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 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

98th Edition of the Manual of Credit and Commercial Laws

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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.

Click here to order or call 410.740.5560.

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

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
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 (, 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
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 and click “teleconferences” or just point your browser to:
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 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.

Click here to download full report.

“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 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, 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

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

Source: Jacob Barron, NACM Staff Writer

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,

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 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 ( 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, put your cursor over the “education” circle at the top of the page and scroll down to “teleconferences” or just point your browser to:

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:


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

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

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

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