April 21, 2009
It can seem like a daunting task, a modern day David and Goliath set in offices, cubicles and boardrooms across the nation: credit departments versus the all-encompassing might of credit card issuers like Visa and MasterCard. Sure, acceptance of business payment and purchasing cards offers credit professionals and their companies a chance to get quick payment from their customers, but this comes at the price of profit, which is reduced by fees charged by these companies to use their products. Then, on top of that is the concept of Payment Card Industry (PCI) Compliance, which requires merchants to be sure the data they're collecting from their credit-card-using customers is safe lest there be a breach and penalties for the merchant to pay.
In today's economy, protecting one's self and one's company from fees and other monetary risks becomes even more important, and that's why it's necessary that all merchants looking to accept credit cards understand the costs involved and work to insulate their company from them. "Your job is to reduce expenses," said Robert Day, vice president of commercial interchange at Fifth Third Bank. "Everyone expects you to be up on any rules and laws and at the end of the day, your job is to make sure that the company gets paid." When it comes to reducing credit card fees, Day noted that "the biggest portion is interchange," a subject that needs to be considered both because of what reducing your interchange will save, and what it can offer, a company.
Interchange fees correspond to the amount of data included in each transaction. The more data included, the lower the fee. Some companies and customersâ€”notably, much of the federal governmentâ€”actually require a high level of data, referred to as Level 3 or Data 3 depending on the card brand. "A lot of customers want that detail. A lot of government agencies won't even work with a company who doesn't support it," said Day. "They're going to go with that Level 3 provider and they're not even going to entertain your bid."
Handling interchange effectively, however, can vary according to the company's expertise, Day added. "Credit card interchange is a lot like taxes," he said. "You can go to one tax preparer and get a $2,500 refund and go to another tax preparer and owe $2,500."
"The difference is in the skill sets," he added.
Those credit professionals, and companies, looking to get a fresh look at reducing their interchange costs and possibly opening themselves up to new opportunities for profitable business can learn more at Day's session, "The Great American Heist: How Processors and ISOs Are Taking Your Hard-earned Profits," offered at Credit Congress in Orlando, FL. In this dynamic presentation, Day will offer attendees a wealth of tips and trade secrets regarding credit card acceptance. Credit professionals are even encouraged to bring their company's merchant processing statements to use as a reference during the session in order to get specific insights into their company's needs.
For more information about this session and Credit Congress' other educational opportunities, or to register, visit http://creditcongress.nacm.org.
Jacob Barron, NACM staff writer
Credit Congress Addresses Economic Situation
When we developed the program for the 113th Annual Credit Congress & Expo, we knew that current economic conditions are drastically affecting each credit professional's daily responsibilities. We understand your need for support and relevant information to make decisions essential to your company's viability.
With this in mind, here are some of the key sessions for the conference:
- Practical Bankruptcy Knowledge for Survival in Today's Troubled Economic Climate
- Leadership in a Tough Economyâ€”and Solving the Toughest Credit Problems
- Working Smarter, Not Harder
- Early Warning Signs of the Major Bankruptcies of 2008-2009
- Liens & Bonds: A Practical Approach in Tough Economic Times
- Advanced Credit Management and Contract Terms
Let the Credit Congress & Expo provide the timely information, vital contacts and service provider alternatives you need.
There's a lot to be afraid of in this economy as defaults, delinquencies and insolvencies are on the rise. The need to understand the strength or weakness of potential customers has been elevated, and more and more financial professionals are seeking out the means to enhance their analysis toolbox. Fortunately, there is a wide variety of tools available that credit managers can use collectively to create a detailed picture of their existing or potential customers.
Under U.S. Securities and Exchange Commission (SEC) regulations, any business that is a publicly traded company is required to issue or post an audited financial statement. These financial statements appear in a company's annual report and are filed with the SEC as a 10-K each year, or are filed quarterly as a 10-Q report. Both are vitally important story-telling devices that can be obtained online from any publicly traded company's website or through other online resources. Some privately traded companies will also post financials on their websites, but that's not always the rule.
"Please be aware that a financial statement is just a tool in your complete toolbox of credit evaluation," said Toni Drake, CCE, TRM Financial Services, Inc., during the NACM-sponsored teleconference, "Taking the Fear out of Financial Statement Analysis." "Let this be one of your important tools for evaluation, but by all means don't let it be your only tool."
