March 26, 2015


News Briefs

  1. NACM Survey: ERP Conversions Happening at High Rate, Credit Increasingly Involved
  2. House Bill Promotes Shedding More Light on Financial Stability Oversight Council
  3. Digital Currencies Sparking New Interest in U.S. and U.K.
  4. Weak Recovery Persists in Global Trade Outlook
  5. Energy Price Bust Slowing Pace of Business Investment

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NACM Survey: ERP Conversions Happening at High Rate, Credit Increasingly Involved

Only about one-quarter of credit managers polled as part of NACM’s March survey indicated their respective companies are either not operating on, in the process of converting to or planning a future change toward enterprise resources planning (ERP) systems. Still, many of those credit professionals admit their companies have yet to explore often helpful options in the form of add-on/bolt-on solutions designed to help the technology better perform credit department functions.

When asked, "Is your company operating on an ERP system (Oracle, SAP, etc.) or in the midst of a conversion to one?," 72.18% of NACM respondents said "yes." Nearly 25.5% said "no," and 2.36% did not know. The statistics dovetail with previous NACM findings that, despite the laborious process required to ensure success of a massive ERP conversion overhaul or update, companies are finding the investment worthwhile and satisfying … at least in the long term.

Still, many in the "yes" column acknowledged that their companies are using ERP systems that are many years old and in dire need of an update. Some of the larger ERP providers earned infamous reputations—ones they've recently been trying to combat with purportedly improved features—for designing products with the greater business function in mind, but not the important roles of the credit department.

Echoing a familiar refrain in the March results, one respondent said of the ERP system in place, "does not give me all the information I want; our IT department is having to write programs to make the system do what I want it to do." Another respondent went a step further, saying "their credit function is woefully lacking. At best they gave tertiary thought to what they created." The credit professional added that it is critical to speak in depth with people already using various ERP systems before committing to one.

Common stories like these make it surprising that just 29.17% of existing ERP users that responded to the March survey replied "yes" when asked if their companies are using add-on/bolt-on solutions to help existing ERP systems better execute credit functions. Roughly 57% of respondents said their company didn’t use bolt-ons, and 13.89% did not know.

Credit professionals and solutions-providers alike have noted that help is out there for credit professionals struggling to get the maximum value of an ERP system. In a recent NACM interview, Pamela Craik, CCE, area credit manager at McKesson Corporation, said companies and credit managers need to educate themselves on possible pitfalls of an off-the-shelf ERP system and the many products available to bridge gaps. "You just have to know that going in and find the right solutions from there … As technology evolves, you find there's something that might help you do your job better."

Chris Caparon, COO at solutions provider Cforia Software Inc., said in the March edition of Business Credit that credit managers bear the responsibility to do some homework and then tell upper management and/or IT what available solutions products or services will assist the credit function. "Walk the expo floor at Credit Congress—you're going to see every tool and service built to improve performance," Caparon suggested.

- Brian Shappell, CBA, CICP, NACM managing editor


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House Bill Promotes Shedding More Light on Financial Stability Oversight Council

The U.S. House of Representatives introduced bipartisan legislation Tuesday in an effort to improve the transparency of Financial Stability Oversight Council (FSOC) proceedings.

The proposal would update the act, which was introduced in 2010, and rename it the Financial Stability Oversight Council Improvement Act of 2015. FSOC was established under the Dodd–Frank Wall Street Reform and Consumer Protection Act. It is tasked with identifying risk to U.S. financial stability and responds to emerging threats to that stability.

U.S. Rep. Dennis A. Ross (R-FL), Senior Deputy Majority Whip and a member of the House Committee on Financial Services, and Rep. John Delaney (D-MD) introduced the bill, which is similar to one they introduced last year. The Ross-Delaney bill seeks to codify into law some procedures adopted by the FSOC and give companies that are being identified as a systemically important financial institution (SIFI) an opportunity to eliminate identified risks before they are designated. A SIFI is any firm whose collapse would pose a serious risk to the economy.

Critics have condemned the council for its decision-making procedures, specifically in designating nonbank institutions as SIFIs as well as conducting meetings behind closed doors. The council previously adopted changes that would give firms more notice when they are being considered for SIFI designation, offer more transparency to the broader public and improve its annual re-evaluation process of prior designations.

