June 23, 2009

News Briefs

  1. Eye On the Hill: Housewares Association Joins NACM on Preference Reform
  2. NACM's National Credit Executive of the Year Announced During Credit Congress General Session
  3. Ag Industry Sees Possible End to Boom
  4. The Business of Resilience and Optimism
  5. House Small Business Committee Takes Aim at Smuggling in Textile Industry
  6. As Bankruptcies Approach Record, Judiciary Urges for More Judges
  7. Credit's Role in Negotiating Fair Construction Contracts

Upcoming Events

Eye On the Hill: Housewares Association Joins NACM on Preference Reform

The International Housewares Association (IHA), following a meeting with NACM lobbyist Jim Wise, recently lent its support to NACM's preference reform initiatives, namely those included in the organization's Issue Brief and Suggested Enhancements to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Wise noted that, in his discussion with the IHA, the organization's interests were firmly aligned with those of NACM and B2B credit grantors and that its number-one legislative priority was the solution to this frequently burdensome preference issue.

NACM's proposed changes would move the burden of proof for preference claims from the creditor to the trustee, meaning that instead of forcing creditors to defend themselves from these claims and prove that a payment isn't a preference, the Bankruptcy Code would be altered to force trustees to first prove that a payment was preferential before they file the actual claim. The IHA believes that such a change would be beneficial to its membership as well and noted that it would advocate for this form of preference relief.

The Issue Brief and Suggested Enhancements to BAPCPA have already been submitted to the House Judiciary Committee, which has held hearings on the ramifications of automaker bankruptcies and on the inability of the Chapter 11 process to preserve jobs in the filing of fallen electronics giant, Circuit City. NACM's initial interest in altering BAPCPA came in response to a bill introduced by Rep. Jerrold Nadler (D-NY) that would roll back many of the improvements BAPCPA aimed to make, including the complete removal of the 20-day administrative priority claim granted to goods suppliers under Section 503(b)(9) of the Code. In addition to improving preference statutes to benefit unsecured creditors, NACM's changes would preserve and expand Section 503(b)(9) and also change venue and reclamation provisions.

NACM's eNews and advocacy page will continue to report updates. If you have any opinions or comments you'd like to share on bankruptcy or any other legislative issues, please email your comments to jakeb@nacm.org.

Jacob Barron, NACM staff writer

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NACM's National Credit Executive of the Year Announced During Credit Congress General Session

The National Association of Credit Management (NACM) has named David Watson, CCE as the 2009 National Credit Executive of the Year. Watson was honored during NACM's 113th Annual Credit Congress' General Session, held in Orlando on June 15.

NACM's National Credit Executive of the Year award recognizes an individual who has made significant contributions to the profession, who upholds the tenets of lifelong learning and who is highly esteemed by his or her peers. On all counts, Watson far exceeds these expectations.

Affiliated with NACM for nearly four decades, Watson, the vice president/credit manager for Olmsted-Kirk Paper Company in Dallas, is a dedicated and indefatigable volunteer leader. A native Texan, Watson previously served on the NACM-National Board of Directors from 1986 through 1997, including a stint as national chairman in 1995-1996.

In addition to his service on the national level, Watson is an active presence on the affiliate level where he currently chairs the NACM Southwest Board of Directors, his third term in this role. He previously guided the affiliate board in 1984 and in 1986-1987.

A proponent of continuing education, Watson rewrote the credit policy for Olmsted-Kirk, which now requires new departmental employees to complete NACM's Credit Administration Program (CAP).

While serving as chairman of the NACM-National Board of Directors in 1995-1996, Watson noted, "[M]ore and more, the credit department is finally getting its just due as a profit center in modern companies; and NACM is playing a vital role in that overdue recognition through its educational and certificate programs, conventions and conferences."

The awards segment of the General Session was preceded by a traditional polynesian dance and followed by a presentation by John Izzo, Ph.D., who, like Watson, is a community leader and encourages life-long enrichment. Author of Awakening Corporate Soul and The Five Secrets You Must Discover Before You Die, available through the NACM Bookstore, Dr. Izzo imparted knowledge on how to stay happy and vital in life. You have to train yourself for happiness, be in the moment and don't indulge worry—instead, choose gratitude. Another key is learning. Dr. Izzo spoke of his research into what makes people happy and talked about those he encountered, including a 102-year-old nurse. When asked to share her secret, the nurse replied, "Stay busy. Never be bored and always find five more things you want to do."