Drake's presentation highlighted balance sheets, income statements, retained earnings and cash flows. She also talked about what credit managers should be looking for in financial statements and annual reports to extract the information that becomes important to the extension of credit, particularly operating profit or loss as a key indicator for credit managers.
"As you unravel financial statements and you go through each component, you'll see more and more, and it begins to tell a story," said Drake. "One piece of a financial statement needs to go with another in order to answer the questions and to tell a story."
For any credit manager planning to use financial statement analysis on their customer, Drake reiterated that at its heart, it is a trend analysis. Credit professionals want to have at least three periods of time, whether it be quarterly or annually, to see what direction a company is heading. The importance of having multiple reports over an expanse of time is that there are two sides to each positive or negative. Drake used the simple example of a company's accounts receivable (A/R).
"You want to look at the accounts receivable over a period of time. Is the A/R going up for a company or is it going down? And is that good or bad?" posed Drake. "Obviously if the company's A/R is going up, you might assume that they are selling more and that's a good thing. But not necessarily; the growth in A/R might be telling you they're not getting paid for their receivables."
Accounts payable had the same duality. "If they're going up, you might panic and think they're not paying their vendors. And that may be true, especially in this economy," explained Drake. "But let's look at the flip side: Payables going up might also be a good thing. It means that they're selling more and being able to extend credit to more people. So, you can begin to understand how the piecesâ€”the components of the balanceâ€”begin to tell a story."
Drake spent time reviewing cash flow statements and discussed how they were her favorite piece of financial statement analysis. She stated that oftentimes the first thing a credit manager does when getting a copy of their customer's financials is to turn directly to the profit and loss statement, which isn't unreasonable. But by adding the cash flow statementâ€”the money that is going in and out of the companyâ€”credit professionals can see the expanded story.
"Cash flow statements are really important and let me tell you why: Did you know that a company can actually report a profit, yet have no cash?" said Drake. "Conversely, a company can show a loss but still have plenty of cash with which to operate their business. So, it's really important to understand a cash flow statement in relation to other statements included in an annual report."
Though the session was designed for credit professionals who have limited exposure to financial statements, Drake led attendees from a wide range of experience through the weeds of financial statement analysis. She said that even for those with years of experience, it can be easy to find themselves adrift in the mirage of information contained in a company's glossy annual report. In the end, it is the credit manager's diligence that will ultimately win outâ€”that there should never be fear of wanting more answers.
"Never hesitate to go back to a customer and ask, 'What is this?'" said Drake. "Anything that is outside the norm within your industry deserves investigation."
Matthew Carr, NACM staff writer
Gaining Buy-in and Support From All Levels of Management
Is the credit department in your organization underrated? Are you considered part of the "team" and getting the support and recognition you deserve? Or, are you perceived as "black and white," hard to work with, and your salespeople avoid you at all costs?
This is a common frustration many credit professional experience. When you have a better understanding of your organization's structure and culture, you can develop a strategic plan that guarantees success. Join Susan Archibeque, CCE on April 27 at 3:00pm EST to learn how to pinpoint key components to successful credit leadership in her NACM-sponsored teleconference, "Gaining Buy-in and Support From All Levels of Management." By evaluating and addressing challenges to your credit department, your sales department and the entire company overall, you can gain a better appreciation of the daily challenges your peers and upper management face and can change the way you are perceived and gain the respect and backing you deserve.
For more information on NACM's teleconference series, or to register, click here.
At a recent roundtable event focusing on credit rating agencies, U.S. Securities and Exchange Commission (SEC) Chairman Mary Schapiro called for renewed regulation of the sector, noting that the nation's current economic conditions demand even more action from the SEC, which has already issued several rules on the subject. "Clearly, the role of credit rating agencies must be an area for our intense review as we think about how to promote investor protection and market integrity, and restore confidence in our financial system," she said.
Schapiro was supportive of the previous steps her agency had taken to combat the problems in the credit rating industry, which is frequently listed as one of the culprits of the current financial crisis. "In 2006, the Credit Rating Agency Reform Act gave the Commission the exclusive authority over rating agency registration and qualifications. In the less than three years since, the Commission has undertaken no fewer than five rulemakings," she said. "Clearly, the Commission has been very active in its efforts to fully implement the authority granted by Congressâ€”all with an eye to providing the investing public with more confidence in the rating system."
