January 20, 2011
Though some showed skepticism regarding President Barack Obama's attempts to build greater inroads with the business community and whether they would last beyond the fall campaign season, the president continues extend the proverbial olive branch.
On Tuesday, Obama took to the Wall Street Journal and issued an executive order calling for improvements to a U.S. regulatory atmosphere that stymies businesses and economic growth. The effort will apparently focus on ways to streamline existing regulations where possible and/or remove antiquated ones from the books as a way to help businesses still struggling through the lackluster economic recovery. In theory, the regulatory updates would help businesses both in the short- and long-terms, improving their profitability, ability to hire new employees and to compete in the world market.
"Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent or overlapping," an excerpt of the order read. "Greater coordination across agencies could reduce these requirements, thus, reducing costs and simplifying and harmonizing rules. In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation."
Said agencies have 120 days to issue a report on possible regulatory improvements to the Office of Information and Regulatory Affairs for review.
This is the second significant pro-business action the president has taken since the Democrats were routed in November's General Election. Though somewhat delayed over some sticking points, such as concerns from the U.S. automotive lobby, Obama previously forged a key free trade agreement with South Korea that was seen as a litmus test of how serious the president would be regarding the U.S. business community during the second half of his term.
The president, who has been branded by some industry experts as anti-trade and anti-business, noticeably has been pushing back against this image for the past several months. However, it did not help his image among U.S. businesses that his declarations that the FTA would be finished before the G20 were not realized until weeks after the fact.
Reaction from many market experts to the latest effort, the executive order, is one of tepid approval. The rough idea sounds positive on the surface, but what the administration really does once those reports are collected over the next 120 days appears to be what businesses are waiting to see. Stay tuned.
Brian Shappell, staff writer
Travel to the Land of the Financially Literate
According to Visa Inc's free, online personal finance video game, Financial Football, fans of the Tennessee Titans are the current leaders, having notched the most wins among the 32 NFL teams.
"Titans fans are financial literacy MVPs," said Jason Alderman, senior director of financial education at Visa. "Their showing on the real-life gridiron of personal finance is truly impressive."
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While the Red Flags Clarification Act may have exempted a number of very specific types of small businesses, it didn't exempt them all.
For this reason, the Federal Trade Commission's (FTC's) much-discussed, oft-delayed "Red Flags" Rules went into effect with the New Year, meaning many entities need to be in compliance with the amended statute. As described by the FTC, the new law "gives businesses the flexibility to tailor their written ID theft detection program to the nature of the business and the risks it faces. Businesses with a high risk for identity theft may need more robust proceduresâ€”like using other information sources to confirm the identity of new customers or incorporating fraud detection software. Groups with a low risk for identity theft may have a more streamlined programâ€”for example, simply having a plan for how they'll respond if they find out there has been an incident of identity theft involving their business."
"We're pleased Congress clarified its law, which was clearly overbroad," said FTC Chairman Jon Leibowitz. "Now we can go forward with less litigating and more protecting consumers from identity theft."
While the new legislation made the "Red Flags" Rules apply to far fewer businesses, it failed to exempt trade creditors in any meaningful way, said Wanda Borges, Esq., of Borges & Associates, LLC. "It's so short and almost nonsensical, I really think they accomplished very little," she said. Specifically, Borges noted that the bill's adjustments to the definition of what constitutes a "creditor" fail to explicitly exclude trade creditors. Moreover, a provision at the end of the bill serves as something of a catch-all, noting that creditors can be required to comply with the "Red Flags" Rules if they're determined to maintain accounts subject to a reasonably foreseeable risk of identity theft.
Instead, according to Borges, the law allows businesses to better determine how at risk for identity theft they are, and how much they have to do to comply with the regulations. "They may have succeeded in eliminating the need for small law firms and small doctor's offices to have 'Red Flags' programs in place, but that catch-all at the end means our trade creditors aren't exempt," she added. "I think what it does is gives businesses a better opportunity to determine whether or not they're low risk or high risk. It's clear that they have not excluded trade credit."
NACM continues to seek further clarification from the FTC. Stay tuned to NACM's eNews and Credit Real-Time Blog for updates.
Jacob Barron, NACM staff writer
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NACM and Business Credit magazine congratulate this year's winners.
1st Place: Barry Hutch, Assistant Credit Manager, New Balance Athletic Shoe Inc., Boston, MA
Here's Looking at You
I began my career in credit and collections in 1985. My first day on the job was quite memorable. I spent the entire day with George, the credit supervisor. George was a very talented, old-time bill collector and even though he was rough around the edgesâ€”he chain smoked these cheap cigarettes that had the smell of a bad cigarâ€”he was a nice guy. He spent the entire day teaching me how to skip trace.
