPA allows creditors to use the ordinary course of business defense if they can prove either of these things. 

Attendees were from an array of different fields, including media, utilities and certain industries. The next NACM Teleconference, titled "Credit Card Processing," will be held on January 10th, 2007.
Source: Jacob Barron, NACM Staff Writer, and Bruce Nathan, Esq.

Collecting On Your Delinquent Account

“What we’re finding is much fewer of our customers that fail to pay… go running to the bankruptcy court,” said Scott Blakeley, Esq. in a recent NACM Teleconference titled “Collecting on Your Delinquent Account: Litigation Strategy for the Credit Professional.”

Blakeley noted that after the October 17, 2005 passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) “more of our customers… are looking to alternatives to deal with their delinquent vendor accounts.” Blakeley added that the BAPCPA placed greater constraints on the debtor and left fewer assets available for repayment. “It’s prompting people to stay out of bankruptcy,” he said.

The first step toward collecting a delinquent account is to know exactly when you have one on your hands. “If we have a customer who fails to pay according to [our agreement], that constitutes a delinquent account,” said Blakeley. However, a customer’s delinquent status may not be as easy to decipher as this definition would imply.

Blakeley noted that some customers agree to a vendor’s credit terms while making payment according to their own. To prevent this, Blakeley suggested that it be clearly stipulated in your invoice or credit application that your terms are the ones to be followed, not the customers. This precludes any argument about when a customer is delinquent and can also provide for easier payment should you take the customer to court.

There are also situations where a credit extending company may allow a customer to pay beyond terms in the ordinary course of business. However, Blakeley warned that companies should be careful when choosing to do this. “Under Article 2 of the Uniform Commercial Code (UCC), this relaxing of invoice terms may qualify as new terms,” said Blakeley. “One needs to look at the payment history.”

When working to collect on a delinquent account, there are a number of methods, Blakeley said, that don’t involve bankruptcy, including arbitration, mediation, repayment agreements, where a customer agrees to pay the account off over time and, finally, litigation.

Arbitration and mediation are similar in that they attempt to resolve disputes with customers without the vendor filing a lawsuit. Binding arbitration is a formal collection process that doesn’t conform to the legal rules of evidence, said Blakeley. “It does require the customer to promptly deal with this delinquent account,” he added. “Arbitration can move rather quickly.” Like other options, arbitration can be invoked when it is included in the terms of sale and the customer agrees to said terms. Mediation is a more informal process where a mediator is hired and leads both parties to a resolution through negotiations.

Litigation is the most well known option of collection but Blakeley stressed the importance of being prepared before entering the courtroom by knowing who is liable for the debt and by having all your documents in order. “Documents must be preserved… if we feel we’re going to be in litigation with this customer,” said Blakeley.

Blakeley and fellow firm member, Bradley Blakeley, Esq., also took question from attendees and discussed the intricacies of legal filings. For more information on NACM’s Teleconference series, visit the association’s website at www.nacm.org. The next teleconference, titled “Credit Card Processing” and led by Robert Day, will be held on January 10, 2007.

Source: Jacob Barron, NACM Staff Writer, Bradley and Scott Blakeley, Esq.

Registered E-Mails Not Ready For Lien Law

Electronic documents are becoming more widely used in business. Technology now allows for the legally binding electronic signatures on various documents. There is even technology available which allows e-mails to be sent and documented in such a way that they serve the same purpose as certified letters. However, such technology would not be suitable with respect to many states’ lien laws.

James Fullerton, Esq., of Fullerton & Knowles, PC in Clifton, VA, said that while such technology is convenient, the lien law in his home state of Virginia requires that notices to owners, or preliminary notices, be sent by certified letter or personal delivery. Notices to owners are notices sent by subcontractors and suppliers describing the products and services delivered to a construction project. Such notices are required in many states in order to preserve lien rights in the event that liens would have to be filed in order to recover payment for products or services delivered to a construction project. In Virginia and other states, the law specifically requires notices to owners to be sent by certified letter, be personally delivered or by a choice of either method.

Fullerton said that unless the law is changed, sending out notices to owners by e-mail, no matter how good the technology is, would not legally protect a business’s lien rights in Virginia and other states that require certified letter delivery. “A lawyer is always going to do it exactly as the statue says,” Fullerton said. “More than half the states require certified mail or personal delivery.” Deborah Lawson, a Government Affairs Consultant in Florida, noted her state’s laws are similar to Virginia’s with respect to the delivery of notices to owners. As to delivery of these notices by e-mail, Lawson said, “We would have to make a statutory change.” Lawson confirmed that in Florida, a preliminary notice must be delivered to an owner of a construction project in order to preserve lien rights.

Both Fullerton and Lawson agree that in the future the laws in their states may be changed to reflect the trend toward the legal acceptance of electronic documents. However, Fullerton believes the slow pace of state law change, at least in Virginia, will mean that it may take several years before the law embraces this new technology to deliver and document legal notices. Fullerton pointed out that while faxes became common in the mid-1980s, it was not until the 1990s that laws were changed to allow faxes to serve as legally binding documents or notices. He also noted that certain types of communications between parties involved in construction projects are sent by e-mail to document that a communication was made, such as an instruction on where to deliver materials to a construction site. “There’s no question that the construction industry is going electronic on the ground.” He also said the even though a statute may require a notice to owner to be sent by certified mail, he recommends that in addition to this method, others are used. Fullerton would recommend sending e-mail in addition to a certified letter. As for when he predicts Virginia’s lien law may be amended to allow for e-mail notices to owners to be sent in lieu of certified mail he said, “It’s going to be 10 years before the statutes change.”

Source: Tom Diana, NACM Staff Writer

NACM National Scholarship Foundation Established

NACM is pleased to announce that a national Scholarship Foundation has been established. Funds have been raised from generous donations from the NACM community, as well as from Silent Auctions and other special functions. These funds will afford many people the opportunity to continue investing in the future of our profession. NACM encourages members and potential members to apply for a national scholarship.

We hope to continue to raise awareness for the foundation so that future scholarships can be awarded on an annual basis. Scholarships are available for Credit Congress, teleconferences, the GSCFM, regional events, certification program fees, and many more events and programs.

The deadline to submit a scholarship application is January 8, 2007. For more information and to apply, please visit here.

How To Get Paid On DOD Contracts

NACM’s Government Business Group (GBG) presented a teleconference aimed at helping credit professionals navigate the contract payment system of the Department of Defense (DOD). The teleconference, held December 6, was entitled, "Columbus Centralized Customer Service Directorate." The Columbus office of the Defense Finance and Accounting Service (DFAS) is the main center through which DOD contract invoices and payments are processed. Charlotte Hurst, a Financial Specialist at the Columbus center, presented the information.

Noting the commitment her office has to DOD contractors and suppliers, Hurst said, "We try to provide the best customer services we can." Conferees were provided a detailed PowerPoint presentation to refer to and use as a valuable resource guide that contains various phone and fax numbers, e-mail addresses and websites that provide assistance to DOD contractors. The Centralized Customer Service Center in Columbus not only receives communications and inquiries but researches and resolves payment issues and accommodates customer visits and conferences. Another helpful resource mentioned by Hurst was the myInvoice website (https://myinvoice.csd.disa.mil/) where contractors and suppliers may go to track the status of their invoices. MyInvoice replaced the former system, called VPIS, in April 2006. Users of the website must register and provide a user name and password and Hurst pointed out that if a contractor or supplier registered on myInvoice wants to receive communications to more than one e-mail address, they would also have to register the holder of both e-mail addresses.

Hurst advised that in a growing number of contracting situations, there is a requirement to electronically send in invoices. "If you have to send in an invoice electronically, faxing it won’t facilitate payment," she said. "Check your contract to make sure you should be sending your invoice electronically. If the contract requires electronic invoicing and you sent in a hard copy of an invoice, it will be returned." Of the several payment systems DFAS uses to pay on government contracts Hurst said, "WAWF (Wide Area Work Flow) is the best of the three systems, if you have a choice to use it." Hurst also recommended staying with the same customer service representative until a particular contract payment problem they are handling is resolved.

