July 5, 2012
Customer, industry and IT concerns have kept nearly half of all companies from sharing their accounts receivable data. Still, more than 50% of credit departments recognize the value of shared trade data and do, in fact, share their information with one, and sometimes multiple credit reporting companies.
According to the NACM monthly survey for June, 51% answered "yes" when asked, "Do you share your full accounts receivable information or tradelines with any credit reporting company?" A still sizable 46% answered "no," and the remaining 3% weren't sure.
IT concerns were a popular reason for why companies wouldn't share their A/R information. "We are short on resources in our IT department so these types of requests are not typically fulfilled," answered one participant. "We don't share the info mainly due to the workload and additional time this would involve in preparing a file to send," said another. "But I feel it should be shared because we put a lot of weight into the results, so it is important that the information is available from as many resources as possible."
Indeed, the respondents who shared their data felt strongly about the value inherent in sharing this data, both for themselves and their customers, because the more good A/R information about a customer is shared, the more likely it will be that they can get credit. "At former companies this data was provided and customers were notified that we reported. It was beneficial to those companies and to our good customers," one participant noted. "We share our A/R information with anyone who will take it. We feel that if we share with others, they will share with us and that increases our likelihood of making a good, informed decision. Withholding information hurts everyone, while open communication helps to more quickly weed out those who would hurt us all," said another.
- Jacob Barron, CICP, NACM staff writer
To find out more about NACM's National Trade Credit Report, and to submit your company's A/R data, visit www.tradecreditreport.com.
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A number of states have made small yet important changes to their mechanic's lien statutes in the early weeks of summer 2012. However, the biggest construction-based buzz centers on the slew of changes in California, with the majority taking effect July 1.
In California, like in Washington, D.C. in early June, changes went into effect that loosened lien requirements allowing them to now be filed prior to the completion of a project, noted Greg Powelson, director of NACM's Mechanic's Lien & Bond Services (MLBS). While no particular alteration was earth-shattering, the combination is important and ones "we all need to digest," as Powelson characterized them.
"The reality is it's a bunch of small changes, but credit managers who are not up to speed on the changes could lose their rights. In California, they think their change was a big deal change because the entire statute was re-codified on July 1," he said.
A partial list of notable changes is as follows:
- Civil Code Section 8186: If a work of improvement is made pursuant to two or more direct contracts, the owner may record a separate Notice of Completion for each direct contract.
- Civil Code Section 8200(c)(2): A claimant with a direct contractual relationship with an owner or reputed owner is required to give preliminary notice only to the construction lender or reputed construction lender, if any. Previously, only subcontractors and material suppliers were required to give preliminary notice.
- Civil Code Sections 8132–8138: There are changes in conditional and unconditional waivers and releases on progress payments forms, as well as in the conditional and unconditional waivers and releases on final payments.
- Civil Code Section 8424: Lien release bonds have been reduced from 150% to 125% of the lien amount.
In the D.C. changes, the most significant allow a contractor to file a lien during construction instead of having to wait until project completion, cut the number of sureties to one for bonding-off a lien and, finally, increase the requirement to notify a lien claimant of intent to bond off a lien to five days, according to Fullerton and Knowles PC, a law firm specializing in construction law based in Virginia.
Other noteworthy summer changes include the establishment of a state construction registry in Iowa, as well as an Indiana update on bond claim deadlines and recipient notification protocol, Powelson noted.
- Brian Shappell, CBA, NACM staff writer
For more on lien and bond changes in Washington, DC., California, Indiana, Iowa and the rest of the U.S., visit MLBS.
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MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
U.S. Bankruptcy Court judges typically honor decisions from judges in Mexico and Canada as a show of respect and an indication of the importance of good business relations among North American nations, unless what is proposed is an egregious assault on the rights of domestically-based trade creditors. A Texas-based bankruptcy judge believes a present-day case emanating out of Mexico's Leon state amounts to just that, and what happens after the appeals process is completed could be among the most significant developments in the Chapter 15 Bankruptcy Code in many years.
