NACM's Asset Protection Group Alert Update

APG has been informed that the below companies have been involved in suspicious activities. The subjects placed orders using various credit cards. These transactions were later denied by the issuing bank stating “unauthorized charges.” Please cross reference your records and contact APG with any additional information at 800-955-8815.

T & W Construction
7721 South Wentworth
Chicago, IL  60619
 
And
 
L & L Construction
8905 S. Ada
Chicago, IL  60621

Attack of the Doppelgangers

Though our modern age has made it prolific, identity theft is also nothing new. It has only been transformed by the distance by which a perpetrator may carry out an attack, with email placing nearly everyone on the planet at some sort of risk. All companies, small and large, are at risk of being targets or of having their identity stolen. In the end, not only is there the reputational damage caused to a company by scams committed in a company's name, but there are real monetary losses due to fraudulent transactions by those who are victims. To read more about this topic, be sure to read this article in the June 2008 issue of Business Credit.

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Flooding Furthers Commodity Problems
Before the events of the last few weeks the commodities markets were already under considerable strain. Because of March's vast run-up in cotton prices, the Commodities Futures Trading Commission (CFTC) launched an investigation to determine whether any improprieties were taking place. But with the devastating flooding throughout the Mid-West, the pricing situation has been further exacerbated. The price of corn is already up 24% since the end of May, while soybeans are up approximately 13%.

Worldwide, agribusiness market conditions have been strong but from the credit perspective, rising earnings have been overshadowed by weak cash flow from operations. According to Fitch Ratings, credit ratings in the agribusiness sector are expected to remain relatively stable during the current tumultuous period, though the risk of Negative Outlooks or ratings actions has increased as commodity prices have continued to soar. Because of the volatility, there have been recent credit downgrades, which have included Archer Daniels Midland and Tyson Foods, Inc., in part because of the additional strain high commodity prices have placed on these businesses.

"Even though earnings have increased tremendously, agribusiness processors are seeing deteriorating credit profiles," the ratings company said in a recent report. "These companies are continuing a prolonged period of negative free cash flow, primarily resulting from working capital usage and heightened capital expenditures."

Packaged food companies are also being affected, but not as aversely as they are not as severely impacted by inflation and a slowing economy. According to Fitch, these factors have been beneficial to packaged food companies as more consumers are eating at home to cut back on discretionary spending.

Are Conditions Leveling Off in Your Industry?

The most recent Credit Manager's Index shows a leveling off for the past two months. What does this mean? Is it just a seasonal influence? Have we seen the worst, or do we need to brace for more worsening conditions? Make your mark. Participate in the monthly survey and help economists and other credit managers keep an eye on conditions and plan for the coming year in business. Click here to participate in the current month's survey.

U.S. GAAP Infrastructure Ready to Support Interactive Financial Data Initiatives
XBRL U.S., a consortium that advocates the use of the eXtensible Business Reporting Language (XBRL) in the filing of interactive financial statements, recently announced that the infrastructure it developed for U.S. Generally Accepted Accounting Principles (GAAP) is ready to support the future use of interactive data filing and reporting applications. The creation of the infrastructure comes as a result of a deal between the SEC and XBRL U.S. last spring to build a collection of the business and financial terms representing GAAP-required disclosures and common reporting practices. These terms can then be used by U.S. public companies to construct their own GAAP-compliant financial statements and file them in an XBRL format.

XBRL has been at the forefront of the shift to an interactive data filing system which would allow users and filers of financial statements to more easily analyze and compare the data included in the statements. The language is an open-source product, meaning it can be used by anyone without license fees.

"The framework developed by XBRL U.S. for U.S. GAAP reporting serves as the foundation for a growing list of interactive data initiatives," said David Blaszkowsky, director of the SEC's Office of Interactive Disclosure. "Together we're creating an environment for making data more accessible, more accurate and more reliable. It promises a whole new level of standardization of tools as well as information, and the bottom line is better business and investment decisions."

More information on the actual framework, including information about taxonomies and a preparer's guide, can be viewed here.

Jacob Barron, NACM staff writer

Manual of Credit and Commercial Laws, 99th Edition

This edition continues to provide excellent coverage on information regarding the laws that impact everyday business credit decisions. The 99th edition introduces a new chapter on credit applications and includes updates on reclamation and other return of goods remedies, preferences, the SEC'S new guidance on Section 404 of the Sarbanes-Oxley Act of 2002, bad check laws, prompt pay statutes and more.

Click here to order this title from the NACM Bookstore or call 410-740-5560.

Using Collections as an Effective Trade Tool
"With respect to risk, cost and cash flow—a documentary collection sits somewhere between a letter of credit and open account sales," explained Robert Long, RBS-ABN Amro Bank to attendees of FCIB's teleconference, "Using Collections as an Effective Trade Tool." "Your security under collection is in the control of the goods. That's key."

The practice of documentary collections is centuries old with the first sight and time drafts originating in the 1600s. It wasn't until the 1960s that the First National Bank of Chicago invented direct collections, with the first governing rules being published by the International Chamber of Commerce (ICC) in 1967 as URC 122. This regulation has been revised three times since and is currently governed by ICC Publication #522, which provides the definitions, procedures and presents the rights and responsibilities of parties to a documentary collection transaction. In the last decade, they have become "automated" and Internet-based as banks have introduced software that create collection letters and communicate with the remitting bank.