Skip tracing in the 1980s was an art. You either excelled at it or didn't give it a second thought. George taught me the importance of skip tracing and its benefits. He told me all kinds of skip tracing stories. Most were comical, some were downright shocking, but all of them were effective. I learned quickly. I learned well.
Skip tracing today is a lost art. The advancement of the computer and the Internet has made skip tracing much easier. Less seasoned bill collectors today seem to give up too easily when they can't track someone down. I enjoy sharing skip tracing stories with them. I give them suggestions. Every once in a while, I will take an account that is slated for write-off and give it a whirl.
Runner-up: Jim Montague, CCE, Director of Credit and Treasury Operations, Lippert Components, Inc., Goshen, IN
Have Faith in Your Credit Manager...and the Local Power Company
My first real experience in credit work came when I accepted a newly-formed credit manager position at an electrical contract company. My job was to create a credit department and work one-on-one with eight divisional construction job superintendents to resolve discrepancies and secure payment. This was no easy task. As this story unfolds the word electric will have a significant meaning.
Two weeks on the job, I experienced my first major bankruptcy, a loss of $75,000. The debtor, White Farm Equipment, had filed Chapter 11 and there would be no recovery. My company worked on White Farm's large electrical motors and performed emergency service calls numerous times and at all times of the day or night. Our outstanding balance was a direct result of a call in the middle of the night to repair a very large motor that ran White Farm's assembly line.
Runner-up: Carolyn Thompson, Credit Manager/AR Supervisor, Meadow Gold Dairies, Salt Lake City, UT
Eating an Elephant: A Tale of an Accounts Receivable Nightmare
When I was interviewed for my current job in the food industry, I was asked if I knew how to research problems and clean up an accounts receivable that had issues. My answer was of course! I had worked at a couple of places prior where I inherited problems and I liked a good challenge. Well, they liked me and offered the job and I accepted. So going in, I knew there were problems and that it would take some time to get a handle on the accounts.
I had never worked in the food industry before, so I had a little bit of a learning curve with the nuances of food products and especially fresh and frozen products. My first day, I looked at the accounts receivable trial balance and couldn't believe my eyesâ€”the aging was at 72% current which is terrible in this industry, and my new company is the largest distributor for our kind of products in the state. There were four major accounts that were a mess:
â€¢ Company #1 had an $80,000 credit
â€¢ Company #2 had over 200 claim deductions
â€¢ Company #3 had well over 300 short pays and deductions
â€¢ Company #4, our largest customer, probably had a 1,000 claim issues on its account
The full winning story appears in the February issue of Business Credit, due out soon. Then, also catch the runners-up in the March issue!
Leverage Goes a Long Way
Leverage the strength of FCIB's powerful global network by being an engaged member; we guarantee that you'll receive strong, sound and dependable guidance for your credit-related issues. As you continue to work through this tough economic climate, stay ahead of your competition by having access to the latestâ€”and most reliableâ€”information.
Stay engaged and get connected with the world of international credit and trade financeâ€”a great place to start is the FCIB Member Forum!
NACM doesn't have to tell credit professionals that now more than ever the efficiency as well as the effectiveness of a credit department are paramount. However, many simply don't know how to get operations from where they are to where they need to be.
As such, Michael Dennis, CBF, of Seagate Technology will present "Improving Telephone Collections" as part of the NACM teleconference series on January 24 at 3:00pm. (EST). His goal is to provide practical tips and ones that can make an immediate impact. "This program is geared toward all credit professionals," Dennis told NACM. "It is not limited to new collectors or to those with years or decades of experience. It offers tips that have been tried and tested in the real world."
Dennis, author of several books on credit management including the "Credit and Collection Handbook," expects to include the following key topics:
â€¢ How often you should call a customer
â€¢ What never to say when speaking to a delinquent customer
â€¢ What is harassment as it relates to telephone collections
â€¢ How to get past gatekeepers
â€¢ How to determine if you are speaking to a decision maker or to a note taker
â€¢ How to escalate from AP to the Controller to the CFO
â€¢ What to do when every call goes to voicemail
â€¢ Why leaving a voicemail message is truly a last resort
â€¢ When to leave a voicemail message and what it should say
â€¢ How to use the debtor company operator to your best advantage
â€¢ Weasel words used by debtors; how to spot them and what to do about them
â€¢ A discussion of collection power dynamics and much more!
