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

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

HOW TO IMPROVE YOUR CHANCES OF GETTING PAID

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

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

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

CRITICAL COMPONENTS OF A BUSINESS RECOVERY PLAN

They need to:

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

REVIEW THEIR INSURANCE COVERAGE

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

CONCLUSION

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

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

A Member Success Story, by Mike Mitchell

At CMA, we often hear stories about how credit group membership can save your company THOUSANDS of dollars by providing critical information that helps you avoid extending too much credit on high-risk accounts. Here’s a real example of how a multi-national company avoided a costly disruption when a long-standing critical supplier filed for bankruptcy.

CMA President and CEO Mike Mitchell

The member regularly attends credit group meetings, and at a recent meeting, he was surprised to learn that one of his company’s critical suppliers had recently filed for bankruptcy. He was surprised by the news because his company subscribes to various monitoring services that should have alerted him and his department to the bankruptcy filing. When he contacted his procurement department, he was further surprised to learn that the department responsible for the relationship with the supplier was not even aware of the bankruptcy filing. The member had sufficient time take the necessary steps to source the critical supplies from a different supplier so that production was not interrupted. Supply chain disruptions potentially can cause more damage to a company’s business model and reputation than the failure of customers to pay their bills, so this was a big deal.

Once the member had mitigated the risks of the potential supply chain disruption for his company, he contacted his supervisor, the Director of Corporate Credit, and let him know that the critical piece of information came from a discussion at a CMA credit group meeting. He gave CMA credit for providing the information that potentially saved his company millions of dollars in lost production time and goods.

We hear these stories all the time at credit group meetings. The real value of regular participation in credit groups is the money and time you save in getting the critical information you need in order to get out in front of situations that could cause significant losses to your company. The member whose story I highlighted above feels confident that the time and money his company spends to have him participate in credit groups is well worth the investment.

What’s New at Credit Management Association?

CMA Logo

Greetings from CMA!

Now that the holidays are over, Credit Management Association is back with full steam ahead into projects that can help your company manage risk.

Here are a few of the projects we’re working on that you should be aware of:

– CMA recently announced our CreditScape Spring Summit, which will focus on process improvements in the credit department and cutting costs. The one-day event takes place April 12 in Garden Grove, CA. More info: www.creditscapeconference.com

– CMA and AG Adjustments are proud to announce a new collections-related webinar series that is must-attend material for anyone who works in that field. The webinars feature three of our most popular speakers: Bart Frankel, Dave Osburn and Greg Powelson. http://creditmanagementassociation.org/2017/01/31/cma-announces-new-collections-webinar-series/

– Future dates have been set for CMA’s new International Credit Best Practices Forum. For U.S. companies that sell abroad, this group can help you navigate some of the hurdles you might experience when selling overseas. More info is here.

– With all of the bankruptcies in the news last year from longtime strong companies, when is the last time you evaluated your credit information sources? CMA has a great resource who handles reports from all of the major bureaus and can get you the best solution for your company, not just the best solution from one bureau if you went direct. Learn more here.

– Several new advanced lien law webinars have been announced. If your company does construction-related business in Texas, California or Nevada, you should attend these sessions, which can be found on our education calendar. Details: http://www.creditmanagementassociation.org/events

– Speaking of construction-related business, CMA’s fast and accurate construction lien filing services can help protect your receivables to ensure you get paid on those projects. More: http://creditmanagementassociation.org/construction-forms-filing/

 

Are you getting CMA’s updates, including news and updates from around the credit and collections profession? If not, subscribe to our newsletter here: http://conta.cc/1tA5pOE
If there are any other services you need to help your credit operations run smoother, we’d love to talk to you about ways we can help. You can reach us at 818-972-5300 or at www.creditmanagementassociation.org.

Thanks for reading!

Credit Resources for Companies Selling Internationally, by Patrick Spargur

There is a saying, “When in Rome, do as the Romans.” That is a simple way to remember how to approach International Mitigation Tools. If your company decides to enter a new International market, as a credit manager (and risk management professional) you must be aware of the most common mitigation techniques that are used.