Hurst highly recommended attending one of the four upcoming open houses held at the Columbus facility in the next year. She said those who attend could learn how contracts flow and get hands on training in the electronic payment system used by DFAS.
Source: NACM and Charlotte Hurst, Financial Analyst, DFAS Columbus

Advice Offered On Selling Into Latin America

Attendees of the successful FCIB Global Conference held in Coral Gables, FL, from Nov. 12-14, were able to acquire a lot of information and share in the knowledge of featured speakers and panelists. In one session at the conference entitled, “Analyzing Latin American Financial Statements – Evaluation and Interpretation,” useful information was provided for credit executives who are currently selling or thinking about selling in the future to companies in Latin America.

David Marsh, International Credit Manager for Novus International Inc., moderated the session. He has extensive experience selling into Latin America and noted his company’s sales in that region were at the level of about $75 million per year. He pointed out his company has credit applications in both Spanish and Portuguese, the native languages of the region. There may be more than one set of books kept by companies so it’s important to know the purpose each set is kept, such as for tax records. Marsh said he doesn’t usually get overly concerned about companies that have a high debt burden. “I don’t get excited if total debt is more than two times net worth,” he said. The reason for this, he noted, is that in Latin America, the equity market is very limited. “Not a lot of companies are using the equity market to raise capital.” He also pointed out that determining cash flow is more difficult from the financial statements of Latin American companies. “You must ask the financial directors pointed questions.”

Another important piece of advice on interpreting financial statements offered by Marsh was, “Read the footnotes carefully and ask questions.” And, underscoring his recommendation to personally visit customers in Latin America, Marsh said, “You can’t do that from your desk.” He noted that large tax bills are not necessarily something to be concerned about with companies. “Latin American governments want companies to survive and they work out arrangements with companies on the payment of current and delinquent taxes.” On another matter relating to company debts, Marsh noted that it’s important to determine what triggers default of company guarantees. For example, he said if a company is guaranteeing the debt of related companies, find out what happens when those related companies default on their debt. Another tip Marsh gave regarding financial statements was to look for advances to owners. He pointed out it was important to spot them in financial statements because money going out of a company to its owners does not help it build up its assets. “You don’t want to find out the owners take out advances that they’ll never pay… draining the company.”

The final advice Marsh gave, similar to the view of many international credit professionals who sell into Latin America, was to understand the culture there. “Be flexible,” Marsh said. “That’s a way of life in Latin America. Work with your customers. Make arrangements as long as there’s something in it for you. You’ve got to visit your customers to get to know them.”

Pablo Siade of Euler ACI Servicios, a panelist at the session, also offered some advice about selling into Latin America. Some of his advice paralleled what Marsh said, such as the importance of visiting your customers and the fact that many companies keep multiple sets of books. “We have to keep in mind that it’s a frequent practice in Latin America.” Siade pointed out there were two categories of credit risk posed by companies. One is financial risk, relating to a company’s financial policy, its profitability and country risk. The other is business risk, relating to the type of industry of the customer and the management quality of the company. “Most of the companies in Latin America are family-run businesses.” He noted that the best bet, from a business credit perspective, was to try to seek out companies that have been in business for a while. “Look for companies with a longer track record—they’ve overcome boom and bust business cycles.” As for the fact that some companies don’t show all financial activity on their financial statements, Siade said, “Some companies are reluctant to show everything because of kidnapping threats or for taxation purposes.”

Source: Tom Diana, NACM staff writer

Credit Managers Index for November 2006

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fourth consecutive month in November. “While the decline was small at 0.1 percent, the CMI continues to indicate an economy slowly weakening under the weight of monetary tightening by the Fed and a decimated housing market,” noted Dan North, Chief Economist with credit Insurer Euler Hermes ACI. He noted that other recent economic data confirm the CMI’s message: uneven holiday sales, plunging durable goods orders, falling consumer confidence and below-trend GDP growth. “In addition, the median sales price for existing homes has fallen on a year-over-year basis for an unprecedented three straight months, the latest of which was the largest decline ever.”

“In contrast, Fed Chairman Bernanke and the Fed Governors have been predictably banging the drum about the risks of inflation and how the deteriorating housing market will not hurt the economy. It is difficult to read much into this ‘jawboning’ because, no matter what the economic circumstances might be, the Fed must continue to build credibility and present a clear, uniform message: ‘We are inflation fighters’,” North stated. However, if the slowing economy does fail to quell inflation, the Fed will continue to raise rates to reduce the risk of inflation, and by so doing, increase the risk of seriously hampering the economy. “Given the deteriorating trends in the CMI, that scenario could be a most ‘unwelcome’ one,” he remarked.

Read the full CMI Report – click here

Book Sale from NACM Bookstore

Here’s a great opportunity to purchase books for staff or associates and give them as thoughtful gifts. And now is the perfect time to purchase titles you’ve been wanting for your own library, too!

Check out these great deals—and go to the online bookstore to view other titles available at reduced prices. Place your order now—while quantities last.
On My Honor, I Will:
Leading With Integrity in Changing Times
Regularly priced at $14.95 to members – now $12.95
The Radical Edge:
Stoke Your Business, Amp Your Life, and Change the World
Regularly priced at $14.95 to members – now $12.95
Credit Management:
Principles and Practices
Regularly priced at $27.95 to members – now $19.95
Making Work Work:
A Leader’s Guide to Creating an Extraordinary Organization
Regularly priced at $19.95 to members – now $17.95
Bankruptcy Abuse Prevention & Consumer Protection Act of 2005
Regularly priced at $19.95 to members – now $14.95
Three ways to order
· send a fax to 410-740-5574
· call the NACM Bookstore at 800-955-8815, or
· online, click here

Delinquent Accounts: A Problem For All Credit Professionals

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, according to Scott Blakeley, Esq. of Blakeley & Blakeley LLP, 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,” said Blakeley. “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,” said Blakeley.

There are a number of ways to collect on a delinquent accounts, one of which is filing suit and using litigation to your advantage. Blakeley will be giving an NACM-sponsored teleconference on December 11, titled “Collecting On Your Delinquent Account: Litigation Strategy For The Credit Professional.” To register, click here.

Source: Jacob Barron, NACM Staff Writer and Scott Blakeley, Esq.

New Congress Set To Tackle Issues

In a recent memo, NACM Washington Representative Jim Wise discussed the new Congress and what business professionals can expect to see in the coming term.

Within the next month, it appears as though little will happen in Congress. “The lame duck session, which begins on December 5, will apparently be a very brief session,” said Wise. “Agreement among the current Congressional leaders has led to a schedule that will consider only a Continuing Resolution Appropriations bill that will fund the government until late January.”

Wise also noted that Congress would more than likely be asked to approve another Defense Supplemental bill for the costs of the continuing wars in Iraq and Afghanistan.

Some of the major issues that are expected to come under scrutiny are:

Minimum Wage—“Democratic leadership has indicated a desire to increase the minimum wage from $5.15 to $7.25 per hour,” said Wise, adding that the increase will presumably be spread out over a two-year period of time.

Social Security—The current social security system is expected to be bankrupt by 2040 and Democrats are expected to offer a solution to the problem. “Democrats generally reject any privatization plans but have proffered no plans of their own,” Wise noted. “It would appear that the options are either one or a combination of three elements: raise taxes to pay for social security, reduce benefits or require Americans to wait longer to become eligible for social security benefits.”

Energy—Renewable energy sources and an increase in energy efficiency is at the top of the new Congress’ list. Wise also noted that Democrats would work to provide incentives for ethanol production.

Immigration Reform—“Some Democratic leaders have indicated their desire to increase temporary worker permits and provide a mechanism to allow millions of workers the chance to legalize their status,” said Wise. “The price may be stiffer penalties for companies that hire illegal workers in the future.”

Sarbanes-Oxley Regulations—Senate and House Democrats appear split on the issue of reformations to the post-Enron Sarbanes-Oxley Act (SOX). “While the incoming chair of the Senate Banking Committee, Christopher Dodd, has cautioned against widespread changes in SOX accountability requirements, Congressman Barney Frank on the House side has indicated that it may be time to review some of the more onerous reporting and compliance provisions of the law,” said Wise. “One of the trade-offs for such a policy change could be greater control over executive compensation packages.

The Senate will convene on January 4 to swear in new Senators while the House will meet on January 3 and begin a pro forma session on January 4.

