NACM's First Monthly Survey Shows Most Creditors No Longer Receiving Sub-$5,000 Preferences
The results of NACM's first monthly survey question illustrated that preference claims for under $5,000, forbidden by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), have all but vanished since the law's enactment. Of the responses to the survey question, "Have you received a preference claim for less than $5,000 since the passage of the BAPCPA in 2005?," 95% answered "no" while the remaining 5% said the opposite. The topic of trustees sending out unenforceable preferences demanding less than $5,000 had been raised at several NACM events, but, according to the survey, the issue seems to be isolated to a select few creditors.

Among participants that answered "yes," it was noted that while the amount of preferences has decreased in the wake of the BAPCPA, problems still exist on several fronts including Chapter 9 filings and the currently rising number of business bankruptcies, which are starting to recover to pre-BAPCPA levels. "Chapter 11 and 7 filings have decreased. However, Chapter 9 filings in my area of the country have increased," said one respondent. A Chapter 9 bankruptcy can only be filed by a municipality, political subdivision or public agency. "Governmental agencies, particularly hospital districts are overly burdened with debt coupled with decreased revenues. When government agencies file Chapter 9, they are in control with few to none of the creditor protections in a typical 11 or 7. Creditor recoveries are virtually nonexistent, as are the available revenue streams for pre-petition debt."

Another respondent noted that as bankruptcy filings continue to recover, preferences are expected to increase for their company. "Now that we have passed two years since BAPCPA, the number of preferences has dropped off," said the respondent.

"As more companies rushed to beat the October 2005 effective date of the new provisions I had a surge in filings in the first three quarters of ‘05, which resulted in a surge of preference challenges in the first three quarters of ‘07. In the last 12 months, I've faced about four or five challenges. In the last 18 months I've faced about nine." "As bankruptcy filings are once again picking up, I suspect that my preferences demands will follow suit in about 18-24 months," they added.

This month's survey asks about your experiences with "fast-track" bankruptcies, an option offered to small businesses in certain provisions of the BAPCPA. To participate, visit NACM's homepage at www.nacm.org.

Jacob Barron, NACM staff writer

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Challenge and Payment Bonds
The boom days have subsided. The construction sector is facing dark times with the downturn in both the residential and commercial real estate markets. For credit managers operating in the industry, securing payment is becoming a paramount issue, meaning mechanic's liens and other options like payment bonds are playing more pivotal roles in the decision making process.

In the recent NACM teleconference "Payment Bonds," Jim Fullerton, Esq., president of Fullerton & Knowles P.C., presented attendees with vital information on payment bonds, the Federal Miller Act, the State Miller Acts and private bonds. Fullerton's overview delved into the do's and don'ts of the bond process, while clarifying the roles each party plays in a project and what their bond rights are.

First and foremost was setting an understanding of what a payment bond is: a promise to pay or perform some sort of contractual obligation. In a payment bond, a surety provides security that all persons supplying labor and material to the project will be paid. It ensures that subcontractors and suppliers will be paid so that the obligee will not be held responsible for payments due if the principal fails to pay.

"That's not a security interest," stated Fullerton. "It's another unsecured promise to pay that gives you the right to secure payment from another debtor."

Fullerton added that one of the biggest challenges in the construction sector today is the health of bonding companies and of sureties. During the last housing downturn, Fullerton said that there were collapses of bonding companies as well as prevalent fraud. He said he has heard that there appears to be a resurgence of this phenomenon in the current working environment.

"You should consider qualifying the bonding company. There is a risk that they may become insolvent," suggested Fullerton. "Particularly in the economy we are going into, you need to check the strength of the bonding company you are dealing with."

Credit managers and others need to be diligent when working on a bonded project, whether it is private or federal. There is no law that states a copy of the payment bond must be provided to all parties.

"You really need to get a copy of the bond going in, not when you're facing some trouble," stated Fullerton. "You want to get a copy of the bond; you want to read it. It may grant you more rights than you realize."