"But as much as we have done, there is still more to do," said Schapiro, grimly referring to the still volatile nature of global credit markets. "The status quo isn't good enough. Rating agency performance in the area of mortgage-backed securities backed by residential subprime loans, and the collateralized debt obligations linked to such securities, has shaken investor confidence to its core."
Questions Schapiro aimed to raise during the roundtable focused on whether or not the credit rating agency business model could be changed to one that allows the agencies to more easily manage any conflicts of interest that arise in the course of business. Throughout the financial crisis, many entities seeking ratings for their securities were charged by the rating agencies for their ratings, leading to conflicts of interest wherein the bigger buyers got the best ratings. Other topics up for discussion at the roundtable dealt with whether users of ratings are getting all the information they need to make accurate decisions and whether or not there are some securities and instruments that are so inherently complex that ratings become meaningless or, even worse, misleading.
One attendee, the Association of Financial Professionals (AFP), made two broad suggestions to the SEC regarding the future of credit rating agencies. Specifically, AFP CEO Jim Kaitz suggested creating a stand-alone model, where the only business of the credit rating agency would be to produce credible and reliable ratings and providing new government requirements that spur competition in the industry itself and break what the AFP called "the government's own addiction to Standard & Poor's and Moody's," two prominent credit rating agency giants. "The current rating agency processes and business model are broken," said Kaitz. "The big two rating agencies were a catalyst for the subprime debacle and resulting financial meltdown. The time has come for a fundamental overhaul of the system to restore investor confidence and reestablish efficient global capital markets."
Jacob Barron, NACM staff writer
Protect Your Assets, Get the Best Working for You
Unemployment claims are on the rise, but credit and finance professionals are more important for your company's bottom line than ever. Protect your assets, keep your credit positions and fill them with high-quality talent.
Discover who's out there with NACM's Careers in Commercial Credit, Collections & Finance (C4F), the online resource for employment connections in the business credit industry. No more endless piles of resumes from unqualified applicants lacking relevant experience. No more countless returns at other job board sites to sift through.
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C4F: Employment Connections for the Business Credit Community
In the current economic environment, internal auditors play an important role in guarding against breakdowns, losses and inefficiencies that companies simply can't afford. The year ahead looks to be a busy one for the profession according to a 2009 Internal Audit Capabilities and Needs Survey conducted by Protiviti. The company found that IT risk, the convergence of U.S. general accepted accounting principles (GAAP) with International Financial Accounting Standards (IFRS) and extensible business reporting language (XBRL) were at the forefront of executives' minds.
"You can see the impact of this economic cycle reflected in the way internal auditor's answered this year's survey," said Bob Hirth, executive vice president, Global Internal Audit, Protiviti. "There's a real shift in their view of risk and how it's managed compared to years past."
The announcement by the U.S. Securities and Exchange Commission (SEC) to potentially require U.S. issuers to prepare financial statements in accordance with IFRS standards within the next five years, and possibly permit IFRS by eligible filers in the next two years, has been a burden on auditors' minds, particularly for those in manufacturing, real estate and technology. Not only will they need to have an understanding of IFRS and the difference between GAAP, but auditors will also need to know how the new standards affect policies, procedures and data flow across an organization.
The survey also found that fraud prevention and Enterprise Risk Management (ERM) moved into the top concerns for auditors as areas in need of improvement, though this was mainly for companies in the hospitality and life sciences sectors.
"An auditor's success lies with a commitment to ongoing learning and improvement, along with a deep understanding of the organization's needs and how those needs can be met through internal audit," said Hirth. "As a profession, we must continue to enhance our skills in the areas assessed in this survey and educate ourselves on new technologies and competences that will be required of us in the months and years to come."
Another blip on auditors' radar is that smaller public companies face a new level of Sarbanes-Oxley (SOX) compliance scrutiny as they become subject to the auditor attestation requirement of Section 404 for annual reports filed for fiscal years ended on or after December 15, 2009.
Matthew Carr, NACM staff writer
Business Credit Compensation Survey
NACM's groundbreaking Business Credit Compensation Survey provides invaluable data for the credit professional. This study is NACM's first comprehensive salary survey specific to the credit industry and includes compensation benchmarking information for individuals in comparable positions and with similar backgrounds, education and experience.