Source: Jacob Barron, NACM Staff Writer, and Jim Wise, NACM Washington Rep.

There Are Ways to Handle Financially Distressed Companies

Bruce Nathan, Esq., Partner, Lowenstein Sandler PC, New York, NY, offered advice to credit professionals on how to better position themselves with customers who are facing financial insolvency. Nathan presented his valuable business credit insights during an NACM teleconference Nov. 29, entitled, “Dealing With A Troubled Company: No Need to Cry the Blues.”

Nathan pointed out that when a company becomes financially distressed, unsecured creditors are at the end of the list of creditors who get paid. He offered various ways creditors could better position themselves to enhance their chances of getting paid by a company nearing or in bankruptcy. The first method he talked about was through letters of credit. He pointed out that letters of credit, or LCs, involve three contracts. The first is between the trade creditor and customer or debtor. The second contract is between the debtor and Bank, which issues the LC. And the third contract is the LC itself. “LCs essentially deal in documents,” Nathan said. “If the required documents are presented, the bank has to pay. The issuer has to pay regardless of the situation. That’s the beauty of an LC.” LCs have an expiration date and a specified amount, Nathan noted. He also mentioned that it’s important that the required documents, such as invoices and shipping documents, match exactly how they are described in the LC in order to for the creditor to get paid.

There are two types of LCs. One is called a documentary LC, where the creditor looks to the bank for payment. The other is called a standby letter of credit, where the creditor looks first to the customer for payment, but if the customer defaults, the bank is responsible for payment.

Anther method of helping to bolster a creditors position is a guarantee. Nathan described it as a third party undertaking the credit risk that doesn’t pertain to documents, but is based on facts that there was a payment default. “The third party or guarantor is responsible for payment in the event the creditor defaults.“ He warned against getting a guarantee of collection because before getting paid, the creditor must exhaust all remedies for payment, such as obtaining a judgment. Nathan said to make sure you get a guarantee of payment instead of collection. On the matter of a guarantee based on an individual’s property or other assets, Nathan offered a note of caution about dealing with guarantors who are married and live in community property states. In such cases a judgment on one of the property holders in the marriage is usually not enforceable. He also said to be careful in obtaining the signatures on a guarantee. “You want to make sure the signatures are notarized and witnessed. Make sure the guarantee has a provision for the payment of legal fees.”

In a security interest, Nathan said, “The customer signs a security agreement specifying collateral. It should be signed by the debtor using his correct and accurate legal name.” There are two types of liens associated with security interests—consensual and non-consensual. Nathan noted that consensual liens specify assets, equipment or products sold to the customer that may be used for payment. Non-consensual liens were things such as mechanics liens, which involve certain legal requirements for their perfection. He advised filing a UCC (Uniform Commercial Code) financial statement to protect against other creditors claiming the assets involved in the security agreement. Most of these statements are filed in the appropriate state’s secretary of state office. He said UCC filings usually last five years, but they can be continued. “They can also be amended to reflect a name change of the debtor, for example.” He also said, “You will usually be behind others who have filed before you on the same assets.”

Nathan described a purchase money security interest as one that is applied to the goods a creditor sells to a customer. He noted that this security interest applies only to the inventory of the customer and not to their accounts receivable arising from the sale of the inventory.

Nathan also provided information on setoff and recoupment. He describes setoff as a process of offsetting mutual obligations between a seller and debtor. State law provides setoff rights and in bankruptcy, in order for setoff to occur, you must get relief from the automatic stay. Recoupment, however, does not require relief from the automatic stay. Reclamation was described by Nathan as a legal remedy that allows creditors to get back goods sent to a customer within 10 days of the delivery of a demand letter. The new bankruptcy law has broadened reclamation rights for creditors, Nathan said. Responding to one of the questions from teleconference attendees after his presentation, Nathan said that standby letters of credit do not protect creditors from being subjected to a preference payment action in a bankruptcy case.

NACM teleconferences are an inexpensive way to learn more about topics important to credit executives. For information on future NACM teleconference subjects, go to NACM’s website at www.nacm.org, put your cursor over the “education” circle at the top of the page and scroll down to “teleconferences” or just point your browser to: http://www.nacm.org/education/teleconfs/schedule.shtml.

Source: Bruce Nathan, Esq. and NACM staff writer Tom Diana

Collecting on Your Delinquent Account – NACM Teleconference

Litigation Strategy for the Credit Professional

Date: Monday, December 11, 2006

3:00 – 4:00pm eastern Cost: $59.95 per line

Presenter: Scott Blakeley , Esq.

Scott Blakeley will discuss the following items in dealing with a delinquent account:

• When is an account "delinquent"?
• What are the potential sources of collection, from shareholders, to promoters, to guarantors, to successor corporations?
• What assets are available, including sufficiency of security and possible defenses to payment?

The likelihood and effect of bankruptcy on the collection of a delinquent account will also be considered. Such as:

• How to consider document retention, including emails, in collecting on a delinquent account.
• How arbitration and mediation operate as a means to collect the delinquent account, including binding the customer to arbitration and preparing for arbitration.
• How a repayment agreement may be used as a preference defense.
• Looking to the court system to collect a delinquent account.

Mr. Blakeley will reflect on factors such as jurisdiction, prejudgment remedies and timing. He will further discuss the issues of collecting the delinquent account once the vendor has a judgment, including judgment liens, garnishments, writs of possession and judgment debtor’s exams.

Click here to register.

NACM National Scholarship Foundation Established

NACM is pleased to announce that a national Scholarship Foundation has been established. Funds have been raised from generous donations from the NACM community, as well as from Silent Auctions and other special functions. These funds will afford many people the opportunity to continue investing in the future of our profession. NACM encourages members and potential members to apply for a national scholarship.

We hope to continue to raise awareness for the foundation so that future scholarships can be awarded on an annual basis. Scholarships are available for Credit Congress, teleconferences, the GSCFM, regional events, certification program fees, and many more events and programs.

The deadline to submit a scholarship application is January 8, 2007. Click here to apply.

Click here if you wish to make a donation to the NACM Scholarship Foundation or to a special fundraising event. Donations are tax deductible.

110th Congress May Be Beneficial To Business

The Nov. 7 election swept the Democrats in power in the U.S. House of Representatives and, it appears, in the U.S. Senate. The business community has historically viewed Democrats with some trepidation regarding their business policies. However, Jim Wise, Managing Partner with PACE-Capstone Companies, which has represented NACM before the federal government for the last 15 years, believes the business community should not fear the Democrats when they lead the 110th Congress next year. In fact, Wise contends there may be some areas of mutual agreement on some important issues of concern to the business community.

"I don’t think anybody can rush to judgment on an assumption of the relationship between the business community and the Democratically-controlled Congress," Wise said. He pointed to the fact that the margins in the House and especially Senate are so thin that Democrats will have to work with Republicans to get bills passed. Democrats will also have to work with President Bush who can veto any bills he dislikes with little chance of Democrats overriding his veto without broader bi-partisan support.

Wise noted that the 110th Congress is still several weeks away and that it is difficult to try to predict what will happen legislatively, but he still offered some conjecture on a few issues. On immigration reform, which didn’t make it through both houses in the 109th Congress, Wise believes there is some agreement to approach on what the President proposed and Democrats in the Congress favored. He believes that some type of amnesty or limited amnesty could make it in an immigration reform bill in the next Congress. Wise added that this would be in conjunction with providing stiff penalties for those businesses that, in the future, hire illegal aliens. Also, Wise pointed to the possibility of some type of Visa program for immigrants who possess skills that are in short supply in the U.S. "The Democrats and the President are more in tune and it is a position the business community would endorse."

On the issue of prescription drug pricing, Wise believes the Democrats’ pledge to allow the bargaining power of the federal government to bring down prices, through the Medicare program, could be appealing to businesses. He noted that many businesses are finding it harder to pay for health benefits for their employees and prescription drugs are often an expensive component of those plans. Anything that can bring down drug costs would be welcome by many businesses.

On the estate tax, Wise points to possible compromises that would be acceptable to Democrats, many Republicans and the business community. He noted that the current system of estate taxation is very complicated with various timetables of when certain exemptions and tax rates expire. "It’s very convoluted." He believes it’s possible the Democrats could offer an acceptable compromise bill in Congress that would provide for a raise in the minimum wage in conjunction with an exemption from taxation, of perhaps in the 4-6 million range, on the value of estates. Wise noted that this would be especially welcome to many beneficiaries of estates created by the assets of small businesses.