Those with a stake in a project also need to be vigilant in the notification phase. Whether a construction project falls under the federal or state versions of the Miller Act, there are a variety of timelines involved for each tier of materials and labors suppliers. As in other construction interests like mechanic's liens, notification to the prime contractor and the surety will typically result in payment. And Fullerton stated there is no need to skimp on sending out notices.

"You can't send too many notices. Your main objective is to freeze money," explained Fullerton. "It doesn't cost you any more money. Send notices to as many people as possible."

Matthew Carr, NACM staff writer

NACM's Mechanic's Lien and Bond Services

NACM's Mechanic's Lien and Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.

MLBS' Lien Navigator is a web-based service that provides up-to-date information on all 50 states and Canada notice, lien, payment bond and suit timelines and procedures other relevant information in a state-by-state 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.

Look for Greg Powelson's, MLBS director, article on Georgia lien law in June's issue of Business Credit. Click here to get your subscription started now.

FASB and China Accounting Standards Committee Sign Memo of Understanding
The China Accounting Standards Committee (CASC) and the Financial Accounting Standards Board, the U.S.-based organization responsible for establishing financial and accounting standards, recently issued a Memorandum of Understanding that establishes a commitment to strengthen cooperation and communication on the part of both standards-setting organizations. The memo was signed at a recent meeting that aimed to facilitate dialogue between the two bodies regarding issues including the ongoing international convergence of accounting standards.

Specifically articulated in the memo were the agreements between FASB and CASC to enhance communication and improve technical understanding to facilitate economic interaction between the two nations, to exchange information and experience related to accounting standard setting, implementation and international convergence and to exchange opinions regularly and build the technical foundation for sharing views on convergence of accounting standards, including a program whereby CASC staff will work at FASB on a regular basis and vice versa.

"The Memorandum of Understanding signed by FASB and CASC represents our shared interest in moving to a common set of high-quality, global accounting standards, a goal that will ultimately facilitate economic relations between the U.S. and China," said FASB Chairman Robert Herz. "We look forward to continuing our dialogue with CASC and to work with our counterparts in China to make international convergence of accounting standards a reality."

Jacob Barron, NACM staff writer

Do You Believe in Magic?

It's common for companies to advertise a product by giving it magic powers or making it operate on a frame of other-worldly principles. A viewer who turns on the tube at any point during the day might find a car company's newest truck withstanding an attack by an octopus-like sea monster, or a cartoon insurance salesperson battling giant robots, somehow defeating them with the help of the insurance company's low rates and easy claim filing. Companies hawking solutions for international and domestic credit professionals operate on the same principles; a software vendor might portray their product as an instant competitive advantage, but technology and automation alone will not solve all of a company's problems. Still, in many instances, and with the current state of credit globally, companies looking to speed up the order-to-cash process should look into effective leverage of many of these solutions, but keep in mind that there are some areas that will always require the sharp eye of an experienced credit professional. For more information on this topic, be sure to read the international feature in the June 2008 issue of Business Credit.

Click here to get your subscription started now.

Fed Cuts Rates, But Signals Change in Strategy
The economy has emerged as the number-one concern for Americans as housing woes continue, foreclosures gaining numbers, and food and energy costs skyrocketing. It has been a rollercoaster ride in the stock markets while jobs are slashed and the dollar deflates on the world stage.

There was little doubt that the Federal Open Market Committee (FOMC) of the Federal Reserve Board would cut the Fed Funds rate last Wednesday. Investors are in the mindset of expecting the Committee to lower rates each time it meets, as the rate has been cut in six straight meetings, including an emergency rate cut in January. But, the quarter of a point notch down to 2.0% was the smallest cut the FOMC has made since December 11, 2007, showing a return to a less aggressive strategy, particularly in the face of inflation fears. The previous three meetings have resulted in the lowering of the rate by .75%, .50% and .75% respectively, with the Fed anticipating moderate inflation on the backside.

The 2.0% prime rate is the lowest it has been since November 10, 2004. Likewise, the Board of Governors also agreed to cut the secondary discount rate by .25%, lowering it to 2.25%. This is the lowest this rate has been since the FOMC met on June 30, 2004.