In my previous role as a Global Credit & Collection Manager, I was responsible for mitigating credit risk on six continents. In order to do this, I needed to ask a lot of questions and do a lot of research to find out what the most common mitigation tools were for each country, remembering that the laws and business practices in these different countries varied greatly.

These are just a few mitigation tools that I learned about as a credit manager:

  • personal guaranty
  • promissory note
  • pledge agreement
  • pagare-Mexico
  • letters of exchange-Peru
  • bank guaranty
  • letter of credit (confirmed & unconfirmed)
  • irrevocable letter of credit
  • standby letter of credit
  • cross corporate guaranty
  • credit insurance
  • postdated checks
  • surety bond
  • factoring
  • forfaiting
  • cash for documents

Depending on the country(ies) you’re doing business with, this list gets even longer. The aforementioned list does provide you with an idea of how complex International trade can be and how much there is to learn. The good news is that CMA has the experience, members, partners and the educational offerings to help you navigate and understand these techniques and tools, as well as many other issues affecting trade credit and International business.

One of these resources is a newly created International Best Practices Group whose first meeting takes place via teleconference January 23. You can sign up here. If your company sells internationally, or you plan to at some point, I strongly encourage you to take advantage of the knowledge presented in this group by your peers and industry experts.

Please call or email me with any questions or comments that you have, 702-259-2622.

All the best wishes for a prosperous New Year!

Patrick Spargur, CICP
800-841-5793

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

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

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

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

Objective Factors

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

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

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

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

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

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

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

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

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

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

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

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

Subjective Factors

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

What Subjective Factors Are Important?

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

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

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

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

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

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

In Summary

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

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

Twenty five good reasons to join an Industry Credit Group, by Patrick Spargur

AssociatedProduce CMA Party

Why do your competitors know of “high risk” accounts months before your company does? Perhaps they are in an Industry Credit Group!

Credit Management Association’s Industry Credit Groups offer unique opportunities to network with leading credit professionals in your specific industry. Group members exchange valuable trade data and experiences on existing and prospective customers.

CMA offers more than 50 industry credit groups and networks at the local and national level; including food and beverage, construction, health care equipment and many more.

As a former Credit & Collections Manager who was responsible for managing risk, I valued and relied on my Industry Credit Group so much that I decided to share 25 good reasons why credit professionals need to consider joining an Industry Credit Group.

  • Industry Credit Groups mitigate your company’s commercial risk
  • Industry Credit Groups provide immediate resources to check trade references quickly with similar companies in your vertical industry
  • Industry Credit Groups allow like companies to compare customer payment trends and payment methods
  • Industry Credit Groups help similar companies compare customer dispute reasons and trends
  • Industry Credit Groups proactively identify business deterioration and closures
  • Industry Credit Groups facilitate the reduction of bad debt expense (In 2012, Credit Today estimated that ICG participants saved approximately $205,000 per year)
  • Industry Credit Groups proactively identify problematic accounts
  • Industry Credit Groups help uncover industry trends & challenges
  • Industry Credit Groups identify best practices
  • Industry Credit Group members receive bankruptcy alerts and updates via CMA’s interactive website, anscers.com
  • Industry Credit Group members receive change of ownership notifications
  • Industry Credit Group members identify change of key personnel or location
  • Industry Credit Group members receive timely NSF alerts
  • Industry Credit Groups increase the credit manager’s value to your organization
  • Industry Credit Groups identify payment portal issues
  • Industry Credit Groups identify customers who are skipping invoices
  • Industry Credit Groups identify mergers & acquisitions and corporate linkage
  • Industry Credit Groups identify sources of funding
  • Industry Credit Groups identify best-in-class resources (software, credit reports, legal, vendors)
  • Industry Credit Groups offer the opportunity to find a mentor (I found several)
  • Industry Credit Groups offer the opportunity to be a mentor
  • Industry Credit Groups help you expand industry knowledge
  • Industry Credit Groups help you understand your competitors better
  • Industry Credit Groups help you expand professional network
  • Industry Credit Groups help you differentiate yourself as a skilled and much sought after credit professional
  • Industry Credit Groups help expand your company’s brand awareness