On the subject of the Sarbanes-Oxley Act of 2002 (SOX), Wise believes that Democrats might be in favor of some relief from the burdens of complying with the regulations required by section 404 of the act. He pointed out that many small- to medium-sized enterprises (SMEs) have maintained that these requirements are too expensive and burdensome. U.S. Rep. Barney Frank (D-MA) is likely to take over chairmanship of the House Financial Services Committee, Wise noted, which would have jurisdiction over changes in SOX. Wise thinks Frank would be more amendable to some changes in SOX, even if it is only on the regulatory level at the Securities and Exchange Commission. He said Frank might be in favor of some relaxing of section 404 requirements for SMEs in exchange for other requirements such as greater transparency in the election of corporate officers. Wise pointed out that changes in SOX were not likely under the authority of the current chairman of the House Financial Services Committee, Michael Oxley (R-OH), who is the cosponsor of the law. "I think there is an opening here (for changes to SOX requirements for SMEs), that folks might not have had previously," Wise said.
Source: NACM and Jim Wise of PACE-Capstone Companies

Collection Law Overview—How To Avoid Traps

staff attorneys from two NACM affiliates teamed up to provide valuable
information about important laws that regulate the collections process.
D. Park Smith, Esq. of NACM Southwest and Scott Lee, Esq., CCE, of NACM
Business Credit Services, conducted a free teleconference to NACM
members on November 7.


attorneys, although not offering specific legal advice, did point out
important areas of the law of concern to collections managers. The
FDCPA (Federal Debt Collection Practices Act) is something with which
collections managers should be familiar. The text of the Act can be
found on the Internet at: http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm.


Smith pointed out that the FDCPA covers consumer obligations for
personal, family or household purposes. He defined third party debt
collectors as those who collect debts owed, or due, or asserted to be
owed to another. "It probably doesn’t apply to NACM members collecting
their own receivables," he noted. There are also a number of prohibited
behaviors under FDCPA such as the use or threat of violence, the use of
obscene or profane language, repeated ringing of a phone number, making
false representations of law enforcement or governmental agencies, etc.
Smith said that the law prohibits tactics that no reasonable debt
collector would employ.


In addition to
the FDCPA, Smith said that many states have formal debt collection
practices reflected in their state laws. There are differences among
these laws however. For example, he pointed out that California law
applies to third party debt collectors and original creditors. In
Florida, the law applies to consumer and commercial debt. "It’s very
important for each of you to be clear about what debt collection
practices apply to you in the states in which you’re collecting debts."
Smith advised consulting the appropriate local NACM affiliate to learn
about a state’s specific collection laws and regulations. Smith said, a
personal guarantee, for example, while it may be used in a commercial
debt situation, may also be governed by consumer debt collection
provisions of state laws


It is
important to avoid tortuous interference during collections, which
Smith defined as a wrongful act or injury to a business or individual.
Such examples are defamatory comments or libelous written information
about a company or individual that could cause creditors to take an
adverse credit action against that company or person. "Never ever
repeat anything you wouldn’t want the subject customer to hear or
read," Smith said. "Be careful about what you put in your notes." He
strongly advised against ever putting hearsay or rumors about a debtor
into notes or communications. Lee recommended being careful about how
you talk about a customer at a credit group meeting. Standards apply to
what can be said about debtors at these meeting and violating them
could open up a group member or all members to legal action by the
offended debtor. "Don’t give any kind of difficult customer any claim
that your collection practices harmed them in any way," Smith added.


Lee said in order to avoid any problems involved in sales it is
important that any advertisements, circulars or other promotional items
mentioning products or services have correct information in them. "You
need to be accurate about your prices and terms." "When your customer
places the order, that is the offer and you have the right to accept or
reject that offer. You’re acceptance may be manifested by simply
shipping the product." Lee pointed out that credit applications are a
great place to state what the terms will be and how to handle any
exceptions to these terms. He said it is important to be explicit about
sale terms, because what you think in your mind are the terms may not
be the actual case. "The acceptance of terms is determined by your
outward manifestation and not your subject thought." Lee also
recommended getting the terms of a sale in writing in such documents as
the sales agreement and credit application. "The days when you can deal
on just a handshake are unfortunately past." Collections activities can
also be proactive in preventing any future payment problems Lee noted.
For example, he said that having the collections department follow up a
sale with calls to make sure everything is going well with your
customer might be beneficial. "There’s nothing that says collections
can’t be part of your customer service team."


Smith said that risk mitigation tools should be used properly. For
instance, when using a personal guarantee, it is imperative to
determine that the person has the ability to pay and is not judgment
proof. "You really have to do some asset evaluation work." When relying
on cross-corporate guarantees Smith said, "It’s important to ascertain
if the cross-corporate guarantor is solvent." On the use of letters of
credit, he advised making sure you, as the creditor, fully understand
the circumstances under which you get paid and what documents you must
present to the bank for payment. On assignments of assets or claims, he
noted that it is important to find out if that asset or claim is
assignable without the consent of the end user customer." And, on
secured transactions, Smith pointed out that they must be in compliance
with UCC (Uniform Commercial Code) Article 9. He also recommended
putting in a collateral description in the security agreement and
making sure it is filed in the proper state. On the subject of purchase
money security interests, Smith said a creditor’s interest is in the
products it sells and if it executed properly, other creditors can’t
get a claim on that interest. However, he added, "Your collateral
interest is extinguished if the product is used to make another


Both Smith and Lee strongly advised creditors to consult an NACM affiliate about questions they have relating to collections.
        Source: NACM

CRF Presentation Stresses Importance Of Measurements

Attendees of a presentation sponsored by
the Credit Research Foundation (CRF) received a great deal of
information about the value of performance measures including how they
work, which ones work best and what a company stands to gain from
effective measurement. CRF Vice President Lyle Wallis, CCE gave the

Wallis noted that there are some simple preliminary
steps that some companies forget to take when implementing a
performance measure. "You need to know what your company is trying to
do," Wallis said, referring to an example where a company spent 30
man-hours per month measuring items that were of no consequence to the
company’s strategic mission. "Ask yourself ‘what are we doing?’ You
need to know where the organization is going," Wallis said. "If a
measure provides no benefit, why bother using it?"

Measurements should also be compared to a standard,
otherwise the measurement loses its meaning. "Standards may be set
according to past organizational or industry values or trends," Wallis
said. "The best person to benchmark yourself against is yourself."

Wallis outlined a number of popular performance
metrics used in credit and collections including the Collection
Effectiveness Index (CEI), the Days Sales Outstanding (DSO) and the
Average Days Delinquent (ADD). Of the metrics used by credit
professionals, the most widely used is DSO. "Days Sales Outstanding
represents the number of days on average that it takes a firm to
convert its accounts receivables to cash," Wallis said. "It helps
determine if a change in [accounts receivables] is due to a change in
sales, or to another factor such as a change in selling terms."

However, Wallis noted that the DSO "is not an
accurate or appropriate measure of credit and collection performance,"
nor is it the best illustration of the condition of total receivables.
"As a measure for credit and collection performance [the CEI] is
probably your best measure," Wallis said. The CEI expresses the
effectiveness of collection efforts over time and reflects both the
amount collected and the amount available to collect. The formula for
the CEI can be found on CRF’s website at www.crfonline.org.

Wallis also discussed how using metrics could
increase a company’s bottom line. "As credit folks, we can have a major
impact on the organization’s cash flow and overall profitability,"
Wallis said. Even small changes to measurements like DSO can increase
operating profits and cash flow for a company.

"As an effective manager, we need to
recognize all the tools that are out there," Wallis said. There are a
number of different things that can be done in order to make a credit
department more efficient and more profitable. "Focus on what you do
best," Wallis said. "Identify those functions at which you are most
proficient and outsource the rest. Don’t squander resources on fringe
activities that lend minimum value to the firm."