Not surprisingly, the Fed's decision to cut rates was based on recent information that indicates economic activity remains weak and markets are still under considerable stress. The outlook is that tighter credit conditions and the slumping housing market will continue to weigh on economic growth for the next few quarters.

According to Daniel North, chief economist, Euler Hermes ACI, the shift in the FOMC's strategic mindset can be seen in the dissention among the FOMC's members. According to North, in the Committee's previous meeting, Bank Presidents Richard Fisher and Charles Plossner voted for less aggressive action than the .75% cut that was enacted. In the latest meeting, Fisher and Plossner again rejected the majority view to cut rates, but this time flat out voted for "no change."

"The size of today's cut, along with changes in the wording of the FOMC's statement, and a shift in the vote, all suggest that the Fed is becoming more hawkish on inflation and is probably near the end of its cycle of monetary easing," said North. The Fed is also placing more emphasis on alternative measures to battle tight credit conditions.

For the past several months, the Fed's Term Auction Facilities (TAFs) have been holding bi-monthly auctions of 28-day credit to try and ease illiquidity pressures in the marketplace. The amount available at these auctions began at $20 billion, but has been increased as the Board weighs their effectiveness. And once again, the TAF ceiling will be raised, this time from $50 billion to $75 billion for the May auctions, the first being on May 5.

In conjunction with this, the FOMC has agreed to increase its existing temporary reciprocal currency arrangements with the European Central Bank (ECB) and the Swiss National Bank (SNB). The new agreement will provide up to $50 billion and $12 billion, respectively, signifying increases of $20 billion and $6 billion. The terms for these arrangements has also been extended until January 30, 2009.

Matthew Carr, NACM staff writer

April CMI "Perilously Close to Contraction"

"Perilously close to showing economic contraction," said Daniel North about the April Credit Manager's Index. The combined, manufacturing and service indexes are all hovering around the 50 mark, the critical level indicating economic expansion. "However, the service sector showed a rebound in April, breaking a six-month streak of decreases, which made it only the second month of the past 11 to show improvement."

Does the service sector increase show signs of climbing out of the lull? What will May bring?

Keep tabs on your sector by participating in the CMI and reading the results each month. Doing so helps many others know about the current state of the economy. Click here to sign up and be automatically notified for the monthly survey period.

U.S. Chamber of Commerce Releases Report of Benefits of U.S.-EU Regulatory Cooperation
In anticipation of the upcoming meeting of the Transatlantic Economic Council (TEC), the U.S. Chamber of Commerce recently released a report entitled, "Unleashing Our Economic Potential" that illustrates the benefits of regulatory cooperation between the U.S. and the European Union (EU). The TEC was originally formed in 2007 to oversee and accelerate the government-to-government economic integration between the two governments. In the hopes that the TEC will resolve a number of regulatory barriers which complicate transatlantic business, the U.S. Chamber's report notes that improved cooperation between the U.S. and the EU could quickly add $10 billion to their economic relationship.

"We estimate that regulatory cooperation between the U.S. and the EU could immediately create more than 30,000 new jobs," said Stan Anderson, chair of the U.S. Chamber's Global Regulatory Cooperation initiative. "Our study also shows that TEC's agenda for cooperation would generate billions of dollars for both economies."

The study was co-sponsored by BUSINESSEUROPE, a confederation of European businesses and something of an EU equivalent to the U.S. Chamber.

Among the specific barriers that the U.S. Chamber and BUSINESSEUROPE are hoping to improve are long-standing trade and investment non-tariff barriers in specific areas of regulation as well as many broad cross-sector areas like accounting standards and secure shipper programs. "What more effective way to tackle international challenges, like toy or food safety, than working together with our European friends to set in place compatible rules to protect consumers in our countries while also fostering international commerce?" asked Anderson.

The TEC's next meeting will be May 13th in Brussels where the committee will discuss progress made on its stated agenda.

Jacob Barron, NACM staff writer

Going to Credit Congress?