See how you stack up for your position nationwide.
Click here here to order the survey through the NACM Bookstore.
The Department of Justice's Antitrust Division recently issued guidelines for companies hoping to detect fraud and collusion associated with the hundreds of billions of dollars appropriated by the American Recovery and Reinvestment Act (ARRA). "The American Recovery and Reinvestment Act of 2009 will provide over $500 billion of funding for programs to jumpstart the U.S. economy, save and create jobs and invest in the country's future," said the Department in a release. "The potential risk of fraud and collusion increases dramatically when large blocks of funds, such as those associated with the Recovery Act, are quickly disbursed."
The guidelines are organized into two different categories, one for detecting fraud and collusion and the other for reporting it, and aim to prevent illegal activity in procurement and grant awards that will come as the Recovery Act's funds continue to wend their way into the economy. The website where the division has organized all of this information also provides a tutorial on common antitrust statutes like the Sherman Antitrust Act, the Clayton Act and the Federal Trade Commission Act.
After the passage of the ARRA, the Antitrust Division inaugurated its own recovery initiative, geared toward assisting other agencies in deterring violations of those three aforementioned antitrust laws. In the long term, however, the division's efforts are part of an administration-wide push to reduce fraud and waste in the government contracting system. On its website, the division states that its efforts will make a significant impact on overall fraud, waste and abuse relating to the securing and use of ARRA funds, help establish continuing relationships with inspectors general at various agencies to help expedite investigation and prosecution of antitrust violators and begin a dialogue regarding best practices so that a set of processes can be established to prevent future problems and ensure open and fair competition.
A full copy of the DOJ's efforts and guidelines can be found here.
Jacob Barron, NACM staff writer
NACM Affiliate Collection Departments
Partner with someone you can trust.
NACM Affiliate collection departments collect your past-due accounts, large or small, as quickly as possible. NACM collection departments are firm, but fair, with your customers, with the primary objective to collect your money.
Here's How We Do It
Usually, the first step after the account is placed is to notify your debtor and make an immediate demand for full payment. The intensity of the phone calls increases if payment is not made. If direct personal contact is appropriate, NACM Affiliates have many resources, including the ability to draw on a nationwide network of Affiliates. When necessary, NACM Affiliates will forward an account to one of the bonded attorneys in its tried and proven network. NACM Affiliates exhaust all collection possibilities before recommending litigation to you. All funds collected are placed in separate trust accounts.
NACM Affiliate collection services include:
- Letter Services
- 10-day Demand Service
- Action and Litigation
- Litigation Service
- Status Reports
Click here to learn more about NACM's Collection Services.
Small businesses dominate the corporate landscape. In the United States, over 94% of the more than 26 million businesses are considered small businesses. Of that percentage, 67% are categorized as micro-businesses with one to four employees. That's an important distinction for credit managers because micro-businesses act more like consumers in their spending and financing habits. Another key figure in the nation's business snapshot is that sole proprietorships make up 77% of American businesses, which often means the business' health has a direct tie to the financial well-being of its owner.
Unfortunately, the economic downturn that has put a stranglehold on the credit and financial sectors has browbeat small firms, forcing them to suffer nearly 80% of the job losses seen since November. Most of these companies are built on the back of savings from the owners or through loans from family and friends. Corporate credit cards are really personal credit cards, and the finances between the business and owner are often hard to untangle.
A recent report from Kaulkin Ginsberg could spell more reason for concern for credit managers looking to extend to the ailing small business sector. According to Kaulkin Ginsberg, the amount of U.S. consumer credit at risk of default surged to $24.53 billion in Februaryâ€”an increase of $4.97 billion, or 25%, from January estimates.
"The amount of consumer credit at risk of default has been rising steadily with the deteriorating economy," said Dimitri Michaud, consumer finance analyst, Kaulkin Ginsberg. "The February '09 total of $24.53 billion in consumer credit at risk is $13.3 billion more than the corresponding amount of risk from February of last yearâ€”that's an increase of over 118% year-over-year."
Michaud points to the rise in consumer bankruptcy filings and unemployment levels as the cause for the sharp increase in potential default. Unemployment and under-employment numbers have a direct consequence on consumer liquidity, but can also represent a gauge of potential bankruptcy. Of course, bankruptcy filings then have a direct impact on debt collection.