CMA professionals facilitate all group meetings and information exchanges in strict compliance with U.S. antitrust laws. Industry Credit Groups give you the proprietary information you need to make fast, accurate credit decisions. If you have any questions please don’t hesitate to contact me (or any of CMA’s other representatives). I look forward to your participation in CMA’s Industry Credit Groups!

Patrick Spargur, CICP, is a business development executive with Credit Management Association. He can be reached at 800-841-5793 or by email at pspargur@emailcma.org.

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

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

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

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

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

Here is a partial agenda for the meeting:

REVIEW OF LAST MEETING
1. Members describe any enhancements they have made to their vetting process or roadblocks encountered
2. Groundwork and Decisions Required Prior to Establishing Process (including 80/20 Rule-Which vendors will you include in your process?, Has a budget been discussed and approved?, Has Staffing been arranged?, Identify critical vendors, single, sole source vendors outside of 80/20 rule, Has an acceptable chain of command been established?, Has a workable timeline to roll out, review and assess been established?)

VENDOR ONBOARDING PROCESS BEGINS
1. Receive request for NEW vendor investigation
2. Vendor fills out company questionnaire (Provide quality, safety and financial information)
3. Initiate Vendor Qualification process
4. Vendor Financial Information uploaded
5. Evaluation Process Begins (Credit investigation; Relationship: Critical, single, sole; Demographic, government, industry)
6. Vendor Approval, review schedule set
7. Q & A

Please let us know if you would like to be a guest at this meeting by contacting Larry Convoy at lconvoy@emailcma.org.

A Comparison of Credit Risk Mitigation Tools, by Buddy Baker

Note: this is one in a series of international blogs to help credit managers learn how to assess risk in foreign countries and expand their potential customer base.

Most CMA members don’t know me. I don’t make it to many CMA activities because I live in Chicago. But about a year ago, I joined CMA as a vendor member who provides credit-related services to CMA members.

I’d like to invite you to a short webinar I’ll be conducting on December 3. I think you’ll find the information to be useful and maybe even compelling. The webinar will be a review of multiple techniques for managing credit risk. Maybe you are familiar with all of them but never compared them side by side. I’ve attached a chart that should give you an idea of what I’ll be talking about.

You can sign up for the webinar here. http://www.anscers.com/upcomingevents.aspx?eventId=1840

Then, in January, I am planning to be in Los Angeles to conduct some classroom-style seminars on these techniques. If the webinar makes you decide you’d like to understand some of these techniques better or get some classroom practice at matching risks with risk-mitigation techniques, I hope you’ll come to one or more of these seminars. In addition to risk mitigation, one will be on structures for arranging financing for your domestic and international sales (much of which is built on the risk mitigation techniques). These seminars are not limited to CMA members, but CMA members will get a discount.

My objective is to provide education to Credit Managers. Information you can use. My experience-35 years of it-is as a banker and a credit insurer. I’m an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. Please feel free to call me whenever you have a question about letters of credit or credit insurance or foreign exchange contracts.

And I look forward to getting to Los Angeles, and out of Chicago, in January.

Buddy Baker

Buddy Baker is president of Global Trade Risk Management Strategies, LLC, a consulting firm that specializes in providing education content to Credit Managers. Baker has 35 years of experience as a banker and a credit insurer, and is an expert in various techniques for managing credit risk and financing receivables, with particular expertise in export transactions. He can be reached at (847) 830-3038, or by email at buddy.baker@gtrisk.com.

New International-Themed Webinar Series Announced to Help Members Think Global

Several international-themed webinars have been scheduled for early December in an effort to get CMA members to think globally.