Additional information about Watson and other award winners, as well as Credit Congress events and sessions, will be featured in future issues of eNews and at www.nacm.org. Complete Credit Congress coverage will be published in the July/August issue of Business Credit. Look for it in August!

Laura Redcay, NACM staff writer

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Ag Industry Sees Possible End to Boom

While it's happening a bit later than in other industries, the agriculture business has recently seen a marked slowdown in its once booming commodity markets and the increased evaporation of available financing. At NACM's recently concluded Credit Congress, the premier educational event for credit and finance professionals, the agri-business Industry Day session focused on the end of what Lee Shepard of Northwest Farm Credit Services called a "glorious run." In his discussion, Shepard illustrated the differences that appeared over the course of a year or so. "Last year, all commodities except timber and nursery were doing well and things were pretty rosy," he said. "Risk management tools were available to manage loan growth risk and on every deal we had two to three competing lenders."

"Producers were given tremendously good rates," he added, "but obviously, today, we know the story."

After fighting off the effects of the global banking crisis for some time, the meltdown of financial markets has finally begun to seep into the world of ag finance. "Even though agriculture was doing really well, some of the commercial banking industry is starting to back into the ag economy," said Shepard. "The way we're looking at our lending is that these downturns have really hit. Commodity prices have come down and expenses are now 79% of gross income." Shepard also noted that investments in ethanol production have also come back to haunt the world of ag finance; many companies haven't been able to capitalize on a drop of their input into ethanol and staying out of bankruptcy has been difficult for financiers with a great deal of exposure in this sector of the industry.

"It used to be that anything goes," he said, "but now it seems like nothing goes. Credit quality, delinquencies and repayment capacity are moving in the wrong direction quickly."

This year's agri-business presentation on Industry Day at Credit Congress included other members of a panel as well as lively discussion on several other relevant topics. Industries such as building/construction, wholesale/distribution and publishing, among others, also held sessions during the 2009 event.

Jacob Barron, NACM staff writer

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The Business of Resilience and Optimism

The Sunshine State welcomed NACM with just that—temperatures hovered around the mid-90s for the duration of this year's Credit Congress, and picturesque blue skies beckoned attendees to the fairways of Rosen Shingle Creek's lush green golf course. Under the roof of one of the most impressive venues that has housed NACM's annual expo and conference in recent memory, the topics of downturns, tighter budgets and the future of the credit industry dominated discussions from colleagues, presenters and those looking to establish new business partnerships. There was no question that the current recession impacted attendee numbers, but many exhibitors saw little difference in the quality of traffic.

"Our experience has been very good," said Gregory Stepp, regional vice president of sales, Windham Professionals Commercial Recovery Division. "We actually had some engaging people come up and talk to us this year, which was much different from our prior years." He thought that businesses probably only sent one employee this year instead of two or three, adding, "But I think we saw the same number of companies."

Both veteran and newcomer companies related similar experiences. In all, nearly 50 vendors welcomed the more than 1,200 credit professionals who ventured to Orlando. There were the standard powerhouse players such as D&B, Experian, SunGard and Equifax, as well as new arrivals from across the pond like CreditSafe and growing enterprises seeking to strengthen their exposure.

"The show has been great for us," said Alan Gartner, national sales manager, National Check Trust, Inc. (NCT). "We've had some traffic and some decent leads come through—and that's what we look for in these shows. When we secure some accounts, that's what makes it worth coming here." Nearing its second decade in business, NCT has been a staple at Credit Congress for several years, including the 2008 gathering in Louisville, Kentucky. "It's one of the shows we come to every year," said Gartner. "Certainly the traffic has been a little bit lighter than [in] previous years, but we always look at it that we are here for the exposure, and if you can secure some business—which we have done every year—it makes it well worth coming out here. We specialize in building, and we're going to come to this show because this is where the best supply chains come."

Participants at this year's Credit Congress were faced with the reality that the economy has not yet been cured of its ills. NACM's Credit Managers' Index (CMI) is showing that the economy hit bottom in March and is now on the slow road to recovery, while many economists are seeing a rebound later this year or possibly the first half of 2010.

"The economy is having an effect on everybody," stated Vincent Pacchiano, sales manager, Biehl & Biehl. "With sales being down in general, time with the credit managers makes a big difference. We need the economy to get a heck of a lot better, and we need more people down here for sure." Nonetheless, Pacchiano explained that his company had a great Expo experience.