Wallis also suggested that managers evaluate their
billing process for timeliness, accuracy, clarity and standardization.
"Carefully scrutinize each step in the process," Wallis said. "What we
need to do to productively manage the receivables portfolio needs to be
    Source: NACM and CRF

Spotting Financial Reporting Distortions

Sometimes the picture presented by a company’s financial reports offers a skewed view of what’s actually going on. Attendees of the Oct. 30 NACM teleconference were given some information on common distortions—both legal and illegal—that are sometimes presented in financial reports to disguise the true financial picture of the company. Dubos J. Masson, CTP, Cert ICM, presented the teleconference.

Masson pointed that some of the most notable examples of accounting irregularities or outright fraud in the past several years took place at such companies as Sunbeam, Waste Management, Tyco, WorldCom and Enron. He noted there is often a lot of pressure for managers to meet certain company financial goals that may cause them to engage in various accounting manipulations to make it appear that these goals have been attained. "Sometimes in the U.S. there’s a lot of negativity in not meeting the numbers." Some of the goals that can be achieved by changing certain financial numbers through various legal and illegal accounting methods include getting a higher share price on common stock and reducing share price volatility. "Many companies use their company’s stock as currency for acquisitions," Masson said. "Let’s not forget a lot of those managers have stock options." He also mentioned that managers’ bonuses are also tied into financial performance measures. However, even if the accounting methods are legal, changing the financial picture can still have negative consequences. "To fudge the numbers this year will mean you’ll have trouble making the numbers next year."

Another motivation for fudging accounting numbers is to make the income and balance sheets look better to improve the company’s credit position. There are also political motivations to skew the numbers, Masson said. He pointed to the example of oil companies that may want to minimize the degree of their profits in order to avoid a push by Congress to impose excess profit taxes on them. "There are a lot of reasons why companies may want to adjust." Sometimes adjustments are made off the balance sheets, as in the case of Enron.

Changes in the numbers can be made through changes in accounting policies or how the policies are applied. He said that GAAP (Generally Accepted Accounting Principles) provides a lot of flexibility for the application of accounting principles. Some things that may be done include putting bad numbers all into one year, taking special charges, or accounting for revenue on sales improperly. "It is considered to be improper to recognize revenue before the sale is complete. You want to be sure the company is properly recognizing revenue."

Sometimes honest mistakes or errors are made in accounting. However, what distinguishes errors from fraud is the intent to defraud. Even if outright fraud is committed, it may take some time to discover it. "Fraud does not always pop up right away," Masson said. "Enron showed us that. Even the (credit) rating agencies were fooled by Enron. We really need the SEC (Securities and Exchange Commission) and the courts to determine if fraud occurred."

In order to be able to detect fraud or misrepresentations on financial statements, Masson recommended thoroughly examining footnotes, as they often contain the detailed information about what accounting policy or application changes were made. "You’ve got to go through all the footnotes to know what’s going on." Also, he advised being vigilant over financial reports of companies that have gone through a structural change such as a merger or acquisition. "If a company is going through an acquisition or merger, that’s just an open invitation to accounting manipulation." Another tactic employed by managers to change the financial picture of a company in an inconspicuous manner is to make a number of small, non-material changes to the financial statements. While each change may be small, their accumulative impact may be material.

Masson cited the Sarbanes-Oxley Act of 2002 as Congress’ response to the major accounting scandals of the last several years, most notably at Enron. He noted that the law requires CEOs and CFOs to sign off on the validity of financial reports. He pointed out that despite the new measures taken to increase the transparency of financial reporting, there will still be accounting fraud committed by some company managers. "We’ll have Enrons in the future. I like to think in the meantime we’ll be a little more vigilant."
Source: NACM

NACM Credit Manager’s Index October 2006

The seasonally adjusted Credit Manager’s Index (CMI) fell 1.8% points in October, reflecting a widespread deterioration as eight of the 10 components fell. While all but one component remain above the 50% level indicating economic expansion, it was the third consecutive drop for the combined index. “In addition, the drop was led by a sharp fall in the sales component of 7.2% points, an unsettling number since a decrease in sales can suggest a deterioration in future business conditions as well,” said Dan North, Chief Economist with credit insurer Euler Hermes ACI. “The credit managers in the survey are confirming what other macroeconomic data suggest; the effects of a tightening monetary policy and a dismal housing market are taking a toll on the health of the economy.”

Click here to download the full CMI Report in PDF.

Credit Manager’s Index Reports Third Consecutive Decline

Columbia, Maryland: November 1, 2006 — The seasonally adjusted
Credit Manager’s Index (CMI) fell 1.8% points in October, reflecting a
widespread deterioration as eight of the 10 components fell. While all but one
component remain above the 50% level indicating economic expansion, it was the
third consecutive drop for the combined index. “In addition, the drop was led by
a sharp fall in the sales component of 7.2% points, an unsettling number since a
decrease in sales can suggest a deterioration in future business conditions as
well,” said Dan North, Chief Economist with credit insurer Euler Hermes ACI.
“The credit managers in the survey are confirming what other macroeconomic data
suggest; the effects of a tightening monetary policy and a dismal housing market
are taking a toll on the health of the economy.”

North noted that the
manufacturing sector fell for the third straight month, declining 2.1% points.
The decline was led by sharp drops in the sales component of 6.3% points, and in
dollar collections of 6.2% points. “Such declines in favorable factors point to
the possibility of a continued slowing,” he commented. “Survey respondents said
‘domestic sales are slower’ and ‘we have seen a slowing in the economy and sales

Summing up the service sector, North said, “The index fell
1.4% points, driven by an especially sharp decline in sales of 8.2% points – the
second largest decline ever, and the third in four months. One respondent
brought the data into sharp relief by saying, ‘…we are definitely seeing the
beginnings of a downward trend.’ Another respondent’s comment that ‘people
trying to stretch terms is totally out of control’ is reflected by declines in
the dollar amounts beyond term and the dollar amounts of customer deductions.”

Over the past 12 months, the manufacturing index has fallen 1.4%, the
services index has fallen 2.1% and the combined index has fallen 1.8%. Six of
the 10 components in the combined index have fallen in the past year, led by a
plummet in the sales component of 13.8%, as sales fell 12.3% in manufacturing
and 15.3% in services. “The only true bright spot was the improvement in
bankruptcies, but even that was a one-time distortion caused by a change in the
bankruptcy laws,” said North. “Indeed, if the bankruptcy component were removed,
the manufacturing, services and combined indexes would have fallen 2.6%, 3.9%
and 3.3% instead of only 1.4%, 2.1% and 1.8%,” he continued. “The year over year
data confirms what the monthly data suggest: a decent economy that is being
steadily eroded by a tightened monetary policy and a dismal housing market.”

The CMI, a monthly survey of the business economy from the standpoint of
commercial credit and collections, was launched in January 2003 to provide
financial analysts with another strong economic indicator.

The CMI survey
asks credit managers to rate favorable and unfavorable factors in their monthly
business cycle. Favorable factors include sales, new credit applications, dollar
collections and amount of credit extended. Unfavorable factors include
rejections of credit applications, accounts placed for collections, dollar
amounts of receivables beyond terms and filings for bankruptcies. A complete
index including results from the manufacturing and service sectors, along with
the methodology, is attached. A complete view of the index can be viewed online
at http://www.nacm.org/resource/press_release/CMI_current.shtml.

Metrics Matter

If you don’t measure it, you can’t improve it.

That’s an old adage, one that is certainly true for our ever-changing profession. But have your measurements kept up with the changes in your role, or the challenges faced by your business?

Sure, we all track the normal measurements having to do with DSO, percent current or past due and bad debt expense. Some of us go further with Best Possible DSO, Average Days Delinquent, and the Collections Effectiveness Index. These are all long-established ways to evaluate our performance, and they’re fine.

The problem is, they only go so far.

As our role as business credit executives has expanded to include more ownership of the "order-to-cash" process, the things we measure need to expand. It only makes sense that the metrics we use not just keep pace with that expanding role, but actually stay ahead of it. And in many cases, these "future measures" are becoming more operational in nature, reflecting our broader organizational involvement.

Here are some examples based on identified trends that are impacting our profession. Consider that while all of them may not apply to you just yet, they might in your next role.