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Thinking Small in the Face of Turmoil
There are more than 25.5 million small businesses in the United States, representing more than $917.8 billion in revenue per year. They employ nearly half of the nation's private sector workforce and account for 80% of all new jobs. With that degree of influence, as the economy has sputtered, the role of small businesses in returning health and certainty to the marketplace has taken on a nearly reverent tone.

"It is no exaggeration that small firms are the lifeblood of the American economy," said Chairwoman Nydia Velazquez (D-NY), House Committee on Small Business. "That is important to keep in mind, given the challenges we are facing. The subprime mortgage crisis continues and oil prices are climbing to record highs. Unemployment is rising and our place as leaders of the global marketplace appears in peril. But small business can help us get things back on track—if they have the right tools."

At the end of April, the Committee held a hearing on "The Role of Small Businesses in Stimulating the Economy," during which a variety of professionals and experts discussed ways on sustaining the growth of small businesses as well as how to overcome challenges in the current economic climate through strategic partnerships and policy. Velazquez stated that the economic downturn is fertile ground for entrepreneurs and that many businesses originated during previous economic slowdowns.

"During the early 1990s, self-employment—a core piece of the country's small business sector—was at an all-time high of 7.7%. Moreover, some 25% of downsized managers over the age of 40 chose to start their own companies during this time. Most of their firms endure as successful, modern enterprises," she said.

At the forefront of the testimony was the impact that the Internet has made on small firms. The benefits were widely hailed, especially in terms of available customer base and reaching new markets.

"The Internet is a great enabler of small business, not just for companies like Amazon.com, which not long ago was a small business itself, but also for today's small businesses, which need to be technically savvy to participate fully in e-commerce," stated Paul Misener, vice president, Global Public Policy, Amazon.com. "The online economy has evolved dramatically since its inception in the early 1990s, bringing unforeseen benefits to small businesses." Misener said that the demographic breakdown of online shoppers is particularly surprising as a relatively large market share is held by small enterprises. He cited that Amazon.com topped the trade publication Internet Retailer's Top 500 list with $11 billion in revenue in 2006, which consisted in considerable part of monies generated by service fees on sales by smaller sellers. The same year Amazon.com topped the list, other Internet giants like eBay and Google didn't even place, despite the fact that eBay had transacted an estimated $52 billion through its site. He said this demonstrated that the money was going to small businesses and sellers.

Misener declared that the small business presence on the web is continually undercounted and that misrepresentation is furthered by inaccuracies by the U.S. Census Bureau's quarterly "eStats" reports on ecommerce, which only deals with publicly traded firms with revenues in millions.

"Obviously, most small businesses online would be missed under these criteria," explained Misener."The sales by sellers with annual revenues on the order of $100,000 likely could account for as much as a quarter of all consumer ecommerce in the U.S., and of course, assuming a higher revenue threshold would reveal an even greater fraction of sales by sellers considered small businesses."

Marc Steiger, CEO, DLP Technologies, Inc. added that one of the main reasons for small business success in the virtual world was a lack of government interference, "The relatively unregulated nature of the Internet has made it a magnet for creativity, investment and innovation." Steiger urged the Committee to keep the Internet free of overly burdensome regulations and stated that the web should only be regulated if all other options failed. Unfortunately, despite the boon that has transpired in the virtual marketplace, it is not the salvation for all small enterprises.

"As we said from the very start of our company, online retail will not entirely supplant physical stores," said Misener. "And we've been proven right. Even after more than a decade of ecommerce, and despite the wild predictions of the late 1990s, still well over 90% of retail sales remain offline."

In the world of concrete and mortar, the housing sector is trudging it way through the worst contraction phase since the Great Depression. In its wake are entrepreneurs starting to buckle under the weight of epidemic financial strain.

"Generally speaking, the home building industry is dominated by small businesses," Michael Hodgson, president, ConSol, testified on behalf of the National Association of Home Builders (NAHB). "Sixty percent of NAHB members build less than 25 homes per year and 88% have less than $5 million in annual receipts."