At the same time, the struggling economy enticed first-time vendors to Credit Congress as they sought to gain a foothold in new markets. Hatteras Printing, Inc., headquartered in Dearborn, Michigan, arrived in Orlando after exploring several other venues as options. "We attend several different trade shows each year, but this one just popped out at us," explained Christopher Deighton, marketing services, Hatteras. "We got some good recommendations and some good crowds." He admitted that Hatteras is trying to forge a relationship with the credit industry since "there aren't too many in the print industry that come in and try to sell to credit management." Deighton added, "It's been good and there's been some decent traffic; we're looking forward to more next year and more the year after that and the year after that. We got a lot of potential leads." He simply reiterated, "It's been good."

Matthew Carr, NACM staff writer

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House Small Business Committee Takes Aim at Smuggling in Textile Industry

According to witnesses at a recent hearing in the House Small Business Committee, lax customs enforcement has put U.S. textile manufacturers and American jobs at stake by allowing overseas companies to smuggle illegal textiles and apparel into the nation at a dangerous rate. Much of the testimony led lawmakers in the Small Business Committee's Subcommittee on Rural Development, Entrepreneurship and Trade to call on U.S. Customs and Border Protection (CBP) to do more to stem the flow of illegal goods.

"If the average person can track an overnight package from a home computer, then Customs can do more to stem the tide of illegal goods that is devastating our textile industry," said Subcommittee Chairman Heath Shuler (D-NC). "U.S. companies and thousands of hardworking Americans are counting on Customs to step up and adequately enforce our import laws."

In recent years, CBP's textile enforcement has plummeted, with the value of commercial fraud penalties dropping by 93% between 2007 and 2008. In a release, the Committee noted that CBP's inspection of overseas factories has also been greatly reduced. Meanwhile, the U.S. textile industry has been shedding jobs, with employment at textile mills declining from 409,000 to 130,000 between 2002 and 2007. "Small business textile producers in the U.S. follow the rules, but unbalanced trade policies and weak customs enforcement are forcing them to compete on an unfair playing field," Shuler said. "The textile industry is facing enough challenges without having their prices undercut by criminal products that are smuggled in from abroad."

Part of the problem is that fair trade agreements such as the Central American Free Trade Agreement (CAFTA) and others have exacerbated the problem by giving foreign producers a duty-free door into the United States. A foreign business, for example, can ship to a country with a fair trade agreement and have smugglers change the label of the product to indicate that it was made in the fair trade country and then ship the merchandise without any tariffs. "It is no coincidence that after the implementation of CAFTA, we saw a spike in illegal textile trafficking," Shuler added. "Not only are agreements like CAFTA a bad deal for the American worker by shipping jobs offshore, but they serve as convenient camouflage for those who want to break our import laws."

Jacob Barron, NACM staff writer

As Bankruptcies Approach Record, Judiciary Urges for More Judges

The dour economy has toppled both households and enterprises. The nation has witnessed some of the largest corporate bankruptcies in its history over the last 18 months, while the number of bankruptcies year-over-year continues to surge, inching closer to record levels. On the frontlines are bankruptcy courts, which are finding themselves under assault by the rising rate of failures.

"Our judicial resources are strained," said Judge Barbara Lynn, a district court judge in the Northern District of Texas and chair of the Judicial Conference Committee on the Administration of the Bankruptcy System. "And the cost to society of an overburdened bankruptcy system, especially in this economic climate, is enormous."

As layoffs sweep through the vast majority of the economy, the need for more bankruptcy judges is on the rise. The Judicial Conference Committee is recommending the addition of 13 permanent bankruptcy judgeships in 10 judicial districts, the conversion of 22 already existing temporary judgeships into permanent positions in 15 judicial districts, as well as a five-year extension of two in-place temporary bankruptcy judges. In all, it represents a considerable personnel increase to the judicial system, which hasn't benefited from permanent additions in almost two decades.

Judge Lynn explained that these judgeships are critical with filings increasing to near-record levels and the bankruptcy courts in peril of losing many of their judicial resources. The last time new bankruptcy judgeships were authorized was in 2005, as part of the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). All of those 28 judgeships were temporary. Prior to 2005, Congress hadn't authorized new bankruptcy judgeships since 1992.