Credit Card Processing
The trend: More credit card use is coming, so become the expert now.
Most business credit executives report an increase in the number of customers desiring to pay by credit card, often due to corporate accounts payable directives. Being a business credit executive today means becoming your company’s internal expert in credit card processing, chargebacks, and anti-fraud measures. How much more in credit card business did you do this year vs. last? Has your chargeback volume increased? Own this area—and the relationship with your card processing service. Don’t take credit cards? Get with the program! Drive the change to adopt this important payment method.

Systemic vs. Manual Processing
The trend: Lead a never-ending drive to eliminate manual exceptions.
We as a profession continue to review and revise processes and procedures, often driven by new system implementations or SOX compliance requirements. As we peel back the onion of legacy procedures, it’s a great opportunity to eliminate non-value-added work.

Is your team buried in manual tasks? A simple way to start is by measuring how many of your transactions (invoices, credit memos, checks applied) are created manually vs. how many are done automatically. Are you still processing credit memos and cash application by hand? If 75 percent of your cash is still manually applied, it’s a real red flag to get cracking and identify/implement whatever technology works for your business. There are plenty of vendors at NACM’s many conferences who are waiting to help. Two words: auto-cash.

Cycle Times Matter
The trend: Measure and drive improvement in any cycle times that touch you, including orders and returns.
How long does it take you to approve a new or existing customer order? If you’re not reporting out an order-to-approval cycle time yet, start today! If nothing else, you can flaunt how efficient you already are or the improvements you’ll make if you aren’t.

A related area is customer credit application processing. If it takes days or weeks, that’s not so good. Today’s credit scoring opportunities can get your turnaround time for most new customer applications in minutes, if not seconds, and for a lower cost than having your clerk check individual credit references. Get’er done!

Maybe your company does lots of credit memos, returns or customer refunds. Measure how long it takes for them to be issued/processed, and create opportunities for improvement.

Why are you holding up orders?
The Trend: Don’t be the bad guy—fix the root cause!
Do you frequently have a backlog of orders pending release from credit hold? Don’t just measure the dollar amount; take it further to consider the source of the order. Are most coming from one division or location or sales rep? Can you report on the proportion of orders on hold because of delinquency, over credit limit, or other reasons? If you can, you can use this information to drive constructive change to improve the underlying reason for the backlog, be it technological, a lack of headcount, or desperately needed training for your favorite field sales group in Walla Walla.

"Hey, Mr. Chairman, I’m already doing all that and more."
The Trend: The bigger the firm, the greater the opportunities for measurement.
OK, so maybe you’re with a larger, more sophisticated firm. You have a large call center, or you’ve used credit scoring for a number of years. There’s something here for you, too.

For call centers, are you calculating not just past due roll rates and calls completed/dropped, but call reasons and drivers by root cause? How about call volume by business unit or product line, to get at where most of your inbound transactions are coming from?

And since you’ve already scored your full portfolio of customer accounts, have you calculated the average days to pay for each major score category to better predict overall portfolio performance? How about by division? By product? And are you using your scoring data to its fullest—not just to set bad debt reserves reserves and drive collections based on score, but to review the receivables of potential acquisitions? Does your scoring methodology play a key role in your documented SOX compliance?

Big firm or small, there’s always room for improved metrics that help drive improvements in your broader organization. And it just might help you during that next performance evaluation, too.
Source: Mark A. Tuniewicz, CCE, NACM Chairman

Graduate School of Credit and Financial Management

Do you feel like you have been to every seminar on every relevant topic that has been offered?
Are you at a plateau in your career?
Do you need a mental challenge?
Do you need new contacts within your profession?

It’s never too late to take your education and career to the next level!

NACM’s Graduate School of Credit and Financial Management (GSCFM) may be the experience for you. This executive-level program is an invigorating two-week two-year (four weeks total) program presented on the campus of Dartmouth College. The instructors—attorneys, authors, professors and practitioners—are well known for their expertise. Classmates become friends and valued contacts within the credit community.

Conducted on the campus of Dartmouth College June 18-28, 2007

GSCFM offers a chance to:

• Be challenged
• Cultivate valued contacts
• Gain a competitive edge professionally
• Collaborate on professional projects
• Share professional experiences
• Stand apart from the crowd
• Continue your higher education
• Think beyond what you do in your position today
• Take the CCE exam

For more information visit here or call NACM’s Meetings Department at 800-955-8815.

Steps To Get Through Busy Days

Credit professionals, like most other working people, have a difficult time balancing the demands of work and family. Those who attended NACM’s Time Management teleconference on Oct. 12 got an opportunity to explore ways to prioritize daily schedules so that the most important tasks get done first. Abby Marks-Beal, an expert in time management, presented several simple strategies to help manage schedules crammed with too many chores, duties and responsibilities.

"We have to work the time we have," Marks-Beal said. She noted that there are more and more demands on an individual’s time. Things that never existed several years ago, like e-mails, now can take up a significant portion of our time. She also mentioned that the many interruptions to our workday cost us time; studies have found it takes an average of 20 minutes to get back on track on a task that was interrupted. She also noted that modern society offers many more choices, as in the case of television that has grown from a few network channels to hundreds of cable and satellite channels. In a 1998 study, she pointed out that when the average person died they left behind about 200-300 minutes of unaccomplished to-dos. "I would really be curious to see if has gone up."

"There isn’t enough time, so stop trying," Marks-Beal said. "At times you have to say ‘enough is enough’." She recommended that office workers should establish a one to two hour window of time every day where it is established that you can’t be interrupted except for the most urgent reasons. She also advised sitting down and evaluating your life to determine what is and what isn’t working for you. For example, she said when she did that she found out that cooking nutritious meals for her family was taking a lot time out of her day. She found a cost-effective way to order such meals and have them delivered, saving her a significant amount of time to attend to other tasks. Another thing she recommended was to set goals for yourself at the end of the year for the upcoming year. Long-term goals that take several steps to complete should be broken down into individual steps, and a time frame set for each.

As for to-do lists, Marks-Beal warned against just keeping them in our memories. "The brain does not have a way to remind you in a timely fashion. Find ways to write them down then add them to a master list." She then offered three different prioritizing techniques on which teleconference attendees worked using the materials they received beforehand. The techniques involved different methods for taking a list of to-dos and then assigning a value to them based on the most important and urgent down to the least important and non-urgent. "You’ll always have time for the most important things if you don’t fill up your day with unimportant things first." As far as big projects, she said the hardest thing about them is often just getting started. She said to just dive into a big project and once you get going you’ll be on your way to eventually accomplishing it. One of the books she recommended for time management is Time Management From the Inside Out by Julie Morgenstern.
Source: NACM

Common Financial Statement Distortions – TELECONFERENCE

Date: Monday,October 30, 2006 3:00 – 4:00pm eastern Cost: $59.95 per line

This teleconference will discuss the basics of how financial accounting statements might not always be providing a full and accurate picture of a company’s financial health. The problems in analyzing financial statement range from legitimate adjustments within GAAP guidelines to more “creative accounting” methods that are designed to actively mislead investors or hide financial problems.

Some of the specific topics to be covered include:

  • Typical distortions in accounting information
  • Reasons why managers might intentionally distort the numbers
  • Questions to ask to get the real picture of the company

To register click here.

Presenter: DJ Masson

NACM Teleconference: Old Laws, New Tools

Date: Wednesday, October 25, 2006 3:00 – 4:00pm eastern Cost: $59.95 per line

Credit executives deal with specific legal issues that impact them on a day-to-day basis. This program has been designed to cover some of those more prevalent legal issues, both old and new. This session will also refresh the credit executive on many of the old tools that are oft forgotten. Specific topics that will be discussed include:

• Adverse Credit decisions and The Equal Credit Opportunity Act
• Fair and Accurate Transactions Act
• Security Agreements – when to use them to the creditor’s best advantage
• Personal Guaranties and Cross-Corporate Guaranties

Click here to register.

Presenter: Wanda Borges, Esq.

Tips Given For Managing Letters Of Credit

Letters of credit (LCs), Sprague noted, are used primarily in import/export transactions although they are sometimes used for domestic shipments. She said there are commercial and documentary letters of credit, where payment is initiated by the presentation of documents relating to a successful shipment of appropriate goods. There are also standby letters of credit, which are default mechanisms that trigger payment when the buyer for goods does not make payment. These are used primarily for sales made on open terms. "Standby LCs are designed to not get paid, because we all want the open account to be paid."