Also on tap next week is the NACM teleconference titled "Uncovering the Hidden Costs of Financing in Chapter 11," which will be led by bankruptcy expert Ken Rosen, Esq., of Lowenstein Sandler LLP. Rosen suggests that creditors often do not grasp the true price of a loan and, thus, don't really know how much leverage a debtor has over them and other lenders.
"An interest rate alone omits significant aspects of how much a debtor is truly â€˜paying' for its loan," said Rosen. "For instance, upfront commitment fees, administrative fees, unused line fees, letter of credit facility fees and administrative agent fees often add up to dwarf the amount of the stated interest rate."
Rosen is slated to discuss key considerations for when reviewing a customer's DIP financing facility for hidden fees that may impact a customer's ability to pay invoices promptly as well as items to look for in evaluating a debtor's financing budget, advance rates, events of default and loan maturity. The teleconference is scheduled for 3:00pm (EST) on January 26.
For more information on these teleconference programs, or to register, click here.
Brian Shappell, NACM staff writer
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The Obama White House's solution to the ongoing sluggish economic recovery has been to pump more stimulus efforts, at the price of adding to the nation's debt, into the economy. Apparently, two of the big three credit ratings agencies have grown increasingly concerned about the United States, as would be somewhat expected, but it is not necessarily short-term reasons that are part of ongoing fallout from the global recession kicking up the agencies' dander.
Though long thought as untouchable at the top rating (Aaa/AAA) across the board, the gleaming U.S. credit rating could take a tumble if it doesn't address significant spending issues, both Moody's Investment Services and Standard & Poor's intimated in January. They are apparently in common company with France, Germany and the United Kingdom, as both S&P and Moody's have expressed concern for potential slipping for these countries' ratings. However, employment struggles seem to be more of a red herring, according to Moody's latest "Aaa Sovereign Monitor":
"With respect to shorter-term considerations, the U.S. has taken a different approach than the other three in its response to the economic and fiscal problems that have emerged in the aftermath of the Great Recession. In particular, the U.S. has recently rolled out a program of additional stimulus...Moody's continues to believe that all of these countries still possess debt metricsâ€”including debt affordability (i.e., the ratio of interest payments to government revenue)â€”that are compatible with their Aaa ratings."
The bigger concerns lie within rising long-term debt levels and prospects for further escalation tied to health care and pension entitlements in the U.S. as well as the three European powerhouses.
"All four countries face dramatic increases under their existing policy commitments arising from aging-related subsidies," said Moody's. "These future costs must be brought under control if these countries are to maintain long-term stability in their debt burden credit metrics." Although neither Moody's nor S&P officially downgraded the U.S. rating or outlook just yet, or even appear close to doing so, each put its first toe into the water to set the stage for such a future action. Such a downgrade could prove significant. Remember: debt-saddled PIIGS nations Ireland and Greece blamed a lack of market confidence and their need to eventually pursue financial bailouts from the European Union to some extent on the rating downgrades from the big three agencies.
Brian Shappell, staff writer
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Just days after Federal Reserve Chairman Ben Bernanke nearly promised growth would be better in the next year, 10 of the 12 Fed banking districts experienced modest or moderate economic improvement during the final six weeks of 2010.
The Fed's Beige Book summary of economic conditions found improvements in just about every corner of the nation, save the greater Minneapolis and San Francisco areas. Manufacturing continued to be among the strongest performing sectors in all 12 districts, Fed contacts noted. Among the best performers were those in the Richmond, St. Louis and Chicago districts. In the latter, light and heavy motor vehicle activity dominated in the sector. However, those supplying to construction-based businesses continue to struggle as the real estate sector appears to be recovering at a much slower pace, if at all, from the recession years. Still, contacts in nearly every district in the industry sector reported an optimistic outlook for 2011.
And though construction continued to demonstrate its struggles, as little demand for new retail and non-health care-based industrial spaces exists, there are some notable commercial real estate successes in the latest edition of the Beige Book. Business leasing increased modestly in Richmond, Chicago, Minneapolis and Kansas City. Even previously struggling Dallas showed optimism over "tentative improvements." Mixed-use properties including condominium/multi-family housing activity appeared to be trending up, too.
In the area of credit, business lending/loan demand was stagnant in November and December. Meanwhile, credit standards remained mixed, leaning to the tight side, even as business credit quality appeared stable or improved. As such, loan demand was still muted to end 2010.
To read NACM's 12-region breakdown of the Fed Beige Book, visit the Credit Real-Time blog.
Brian Shappell, staff writer
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