The webinars, which will run 30 minutes each and are free for CMA members to attend, will take place December 1-3 at 9:00 AM PST. Descriptions for the webinars (and registration information) can be found at www.creditmanagementassociation.org/events.

  • December 1, 2015: How to Achieve Procurement From Using Foreign Trade Zones (Speaker: David Harlow, ITC-Diligence)
  • December 2, 2015: Financing Foreign Receivables (Speaker: Brent Hoots, NaviTrade)
  • December 3, 2015: Comparison of Credit Risk Mitigation Tools (Speaker: Buddy Baker, Global Trade Risk Management Strategies)

To echo the value of international education and resources to our members, CMA president and CEO Mike Mitchell dedicated his November blog to the topic.

For more information about these webinars or the CMA education program, contact Lisa Wong, CMA Member Relations Associate, at lwong@emailcma.org.

President’s Blog: It’s Time to Start Thinking Globally, By Mike Mitchell, President & CEO

How can you play and get paid in the global marketplace? Over the last two years, CMA has been exploring how member companies can grow export sales using a variety of credit and trade finance resources to mitigate the risk of selling into other countries.

Today, I am attending Discover Global Markets, a two-day export conference hosted by the U.S. Commercial Service, the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration (http://export.gov/discoverglobalmarkets). I am looking for information and insights I can bring back to the CMA membership.

In the meantime, we have many other resources that can help you sell into the global marketplace. CMA established a strategic alliance with the U.S. DOC’s Commercial Services because its trade professionals in over 100 U.S. cities and in more than 75 countries help U.S. companies get started in exporting or increase sales to new global markets (http://www.trade.gov/cs). Regional Director Richard Swanson recently participated in a panel discussion on international collections at CMA’s Fall CreditScape Summit, and he has provided CMA members with guidance on how to access U.S. government export resources in many other countries. You can also find all the basics at www.export.gov.

When you conduct international credit investigations, CMA recommends long-time partner Skyminder which offers reliable, up-to date information on millions of public and private companies worldwide. Details on how to find them are here.

CMA has three upcoming webinars before the end of the year that will give you more tools for exporting your products and securing your receivables.

  • December 1, 2015: How to Achieve Procurement Using Foreign Trade Zones (Free Webinar) 9:00 AM PST
  • December 2, 2015: Financing Foreign Receivables (Free Webinar) 9:00 AM PST
  • December 3, 2015: Comparison of Credit Risk Mitigation Tools (Free Webinar) 9:00 AM PST

Details on these can be found at http://www.anscers.com/upcomingevents.aspx

Is your company missing out on the other 95% of the world market? Stay tuned.

Suppliers Accepting Credit Card-Present Payments Take Heed To Adopt New Technology By October 1, 2015 Or Bear Risk Of Fraud Loss, By Scott Blakeley

The Wall Street Journal reports that credit card use in the B2B space continues to increase as a preferred payment channel for customers. Suppliers accepting cards in the B2B space commonly receive payment through card not present forms, whether through payment portal, email, fax or over the phone. For those suppliers that accept cards in the cardholder’s presence, card issuers are changing card acceptance rules to give cardholders greater protections from identity theft.

“Chip and pin” or “smart cards” are credit or debit cards that store data on integrated circuits rather than on traditional magnetic stripes. The transition to “chip and pin” or “smart card” technology is now largely underway in the United States. The transition is being assisted by the shift in liability for card-present fraud that will be implemented on October 1, 2015.

Currently, if an in-store transaction is conducted using a card obtained fraudulently, cardholder losses from that transaction lie with the payment processor or issuing bank. From October onwards, that liability will shift to the supplier that has not changed its system to accept chip technology. If a customer uses a chip card, the failure to update the card reader may permit a counterfeit card to be successfully used. In that scenario, the supplier will bear the cost of the fraud. Again, the supplier will only be responsible for the cost of the fraud if the fraudulent transaction is a card-present transaction.