Sprague pointed out that when a bank issues a letter of credit it is "putting itself on the hook and putting its credit in the place of the buyer." A letter of credit is a bank instrument that is payable upon presentation of the appropriate supporting documents related to the sales transaction. The important thing to get right about the process, Sprague noted, was to make sure any pertinent documents related to the letter of credit are correct. The biggest hurdle in a seller getting paid on a letter of credit is when there is a discrepancy; documents presented to the bank that don’t match what is specified in the letter of credit. "For companies who do not manage the process well, they have an 80-85 percent discrepancy rate," Sprague said.

When selling internationally, Sprague recommends having two banks involved—one bank in the buyer’s country and one in the seller’s country. The bank in the seller’s country would be the advising bank, which reviews the letter of credit and authenticates it. "Choose a bank in the U.S. that can help you with your LC. Find someone you can trust and that can meet your needs." "Make sure the letter of credit matches the terms in the sales contract," she added. "It is the seller’s responsibility to read the LC." When listing the products to be sold in the LC Sprague said, "The merchandise description should be short and sweet. The more detail you put in, the more chance for discrepancies."

The regulations relating to LCs are the ICC (International Chamber of Commerce) Uniform Customs and Practices Publication 500 or UCP 500. This is scheduled for updating to UCP 600 in July, 2007. There is also the Uniform Commercial Codes (UCC 5), Federal Reserve Bank regulations, ICC uniform rules for bank-to-bank reimbursements (URR 525, the International Standards for Banking Practices (ISBP) and ISP 98 for standby LCs.

Sprague added that some of the common documents related to commercial LCs are the invoice, transportation document, packing/weight list, certificate of origin, section or quality certifications and other certifications.

Charges for an LC are determined by the customer’s creditworthiness Sprague said. She mentioned the average fee is between 1-1.5 percent per year.
Source: NACM and Madeline Sprague

New Law Promotes Credit Rating Agency Competition

Before recessing for the mid-term elections, Congress enacted the “Credit Rating Agency Reform Act Of 2006,” S. 3850. The law is the culmination of reform efforts over the regulation of credit rating agencies. Sen. Richard C. Shelby, (R-AL), introduced the bill September 6th, and less than a month later it was enacted. President George Bush signed it into law on Sept. 29th.

The new law is a response to many in the financial community who advocated reforming the system of rating the credit worthiness of debt instruments such as bonds. A credit rating is a credit rating agency’s assessment—with respect to the ability and willingness of an issuer—to make timely payments on a debt instrument over the life of that instrument. Investors use ratings to help price the credit risk of fixed-income securities. Firms that provide such ratings are called Nationally Recognized Statistical Rating Organizations or NRSROs. Currently, there are only five NRSROs: S&P, Moody’s, Fitch, Dominion Bond Rating Service Limited and A.M. Best Company. According to testimony delivered before the U.S. Senate, the credit rating industry is an extremely concentrated industry. The largest rating agencies—S&P and Moody’s—have approximately 80 percent of industry market share, as measured by revenues. S&P and Moody’s rate more than 99 percent of the debt obligations and preferred stock issues publicly traded in the United States. Hearing witnesses testifying before the U.S. Senate expressed concern about this level of concentration and called S&P and Moody’s a “partner monopoly.”

How credit ratings have permeated the functioning of the debt industry was revealed during testimony on the bill. The Senate notes on the bill state; ”Over the past few decades, financial regulators have increasingly used credit ratings to help monitor the risk of investments held by regulated entities and to provide an appropriate disclosure framework for securities of differing risks. In fact, ratings by NRSROs today are widely used as benchmarks in federal and state legislation, rules issued by financial and other regulators, foreign regulatory schemes, and private financial contracts. Most of these laws and regulations define eligible portfolio investments for institutional investors as those rated in one of the highest investment grade categories by at least one NRSRO. Today, it has become standard industry practice for most issuers to purchase ratings from two or more rating agencies.”

Further, Senate notes revealed problems in the current credit rating system. “SEC examiners found (i) potential conflicts of interest resulting from the issuer-paid business model of the NRSROs; (ii) that NRSRO marketing of supplementary, fee-based services, including corporate consulting, exacerbated the inherent conflict in the NRSRO business model; (iii) the potential for the NRSROs, given their substantial power in the marketplace, to improperly pressure issuers to pay for ratings and purchase ancillary services; and (iv) evidence relating to whether NRSROs were adequately protecting confidential information. The examinations suffered from an overall lack of cooperation offered by the NRSROs with respect to document production. In addition, SEC examiners found evidence that the NRSROs were possibly in violation of Section 17(b) of the Securities Act of 1933, with respect to disclosure of fees from issuers.”

Testimony before the U.S. Senate also revealed that it was virtually impossible for other firms to become “nationally recognized” in order to become a NRSRO. “The most important requirement for acquiring the coveted status presents an obvious `Catch 22′: to get the designation you must be nationally recognized, but you cannot become nationally recognized without first having the designation.” Several witnesses testifying before the U.S. Senate noted that the standard has served as a substantial barrier to entry, and that greater competition would benefit investors by generating more innovation and higher quality ratings at lower costs. The Credit Rating Agency Reform Act establishes a new registration process setting a clear path to being designated as a Nationally Recognized Statistical Rating Organization (NRSRO).

Conflicts of interest between credit agencies and the companies they rate were cited as one of the main reasons that these agencies missed the financial warning signs emanating from such companies and ENRON and Worldcom. These conflicts of interests resulted primarily from rating agencies increasingly marketing ancillary, fee-based consulting services to the very firms whose debt instruments they were rating. The Credit Rating Agency Reform Act Of 2006 addresses these potential conflicts of interest by requiring registration form disclosure of any conflict of interest relating to the applicant’s issuance of credit ratings, and by requiring the SEC to adopt rules prohibiting conflicts of interest or requiring the management and disclosure of such conflicts.

If the law produces its intended affects, in the months ahead there should eventually be more NRSROs, more competitive rates for their ratings services and fewer appearances of conflicts of interest between NRSROs and the company’s whose debt instruments they rate.

Source: NACM

NACM Teleconference Retaining Star Performers

One of the keys to your success as a manager is having the right people on your team to support you. A group of talented and motivated individuals can mean the difference between achieving expectations and exceeding them. As a result, it’s critical to invest time and effort into retaining your best employees. Fred Getz, Executive Director of Robert Half International’s Salaried Professional Service, will discuss the factors that matter most to employees and will offer specific strategies for retaining top talent.

Date: Monday,October 16, 2006 10:00 – 11:00am or 3:00 – 4:00pm eastern

Cost: $59.95 per line Presenter: Fred Getz

Click here to register

Organizing Priorities Using Classic Time Management Strategies – TELECONFERENCE

Is your to-do list longer than your life? If so, know you are not alone! The biggest challenge we face in getting these things done is FIRST knowing what is really important to us and THEN having the ability to organize and prioritize our activities.

This teleconference was developed to help busy professionals rise to this challenge by sharing some basic time management strategies. Whether you have taken a time management course or not, the concepts discussed are great reminders for how to get and stay focused. This content-rich, personally useful program provides immediately usable techniques that will enable listeners to make smart choices about how and where they spend their time.

This session will take you off the proverbial treadmill and get you thinking about:

  1. What’s Working and What’s Not
  2. Setting Direction with Goal-Setting
  3. Creating a Centralized To-Do List
  4. 3 Powerful Prioritizing Techniques

Date: Thursday,October 12, 2006 3:00 – 4:00pm eastern

Cost: $59.95 per line  Presenter: Abby Marks-Beale

Click here to register.

Credit Managers Index for September 2006

The seasonally adjusted Credit Manager’s Index (CMI) took another small step down in September. The Index fell from 57.3 to 57.1 as six of the 10 components for the combined sectors fell. “However, all 10 components still remain above 50, indicating economic expansion,” said Dan North, Chief Economist with credit insurer Euler Hermes ACI. “The CMI continues to show an economy with good momentum, but one which is slowly trending downward, probably due to the combination of a plummeting housing market and tightened monetary conditions.”

Click here to read the full CMI Report.