Also a concern on the consumer front is that the number of households facing foreclosure increased 24% through the first three months of 2009, and the news is only expected to get worse after the agreed upon clemency period by lenders comes to an end. Though President Obama is developing a plan to bailout 9 million households facing foreclosure, the unknown is how that will impact the mind-set of lenders.
Matthew Carr, NACM staff writer
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Cortera recently released its most recent data that assesses the overall economic health of a region based on how well companies are paying their suppliers. The analysis revealed the following:
- Virginia and Michigan moved into the Top 10 Worst States list
- Mississippi and Oklahoma moved into the Top 10 Best States list
- Alabama witnessed the highest percentage past due increase (45% month over month) which dropped them off the Top 10 Best States list
- South Carolina improved the most over the last three months with a ~24% drop in percentage past due
- 42 states plus DC had a 10% increase or more in accounts sent to collections
- 7 states saw a 20%+ increase in accounts sent to collections
- For the April Top 10 Best and Worst states, visit here.
According to Cortera CEO Jim Swift, "Despite all the negative signs we are seeing across the U.S., there are some bright spots, beginning with the fact that on average businesses in 10 states saw improvements in their percent past due over the past three months. One sign that the economy may be flattening out from the sharp declines is that three of those improved states have been in our Top 10 Worst list with past due percentages well above the national average. It's too soon to tell whether businesses are getting healthier or just more confident and paying their suppliers earlier. We will continue to track this movement as well as the worst and best states in an effort to identify early indications of a more significant shift in our overall economic health."
The analysis can be viewed here.
After forging ahead in previous years, metals industry deal-making dropped sharply in 2008 as world demand fell and prices plummeted according to Metals Deals* 2008, PricewaterhouseCoopers LLP's (PwC) annual review of the metals industry. Average deal value in the first half of 2008 was $301 million compared to $318 million in first half of 2007. In the second half of the year, average deal value plummeted to $125 million and total deal value fell from a high of $51billion in Q3 2007 to a tenth of this level a year later.
The report is the latest edition of a range of deals publications from PwC, covering sectors including mining, aerospace and defense, renewable energy, power and oil and gas. Together, the mix of deals reports provides a comprehensive analysis of M&A activity across industries worldwide.
Jim Forbes, global metals leader at PricewaterhouseCoopers, said, "The year in metals M&A deal-making saw a dramatic and sudden about-turn. Optimism that China would continue to compensate for downturns elsewhere was replaced by increasing concern about a weakening in global demand, including China. A steep rise in commodity prices in the first half of the year was followed by a deep slump."
Large deals worth over $10 billion plusâ€”which dominated deal activity in 2006 and 2007â€”were nowhere to be seen in 2008. In fact, total deal value plunged from a record $144.7 billion in 2007 to $60.6 billion in 2008.
North American metal M&A activity fell sharply with the number of steel and aluminium deals being halved and the total value of deals dropped steeply from $76.7 billion in 2007 to $15.8 billion in 2008. Three-quarters of North American metals deal value came from cross-border transactions, 83% of it for steel targets.
Record increases, however, were recorded in South America, spurred by a flurry of deals for Brazilian iron ore assets. Although only accounting for 8% of all deals, they contributed to 24% of worldwide metals deal value. Total deal value in the region reached $14.8 billion, up 54% from the $9.7 billion reached in 2007.
Chinese and Russian companies played a central role in world M&A activity. Asia Pacific deals reached record highs with total value more than doubling to $16.4 billion in 2008 from $7.2 billion in 2007.
Deal activity slowed considerably in Western Europe with deal numbers down from 104 in 2007 to 65 in 2008, with the deal list headed by three $1 billion-plus deals.
There is no doubt that the balance sheet landscape of the metals sector is varied. Some companies face distress with weak share prices and problems in refinancing and, in contrast, others have relatively healthy balance sheets having achieved record results.
"Consolidation has left the larger metals players in the industry in a more flexible position to shut down production and manage capacity across the globe," said Robert W. McCutcheon, U.S. metals leader at PricewaterhouseCoopers. "The pressure to restructure will intensify the longer the downturn continues and the outlook for demand is uncertain."
For more information and to access the reports, visit: www.pwc.com/metals/deals.