The major benefit of using a “chip and pin” payment card, and what compelled the US to migrate its cardholders to the new generation of cards, is improved security and fraud reduction. Whereas magnetic stripe card transactions rely on the holder’s signature and visual inspection of the card, the use of a PIN and cryptographic algorithms provide authentication of the card to the processing terminal and the card issuer’s host system.

The identity of the cardholder is confirmed by requiring the entry of a personal identification number (PIN) rather than signing a paper receipt. Unlike magnetic-stripe cards, every time a smart card is used for payment, the card chip creates a unique transaction code that cannot be used again. This eliminates the possibility of card duplication fraud as the transaction code becomes obsolete and cannot be used in further transactions.

While much of the rest of the world has already been using “chip and pin” cards for several years, the US is now committing to migrate its credit card use to this more secure format. There is a historical viewpoint regarding the reason for this delay by the US in updating its credit card technology standards. In the past, fraud was much more prominent in markets outside of the US. What has happened, especially over the course of the past few years, is that since other markets have migrated to “chip and pin” cards and become more secure, fraudsters have moved their focus to the US market. Essentially, they came to the US market because they were looking for less secure networks from which to steal fraudulent credit card information.

For suppliers in card-present transactions, the switch to this technology means adding new in-store technology and internal processing systems, and complying with new liability rules. For cardholders, it means activating new cards and learning new payment processes. And for the supplier and cardholder, it means a more secure form of payment by credit card, and fewer opportunities for fraud to occur. As the credit team is responsible for managing risk, including risk of fraud with payment channels, the credit team must prioritize compliance with this new technology within the organization for card-present transactions.
Scott Blakeley is a principal with Blakeley LLP, where he practices creditors’ rights and bankruptcy. His e-mail is: seb@blakeleyllp.com.

CMA Creates Resource to Manage Vendor Relationships

Supplier Risk Management Group
Supplier Risk Management Group

Supplier Risk Credit Group to provide tools to help companies avoid business disruption.
Credit Management Association recently announced that credit professionals will now have access to tools that will help them assess the riskiness of a vendor with the formation of the association’s new Supplier Risk Credit Group. Comprised of credit and risk-management professionals from medium to large-sized businesses, the group offers resources and provides best practices to help companies manage their vendor relationships.

“We’ve had a number of responses from our members asking for a resource like this one, as many of our member companies have expanded the credit departments’ risk management role to include key suppliers,” said CMA president Mike Mitchell. “There has been a tremendous increase in the number of companies evaluating the risk and cost of business disruption when vendors are unable to deliver goods for reasons ranging from economic to political. Credit Managers deal in risk evaluation daily. They have the skill set necessary to transition from customer analysis to vendor. This new group will help companies assess their exposure to vendor failure, develop, implement and maintain a process to evaluate risk and gather business intelligence more efficiently and cost effectively,” he added.

“During my time in credit management, I’ve often heard the following: ‘We can survive if a customer relationship goes bad, but we cannot survive if one of our primary or secondary vendors has an interruption in delivering product, raw materials or services to us. For that reason, we invest an equal amount of resources investigating our vendors,'” said CMA lead group facilitator Larry Convoy, who will be CMA’s liaison for the new group. “I’m very excited to add this service for our members, as these relationships can make or break their businesses.”

Chaired by volunteer Alvin Moreno of Nestle, the Supplier Risk Credit Group held its initial information session in January, and the response was overwhelmingly well received by member companies who attended. “Moreno will do a great job with this group, especially since he just received his MBA with a focus on this topic. The existence of this group is a huge advantage for our members that can provide information that they cannot efficiently get any place else,” Mitchell added. The first official meeting is slated to take place at the CMA Annual Meeting, which will be held April 22, 2015 in Burbank, CA.

The group, which is one of 60 industry and topic specific groups that CMA offers, will meet quarterly via phone and in person. To learn more about this group, or any of the other groups and how they can help businesses minimize risk, visit http://creditmanagementassociation.org/services/industry-credit-groups/ or call 800-541-2622.