Changes Coming For Exporters Using Letters of Credit

Exporters who utilize letters of credit (LCs) for their overseas sales should be aware of changes in the regulations that pertain to them. Those that attended a teleconference September 29, hosted by FCIB, got the opportunity to learn of some of the major changes likely to take place in how letters of credit are processed. Buddy Baker, of Attradius Trade Credit Insurance, who has many years of experience with letters of credit and other export trade issues, presented the teleconference.

Baker said that rules governing letters of credit are being revised under the proposed Uniform Customs and Practice for Documentary Credits, ICC Publication No.600 or UCP 600. Changes under UCP 600 will likely go into effect around mid-2007. They are being drafted by the banking committee of the ICC, or International Chamber of Commerce. The current rules for letters of credit are under UCP 500, which Baker said have been in existence—with some modifications along the way—for 13 years. He pointed out these rules are not law, but to the extent they are incorporated in legal documents involved in letters of credit, they have the force of law. “Because it’s not a law, its possible banks may continue to use UCP 500; but those who use it will be out of step with those who use UCP 600.”

The proposed changes in UCP 600 are designed to improve the letter of credit process, Baker said. “There are continuing problems with UCP 500: however, LCs continue to get paid and they serve their creditors well.” He noted that there are three major changes proposed under UCP 600. The first one is that “reasonable time” and “without delay” have been deleted, and banks will simply be allowed five days to examine documents and assert any discrepancies. The second one pertains to addresses of the applicant and beneficiary in the LC. “Companies have multiple addresses and this has created a lot of confusion,” Baker said. Under UCP 600, “It can be a different address as long as it’s in the same country. The name has to be the same, though.” The third major change relates to issuing banks being allowed to refuse documents and then release them, upon obtaining a waiver of discrepancies. “The issuing bank can’t release documents unless they receive counter documents by the presenter.”

Regarding electronic documents, Baker said, “There’s still a question if original documents can be electronic documents with electronic signatures. Generally speaking, banks are accepting this; the UCP 600 doesn’t address them—but that is the practice.”

Source: NACM and Buddy Baker

Business Check Conversions Now Allowed

Rudet Fountain, National Sales Manager for American Check Management (ACM) recently informed NACM of recent changes in the management of electronic transfer of funds that allows check conversions for business checks. These changes were implemented on September 15 by NACHA, known as The Electronics Payment Association. NACHA, according to its website, is a non-profit association that represents more than 11,000 financial institutions that “develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill and invoice presentment and payment (EBPP, EIPP), e-checks, financial electronic data interchange (EDI), international payments, and electronic benefits services (EBS).”

Before this recent change, Fountain said check conversions were only allowed for consumer checks. Check conversion, he noted, “Let the paper check go away—that check is transmitted as a digital electronic transaction.” He said the process is part of the Federal governments commitment in the 1990s to move to a paperless system of monetary exchange. When a consumer pays for a product at the point of sale by check, the merchant can scan the check into a computer system and send the routing and other financial information through the ACH network so that money is electronically transferred from the consumer’s bank to the merchant’s bank. The check is then endorsed by the merchant and either immediately given back to the consumer for his or her records or kept by the merchant.

Fountain said that one of the reasons businesses were not included in check conversions was that it was not easy to determine at the point of sale if a person writing the business check was authorized to give consent for conversion. However, the newly implemented changes mark a shift in the default position and allows for most business checks to be converted. Businesses, however, are given an opportunity to opt out of the check conversion process now that it applies to them. They can do so by either communicating verbally or by writing to a merchant, saying that they don’t want to be involved in check conversion; or they can indicate on their checks that they don’t participate in check conversion. To prevent business checks from conversion into ACH transactions (electronic payments), Fountain said you must use business checks that contain an appropriate notation in the “auxiliary on-us field” on the far left of the business check’s MICR Line. This line, on the bottom of the check, typically contains such data fields as the account and check routing or transit numbers.

According to NACHA guidelines, some Business Checks are ineligible for conversion. Those are:

1. Business checks that are printed on approximately 8 to 9 inch check stock AND utilize the auxiliary on-us field located on the far left of the check are ineligible for conversion.
2. Checks greater than $25,000 are NOT eligible for conversion under any circumstances;
3. Third Party checks or sharedrafts;
4. Demand drafts and third-party drafts that do not contain the signature of the receiver;
5. Checks provided by a credit card issuer for the purpose of accessing a credit account or checks drawn on home equity lines of credit;
6. Checks drawn on an investment company as defined in the Investment Company Act of 1940;
7. Obligations of a financial institution (e.g., travelers checks, cashier’s checks, official checks, money orders, etc);
8. Checks drawn on the U.S. Treasury, a Federal Reserve Bank, or a Federal Home Loan Bank;
9. Checks drawn on a state or local government that are not payable through or at a Participating DFI; or
10. Checks or sharedrafts payable in a medium other than United States currency.

Fountain said that ACM is considering offering services that would facilitate business-to-business check conversion that is made possible by this and other legislation such as Check 21. ACM already offers a variety of services to credit departments around the country; including, Payment by Phone, Online Bill Payment, Check Guarantee and Credit Card Merchant Services. If additional information is desired, Fountain may be contacted at rudet@acmeft.net.

Source: NACM and American Check Management

Antitrust Issues Explained In NACM Teleconference

Those who attended an NACM teleconference September 20th
learned some valuable information on how to steer clear of possible violations
of anti-trust laws. The teleconference 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 NACM 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, many of which are managed by NACM Affiliates.
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. "NACM Affiliates run 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

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."
NACM and Wanda Borges, Esq.

Credit Applications Are Important Legal Documents

The role of credit applications in the credit and collections process was explained in an NACM teleconference Sept. 11, 2006, entitled, “Credit Applications Are Important Documents.” The presenter was Lynnette Warman of the Dallas-based law firm of Jenkens & Gilchrist.

Warman said that the credit application might serve several functions such as gathering pertinent company information, establishing a security interest, securing personal of corporate guarantees and establishing credit terms. “It’s important to get all the information you need from your customer,” Warman added; and advised getting the credit application completed with all the information it requests.

Some of the critical information she mentioned that should be obtained in a credit application included the legal name of the customer, legal names of the owners and manager and the street address of the customer—not a post office box. Warman stressed the importance of making sure the information is completely accurate. She recounted a Kansas State Supreme Court decision in March, where a company lost a security interest in a priority dispute because the first name of a principal of the debtor company was incorrectly spelled.

The organizational structure of the customer must be properly identified, she noted: whether it’s a sole proprietorship, a partnership, or an LLC can affect what actions for non-payment might be taken against it. “Each type of company has ramifications if you are trying to sue them for non-payment,” she said. She pointed out, for example, that if there is no personal guarantee from a corporation, there might be no recourse for non-payment. She also mentioned that with a sole proprietorship, one is able to sue the individual—as well as the business—for unpaid bills.

The information presented by a customer on a credit application should be verified. Warman noted that with the advent of the Internet, finding and verifying company information is easier: many Secretaries of State are now charging for corporate information they once provided for free, but it is more easily obtainable over the Internet. She also advised making sure all appropriate signatures are included on the credit application and that it is legible.

Stating in the credit application what court should have jurisdiction over any disputes has become more recognized by the courts, Warman said, and that it is important to also include that it is the customer’s responsibility to alert the creditor about any changes in its ability to pay. Any change in credit terms from the credit application should be sent out in the form of a written notice to the customer—and the credit application itself should be reviewed every couple of years to make sure it conforms to the latest requirements of relevant laws relating to business credit.

For information on future NACM teleconference subjects, go to NACM’s website at www.nacm.org, and put your cursor over the "education" circle at the top of the page, then scroll down to "teleconferences."

Source: NACM and Lynnette Warman

NACM Teleconference: Credit Applications

Find out what you need to know about and what you need to include
in your credit applications after the revisions to Article 9 of the
Uniform Commercial Code (UCC) from Lynnette Warman, an attorney
specializing in the area of debtor and creditors rights. Lynnette will
also discuss some new “tricks” to give your company added protection as
you formulate your credit application.

Date: Monday, September 11, 2006 10:00 – 11:00am or 3:00 – 4:00pm eastern

Cost: $59.95 per line  Presenter: Lynnette Warman, Esq.

Click here to register