 "This legislation will codify a number of guidances to increase transparency issued by FSOC in February 2015," Ross said. "It will also create a path for a company to eliminate risk rather than being designated and ensure a company's primary regulator has a meaningful role in the SIFI designation process."

Identifying systemic risk helps protect investors, consumers and taxpayers, Delaney said. "This bipartisan legislation clarifies agency procedures, creates a more open process and provides additional paths to mitigate systemic risk for taxpayers."

SIFI designation decisions made by the FSOC dramatically affect a company's operations, which could lead to cost increases for consumers, the congressmen said in a press release. "For example, classifying an asset management company as a SIFI will likely raise the cost of investing and saving for the consumer. Many families use asset management companies to make investments in an attempt to save for their child’s education, retirement or other emergencies."

The congressmen formally announced the bill one day prior to Treasury Secretary Jacob Lew’s slated testimony, "FSOC Accountability: Nonbank Designations," in the U.S. Senate about the latest efforts to improve transparency for the council, which he chairs. Lew defended the council's willingness to respond and engage with stakeholders and others. "Some opponents of reform have been trying to undermine the FSOC, its members and its ability to respond to potential threats to financial stability," Lew said. "Many of the arguments levied at FSOC are not based on the actual record, and opponents object to our efforts to bring regulators together to work collaboratively to monitor risks and protect the U.S. financial system."

- Diana Mota, NACM associate editor

For more information regarding the Committee on Banking, Housing and Urban Affairs hearing, FSOC Accountability: Nonbank Designations, visit NACM's blog.


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Digital Currencies Sparking New Interest in U.S. and U.K.

The innovative online currency Bitcoin made some waves again this week, sparking new interest in the United States and triggering the release of a comprehensive report from the United Kingdom government. And despite wariness from some of alternative currencies' earlier framers, such interest could foreshadow regulation that appears to be a critical step toward increasing the legitimacy of Bitcoin or other alternative currencies as payment methods.

Nasdaq OMX Group Inc. announced on Tuesday that it will provide Noble Markets, a New York-based company for trading Bitcoin, with technology to run a marketplace that allows companies to trade digital currency. "Noble's platform will use Nasdaq's X-stream trading system, a high-tech system for matching market participants' orders that is used by more than 30 exchanges and marketplaces worldwide," according to a joint statement made to The Wall Street Journal.

Also on Tuesday, the U.K. government issued a report that looked into the benefits and risks associated with digital currencies like Bitcoin. The 28-page report took into account responses from 120 people who use digital currencies and/or related services.

"The government considers that digital currencies represent an interesting development in payments technology, with distributed, peer-to-peer networks and the use of cryptographic techniques making possible the efficient and secure transfer of digital currency funds between users," the report reads.

However, the report also recognizes that regulations need to be put in place in order to avoid the potential for criminal usage. "The government intends to apply anti-money laundering regulation to digital currency exchanges, to support innovation and prevent criminal use," the report states. "The government will look at how to ensure that law enforcement bodies have effective skills, tools and legislation to identify and prosecute criminal activity relating to digital currencies, including the ability to seize and confiscate digital currency funds where transactions are for criminal purposes."

Digital currency values took a hit earlier this year after London-based Bitcoin exchange Bitstamp suspended services following a hacking incident that accounted for more than $5 million in losses, with at least two filing for bankruptcy protection since then.  Although not driven by internal fraud or reaching the scope of the infamous Mt. Gox/Bitcoin exchange collapse, the news rattled some mainstream media outlets.

-Jennifer Lehman, NACM marketing and communications associate


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Weak Recovery Persists in Global Trade Outlook

A worrying mix of stagnating economic growth, anemic price pressures and continued excess capacity makes the immediate outlook for global trade muted at best, according to a new report titled "Global Trade: What’s Cooking?" from global credit insurer Euler Hermes. The report also highlights evidence that corporate nonpayment is set to become a greater issue.