A Chapter 15 (the cross-border provision allowing U.S. courts to recognize or ignore foreign insolvency proceedings that include domestic trade creditors) case out of the U.S. Bankruptcy Court in Dallas saw Judge Harlin Hale deny enforcement of a restructuring plan from the Mexican-based company Vitro SAB. Vitro, a glassmaker, previously saw its reorganization plan approved in Leon that included waiving the guarantee claims of U.S.-based bondholders while Mexican creditors received 40 cents on the dollar and the debtor retained company control. Although, according to Bruce Nathan, Esq. of Lowenstein Sandler PC, it is not unusual for a judge to affirm such plans even when U.S. creditors take a bit of a hit, Hale believed the decision "manifestly contrives" U.S. bankruptcy policy and the interests of American bondholders and trade creditors.
"If this was a U.S. plan, it would not release the claims off the cuff, but, as a general rule, the courts recognize foreign decisions and generally grant comity," said Nathan. "Here, the judge [Hale] is taking the side of bondholders and other creditors. He is doing a positive thing for trade creditors because it makes it harder for Mexican authorities to abridge their rights in their courts. But, there could be negative implications. We won't know that for a while."
Some experts speculate such negative implications could relate to an atmosphere of cooperation between U.S-Mexican legal systems and businesses. Granted, all that is a long way off, as Vitro is appealing Hale's decision. The next stop in the appeals process is the U.S. Bankruptcy Court's Fifth Circuit. Nathan acknowledged "we don't know how this is going to end up yet."
- Brian Shappell, CBA, NACM staff writer
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Privacy issues continue to weigh heavily on the minds of credit professionals. This was on full display at the 2012 Credit Congress in Grapevine, TX. One popular speaker, Credit Congress regular Wanda Borges, Esq. of Borges & Associates, again brought her deep legal expertise on that topic as well as other timely issues affecting credit managers.
In one of her five presentations at the conference, the "Privacy Issues" session, Borges pounded home the importance of being careful about what is said in emails, even those thought to be private or internal. You never know what will come back to haunt you.
"What you think is purged, isn't necessarily purged. You need heavy-duty [tech] geeks," Borges advised. "What buried Microsoft was that they found internal emails they thought were purged saying things like 'we're going to launch our product and bury the competition.'" However, she cautioned that by purging evidentiary information, people could get into hot water. Therefore, she suggested setting up systematic message purging as a regularly scheduled course of business. Doing something such as an annual or semi-annual purge can give a company the ability to truthfully claim that practice as routine.
She also recommended against giving verbal credit references in favor or those by email or even fax, citing how easily messages can be misconstrued when passed from party-to-party. "Even if it is intended to be all positive, that's not necessarily how it will be perceived."
- Brian Shappell, CBA, NACM staff writer
For more Credit Congress coverage, visit the NACM Blog and look for the July/August edition of Business Credit.
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The latest incarnation of the Purchasing Managers Index (PMI) is as gloomy as it has been since 2009. The expectation had been that there would be another anemic month with readings in the low 50s, but the news in reality was far more dramatic.
The index fell below 50 for the first time since the depths of the recession with a distressing 49.7. That represents a significant drop from the 53.5 registered a month ago. The even more disturbing number was the 47.8 registered in the new order category, down from a level exceeding 60. That drop is the steepest since before the recession manifested itself.
This is the news that was signaled to some degree by the Credit Managers Index (CMI). For the past two months, the CMI has been faltering in the manufacturing sector and, in general, the results of the CMI predict the results of the PMI. The rate of sales had been in decline, and there was very little evidence of credit activity—a sure sign that companies are retrenching and avoiding expansion that would incur additional debt.
The reasons for the slowdown are no mystery, but the extent of the damage will preoccupy analysts for the next few months. The manufacturing sector has been the only bright spot for the economy this year and, now that the global slump has managed to catch up with the United States, there are even fewer options available to rebuild the economy's momentum. The U.S. may well be left to its own devices unless there is some dramatic, perhaps unlikely shift in the export economy. Given the travails in Europe and the slowdown in much of Asia, it doesn't appear that rescue will come from outside domestic borders in the short term. Because a domestic-based demand spike is going to be very hard to produce, the best thing that could happen to the U.S. manufacturer is for the Chinese to get their mojo back.
- Chris Kuehl, PhD, Armada Corporate Intelligence
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