Hodgson said that the 250,000 NAHB members are being significantly impacted by the credit crunch and that there is growing concern that the dislocations in the financing markets are only going to make matters worse. He pointed out that the inventory of new homes for sale stands at a record 9.8 months supply and that the Congressional Budget Office estimated that a 10% housing price decline would subtract between $55 billion to $316 billion from gross domestic production (GDP). The construction sector has been one of the hardest hit during the slowdown, with 400,000 jobs lost in homebuilding since February 2006.

Hodgson recommended that among "green" building practices and better energy efficiency standards, Congress should adopt a temporary homebuyer tax, which has recently been adopted by the House Ways and Means Committee, to spark activity. He also said that the industry needs the ability to claim and carry back net operating losses (NOL) deductions to years when significant taxes were paid.

Matthew Carr, NACM staff writer

Firm, But Fair Collections

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.

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 other Afiiliates nationwide. 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:
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Lawmakers Explore "Underground Economy"
Senator John Kerry (D-MA) and Congressman John Tierney (D-MA) recently held hearings on the impact of the "underground economy," namely the effects of employers who fail to abide by lawful hiring practices, placing their more scrupulous colleagues at a competitive disadvantage. Companies who pay workers under the table or misclassify workers as contract employees can avoid paying certain employment taxes and benefits, giving them an unfair competitive edge.

"Cheaters and unscrupulous employers have created and underground economy as big as $1 trillion," said Kerry, chairman of the Senate Committee on Small Business and Entrepreneurship. "When some employers misclassify workers or go off the books, it hurts all workers and businesses who play by the rules. We've got to level the playing field, enforce the laws and ensure everyone who works an honest day gets a fair pay, social security, unemployment benefits and other protections they're entitled to."

Testimony was heard by a number of small business owners who offer their workers health, disability and vacation benefits, putting them at a 20-25% disadvantage with their competitors. One witness, small business owner Scott Morrisey, noted that good management and oversight is frequently being replaced by a lower-skilled, less-productive, higher-volume workforce.

Tierney, member of the House Committee on Education and Labor, recently co-authored legislation that would seek to prevent the improper classification of employees as independent contractors.

Jacob Barron, NACM staff writer

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DFAS Columbus Customer Service Open House
May 14, 2008 (8:00am–4:00pm)
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U.S. Rice Sector Has Promising Outlook
Two years after questions arose regarding the viability of the U.S. rice industry, the sector has emerged stronger and has a very promising outlook with total U.S. rice exports forecast to increase around 20%, according to a recent Rabobank report, "U.S. Rice."

"The outlook for U.S. rice growers remains strong, with more cause for optimism than concern. However, with global rice stocks already at low levels, prices are especially susceptible to any shocks," said Food & Agribusiness Research and Advisory Vice President Michael Whitehead. "Adverse weather in a particular rice-growing region could be one cause of price increases, while a potential cause for a significant drop in rice prices would be a perfect storm of excellent and unimpaired growing conditions in the major producing countries."

Production
Despite attractive prices of alternative crops, U.S. planted rice acreage fell only 3% in 2007/08. This differed, depending on the class of rice, with medium/short-grain rice production up approximately 16% on the previous crop year, while long-grain rice was down about 3%.

Globally, rice production is forecast to hit a record 423 million metric tons (milled basis) in the 2007-08 crop year. In China, the largest producer of rice, production is likely to remain steady because there have been major productivity gains from super-high yielding plants despite some drought conditions. Many growers in Vietnam are also likely to see production levels unchanged. However, in Thailand, the largest exporter of rice, improved yields through good weather are likely to see production increase to 30 million metric tons in the 2007-08 crop year.

Global Exports
Total U.S. rice exports for 2007/08 are forecast to increase approximately 20% from the previous year—in part due to export restrictions imposed by Vietnam and India. In the United States, rough rice exports largely destined for Mexico and Central America, are forecast to improve 14% from the previous year. Additionally, U.S. milled rice exports are forecast to jump 25%; although still 10% below the 2005-06 crop year.