Euler Hermes forecasts nominal international trade will grow by a mere 1.8% this year and just 4.5% in 2016—a fraction of the 12% trade expansion seen annually between 2001 and 2008. The report anticipates that greater negative price pressures would result in a $560 billion "drag" on nominal trade in 2015 alone, as the global market recovery in goods and services continues to struggle seven years after the financial crisis. The creeping risk of a "vicious cycle" developing remains very real: deflationary pressures intensify and operating margins erode to the point where consumer prices are so low that companies struggle to maintain profitability.

Wilfried Verstraete, chairman of the Board of Euler Hermes, identifies three key reasons for the protracted slowdown in trade: "First, austerity programs have globally shrunk public spending, historically a significant component of growth. Secondly, global export and import volumes have declined, and given their inter-related nature, the impact on supply chains is exponential, which in turn further weakens global growth and trade. Finally, and most importantly, growth in private consumption and investment—the main ingredients for trade expansion—is modest at best. Thus global trade is no longer driving global GDP, it is merely accompanying it."

As a result, countries have a growing appetite to boost their domestic demand through a greater focus on internal reliance, while in parallel each is trying to stimulate exports. This risks greater protectionism in the form of currency wars, tariff controls and other trade-restrictive measures.

"It is vital that exporters pay attention to the three Ps of export risk, namely prices, protectionism and nonpayment," stressed Ludovic Subran, chief economist at Euler Hermes. "This involves managing global price competition, country-level protectionism and the risk of client nonpayments in order to successfully run the gauntlet of international expansion."

The time spent waiting for payments, as measured by day sales outstanding (DSO), is increasing globally. During the waiting period, suppliers are funding their customers, creating additional stress on their cash flow positions. Between 2013 and 2014, DSO increased in the following major nations (biggest percentage increases listed first), among others: Germany, Spain, United Kingdom, China, United States, Italy, the Netherlands and Brazil, according to Euler Hermes and Bloomberg data. 

The main export winners are expected in Asia, with $221 billion in additional net exports during 2015. Globally, China will edge out the U.S. for the biggest single-country gain, followed by Germany, Japan and South Korea. Export laggards include Brazil and Chile due to falling commodity prices, while Portugal and Hungary are hit by a lack of competitiveness.

The U.S. will be the hungriest world market in 2015-16 with $210 billion cumulated additional imports. The gradual normalization of the Fed's monetary policy will help to maintain a strong U.S. dollar against other main currencies, supporting U.S. importers’ purchasing power.

Sector-wise, the biggest loser will be energy, down $400 billion in exports in 2015 alone. However, chemicals will benefit from the manufacturing sector recovery and reduced energy costs; electronics will gain from rising Asia demand; and robust demand for capital goods in industrializing countries will lift the machinery sector.

- Euler Hermes

Check out the April “World View” edition of Business Credit magazine to view Euler Hermes Economic Research Team's in-depth analysis of Global GDP potential and what it calls a "state of 'trade-gnation.'"


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Energy Price Bust Slowing Pace of Business Investment

The one thing we know that has been affected by issues in the energy sector has been business investment. For the last few years, the energy sector has driven most of that investment, and today that pace seems to have been cut in half.

Statistics indicate that business investment was up by 6% last year; but for 2015, the pace is half that. The price per barrel may be supporting those that already invested in that oil infrastructure, but it certainly is not supporting any new development.

As such, public investment is the other sector losing ground quickly. Infrastructure demands have been tremendous, and most of these communities have been very hard pressed to keep up. Most of these governments depend on some sort of extraction tax, which has fallen with the price per barrel. Communities are facing just as much demand as they have in the past, but with fewer financial resources.

The price boom was destined to go bust to some degree, as exponential growth was unsustainable. The point is that there may be a period of normalcy settling in. There still is money to be made in producing oil, and there will be for the foreseeable future. But it will likely be at respectable and more sustainable levels rather than one of the vast and quick fortunes that marked the earliest days of the U.S. energy boom. Now comes the period of consolidation within the industry, as smaller operations sell out to bigger counterparts that can better handle the ups and downs of a volatile market. The overall business community that made money selling into the energy patch will see somewhat reduced opportunity, but demand is not expected to go away altogether.

- Chris Kuehl, Ph.D., NACM economist


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