Since BAPCPA enactment, case filings have been on a steady uptick. In the 12-month period ending March 31, 2008, there were approximately 1.2 million bankruptcy petitions filed. That's almost double the number of cases seen in 2006. It also means that the number of cases before a bankruptcy judge has also increased significantly. From 2006 to 2007, the national average of weighted filings per authorized judgeship leapt 16%, and spiked another 27% from 2007 to 2008. By the end of March 2009, the national average weighted filings per authorized judgeship was 60% higher than the first year following the enactment of BAPCPA.

The other issue facing bankruptcy judges is that complex Chapter 11 filings and so-called "mega-cases" that are dominating today's headlines, like Chrysler and Circuit City, barely existed when the workload estimates for judgeships were first developed in 1991.

"Bankruptcy judgeships are filled only when there is a workload need," said Judge Lynn. "A near record level of cases is pending in our bankruptcy courts, and the case filings continue to increase." She explained that many districts have been seeking additional judgeships for years because they are being simply overwhelmed by caseloads.

Judge Lynn is urging members of the House Judiciary Subcommittee on Commercial and Administrative Law to back the recommendations for additional bankruptcy court judges. The Judicial Conference has previously sought the authorization for 24 additional judgeships in 1999, 36 additional judgeships in 2003, 47 additional judgeships in 2005 and following the enactment of BAPCPA, an additional 24 permanent judgeships.

Matthew Carr, NACM staff writer

Credit's Role in Negotiating Fair Construction Contracts

Children fantasize about growing up to be storied and beloved professional athletes, famed rock stars, astronauts, doctors and maybe even earning the title of "President." It's hard to imagine a toddler running in that haphazard headlong fashion—like they are fighting to stand their ground against an ever-persistent strong wind—with images of financial statements, lien notices and credit applications dancing through their minds. Credit managers aren't necessarily born; they are created, often moving laterally from another position. Because of this, their knowledge gaps have a tendency to be profound.

Construction credit, of all the industries, is a maze of deadlines, delays and documents. There are supply chains and tiers, priorities and legal avenues unique to the building and supply sector. Being a construction credit professional is a one-of-a-kind experience, particularly when problems arise. Unfortunately, credit managers—those individuals that are going to deal with defaults and discrepancies—are generally left out of that all-important initial contracting stage, where headaches can be plotted around.

"As part of the lien and bond seminars that I have been doing over the last 15 years, one of the questions I've always asked is how many people in the room are reviewing purchase orders and subcontracts," said Greg Powelson, director, NACM's Mechanic's Lien and Bond Services (MLBS). "I've always been surprised that the number has been less than 5%. I find it alarming how few credit managers are engaging in the negotiation of subcontracts or purchase orders up front."

As the American construction industry tries to weather one of the worst economies in half a century, with unemployment in the building sector approaching 30% in some areas of the country and delinquencies escalating to fabled proportions, there is a real opportunity for the credit department to step in and negotiate for the tools of its trade.

"I hear so many credit managers complaining that retainage is on their books and in some case even distorting DSO," explained Powelson. "Well, how about negotiating retainage up front? Many companies offer terms—210, net 30 and so forth—but there's value in taking a couple points off the invoice to receive your money 20 days early. You have to consider things like whether there is value in negotiating 1% off invoice for the release of retainage monies at the completion of your trade or 50% retainage reduction at the completion of the trade."

On July 6, Powelson will be presenting the teleconference "Construction Credit: Credit's Role in Negotiating Fair Contracts," which he described as being designed to best express how important it is for credit to take part in negotiations up front and in all aspects of credit extension.

"Typically with purchase orders, credit is not even involved," noted Powelson. "Purchase orders are typically returned to sales. And sales is looking for material accuracy—is it the right amount of stuff, is it priced correctly—and these contracts then get stuffed into a drawer."

He added, "Credit has a direct responsibility for those terms and conditions, at least in default. What's critically important is that credit looks for credit stuff: pay when paid clauses, paid if paid clauses, no lien contracts and unacceptable liquidated damages. These things need to be addressed because they are things that concern credit. Sales just isn't plugged into those types of things and they need to be looked at, and in many cases scratched out of purchase orders."

Members interested in learning how credit can be more proactive in negotiating contracts can register for "Construction Credit: Credit's Role in Negotiating Fair Contracts," by clicking here.

Matthew Carr, NACM staff writer

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