"U.S. export prices continue to experience upward pressure from several factors, including healthy sales, generally high commodity prices and the relatively weaker U.S. dollar," said Whitehead. Globally, the story varies. In Thailand, the largest exporter, the country's share of global rice trade grew from 26% in 2006 to a projected 32% in 2007, but its rice stocks are likely to fall by around 10%. "Even though stocks are still at a reasonably healthy level, such a drop does not go unnoticed by the market, and could have upward pressure on prices," said Whitehead.

In addition, 2007 exports fell in Vietnam, the world's second largest exporter, and in Pakistan. In Vietnam, exports were suspended in November 2007 when the country reached its export ceiling. New export limits and taxes for 2008 may see Vietnam's rice exports for 2008 fall by around 20%. Additionally, in Pakistan, exports are likely to fall almost 40% a result of a poor harvest and rising domestic prices.

In India, fears that high prices may hinder efforts to rebuild domestic stocks led to the imposition of export restrictions in the form of high minimum export prices, which effectively stopped the exports of all rice from India—except Basmati or high-quality non-Basmati rice. With little sign that these restrictions will be lifted in the near future, India's rice exports may fall approximately 10%.

Prices
Prices in the rice sector have continued to rise in part due to strong global demand, the decreasing value of the U.S. dollar, increased attention from speculative investors and the recent global growth of biofuels.

"Indisputably, the recent global growth of biofuels has influenced the price of rice in several ways. In the United States, competition for rice acreage has come from grains and oilseeds, boosted in price by biofuels or feed/food gap demand," said Whitehead.

Major price increases were seen in aromatic rice, largely a result of limited supplies from India and Pakistan, as well as increased demand pressures from the EU and some Asian markets. In addition, lower-quality Indica rice prices also rose sharply, driven by factors such as domestic price increases in China and Pakistan, as well as import restrictions in Vietnam. While the post rice harvest period in many countries would normally ease upward pressure on prices, export restrictions or tariffs from a number of major suppliers including Vietnam, India and Egypt have made this less likely.

The involvement of funds in the rice sector continues to place upward pressure on prices. In the wake of last year's strong global prices in grains and oilseeds, many new players that have become increasingly nervous about traditional equities have gained some understanding of agricultural commodities, but feel they may have missed the opportunity for strong returns on grains and oilseeds. With the strong outlook for rice demand, it is likely that new investors will continue to play a role in maintaining upward pressure on prices.

Source: Rabobank America

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FCIB, the International Arm of NACM, and the U.S. Department of Commerce Release Updated Trade Finance Guide
Improved, User-friendly Tool Provides Essentials to Finance Export Opportunities
FCIB and the Manufacturing and Services unit of the U.S. Department of Commerce's International Trade Administration (ITA) have published an updated version of the Trade Finance Guide: A Quick Reference for U.S. Exporters. This concise and easy-to-understand resource was created specifically for U.S. small- and medium-sized enterprises (SMEs).

The Trade Finance Guide was created through a public-private partnership formed with FCIB. As an Association of Executives in Finance, Credit and International Business, FCIB is a prominent business educator of credit and risk management to exporting companies of every size. The Guide was also created in cooperation with the U.S. Small Business Administration, the Export-Import Bank of the United States, the International Factoring Association and the Association of Trade & Forfaiting in the Americas.

"Since its publication last year, the Trade Finance Guide has been an effective, useful finance resource for America's small- and medium-sized enterprises," said William G. Sutton, commerce assistant secretary for manufacturing and services. "This tool helps SMEs turn export opportunities into actual sales and makes it easier for them to do business internationally."

The second edition features a new chapter on foreign exchange risk management as well as updates to all other chapters. The additional content is in response to the interest expressed by SMEs that wish to export more efficiently in foreign currencies by mitigating the risk of currency exchange loss.

The Commerce Department will regularly update the guide based on feedback received from its Trade Information Center and U.S. Export Assistance Centers and from the Commercial Service's overseas posts that assist U.S. businesses in exporting products and services to overseas markets.

The Trade Finance Guide is available online at www.export.gov, the U.S. government's export portal. Exporters can also obtain printed copies from the Trade Information Center at 800-USA-TRAD(E) and from the Commercial Service's global network of domestic Export Assistance Centers and overseas posts.

Source: FCIB