The basic procedure for the collection process begins with an agreement singed between the buyer and seller to use collection terms. The preparation of a collection letter and draft is sent overseas with the presenting bank providing a copy to the remitting bank. The presenting bank then handles the collection per instructions on the cover letter. If it is a sight collection, the presenting bank trades the documents for payment. If a time collection, the presenting bank trades documents for acceptance and a promise of payment at maturity. The presenting bank then pays the collecting/remitting bank, which then pays the exporter. According to Long, the key is that flexibility is evident in the variety of special instructions which exporters may provide to the presenting bank on the collection letter. It also provides for bank-to-bank communication.

"You can put on there, if it is part of your agreement, collect interest at X% 30 days after the on-board bill of lading date; offer the importer a discount of 1% flat if paid 20 days prior to the bill of lading. Any number of instructions or different incentives can be put on these collection letters," said Long.

There are plenty of benefits to using documentary collections, including providing control over goods until the customer either pays or signs a written undertaking to pay, making it great for new customers, and the collection process is faster and cleaner with no line-item adjustments or random deductions. They also make payments easier to identify and they have the ability to be used as a financing tool, where the document can be borrowed against or sold outright.

The drawbacks are surprise fees on collection, such as from tracing or reimbursement or other extra fees on collections which close out a bank's collection system. And the URC Rules of Protest are unclear and vague, and typically vary widely from country-to-country so are seldom used.

"Know your buyer, just like a letter of credit," advised Long. "This is not a substitute for good credit management. This is a tool for getting paid and mitigating risk. But you've got to know your buyer like everything else."

Documentary collections will likely be more widely used because, in the evolving international trade landscape, there is less reliance on letters of credit and more open account sale are covered by insurance. Banks are also showing a willingness to consider alternative financing arrangements, while continued advancements in electronic banking are making more opportunities available.

"We're seeing a slight expanded use in documentary collections, but not much. Certainly not as much as open account and open account covered by insurance," remarked Long. "Consider documentary collections as an alternative to going open account, especially if you're looking to offer extended financing arrangements to customers because more and more the bank is willing to undertake direct buyer risk."

Long said that because of the changing landscape in international trade, there is likely to be a revised version (URC #622) at some point.

Matthew Carr, NACM staff writer

Do You Believe in Magic?

In advertising, it's common for companies to advertise their product by giving it magic powers or making it operate on a frame of other-worldly principles in television or radio ad spots. 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.

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Learning Your ABCs: Assignments for the Benefit of Creditors
Creditors looking to the world of Common Law, rather than the Bankruptcy Code, for a more orderly, easily controlled process of dealing with a delinquent debtor received a wealth of information at NACM's most recent teleconference, "Assignment for the Benefit of Creditors: What Credit Professionals Should Know," presented by Deborah Thorne of Barnes & Thornburg, LLP.

"After the changes to the Bankruptcy Code in 2005, the cost of a bankruptcy became very expensive," said Thorne. "Not that it wasn't expensive before, but it became even more so." Following the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) three years ago, Thorne noted that a lot of companies dealing with an insolvent debtor began to look for other more cost-effective ways to get paid and, for this reason assignments for the benefit of creditors have become ever more popular.

In the simplest terms, an assignment for the benefit of creditors is a means of liquidating the assets of a debtor in a controlled manner and most closely resembles a Chapter 7 filing of bankruptcy. Since many states do not have any written mention of this type of process, an assignment, instead of involving a judge, involves an individual responsible for distributing the debtor's worth, known as the assignee. "An individual who acts as an assignee takes on the assets of the company and either sells them or liquidates the business," said Thorne.

For creditors, there is a great advantage to be had in an assignment, aside from the reduction in costs. "The real advantage to an ABC is that before it ever takes place, the debtor company and its principles can sit down and talk about what the assignment's going to look like," said Thorne. "So there's a lot more predictability in an assignment for the benefit of creditors than there ever is in a bankruptcy case."

"You can really talk about what it's going to cost, what you think the assignment is going to entail and what's good for all the creditors," she added. Thorne also discussed matters like what constitutes a good assignee, why a debtor would prefer an assignment for the benefit of creditors over a bankruptcy case and also discussed the priority on claims in an assignment.

For more information on NACM's teleconference series, click here.

Jacob Barron, NACM staff writer

Lien and Bonds: Doing Your Homework Upfront

Join Gregory Powelson, president of NACM's Mechanic's Liens and Bond Services (MLBS), on June 30th at 3pm for his most recent NACM-sponsored teleconference, "Liens and Bonds: Doing Your Homework Upfront." This session will detail the proactive processes you need to have in place before a problem even has the chance to arise. From negotiating fair terms and conditions through collecting job information and payment bonds, get a distinctive look at the pitfalls of poor preparation and the practices that need to be implemented upfront. For more information, or to register, click here.

Congress Overrides Veto Again, Passes Farm Bill
Following the expected veto of President Bush, both houses of Congress voted to reapprove the nearly $300 billion 2008 Farm Bill with the Senate overriding the veto by 80 to 14 and the House overriding by 317 to 109. The bill had originally been vetoed in May but was resubmitted after a clerical error accidentally dropped a number of pages from the first copy of the bill. Rather than revise the bill and enter some questionable legal territory, Congress and the President elected to go through the cycle again, and President Bush re-vetoed the bill while Congress re-overrode it.

The passage of the Farm Bill marks only the second time Congress has overridden a veto by President Bush, the first being a $23 billion collection of water projects, vetoed by the President last November. The originally excluded pages dropped from the Farm Bill in May consisted of measures that would extend foreign aid programs to certain countries. Specifically, the clerical mistake that caused the pages to be dropped would've delayed shipments of food to Ethiopia, Myanmar and Somalia.

Two-thirds of the farm bill's $289 billion budget will go to nutrition programs, while much of the rest of the bill is dedicated to land stewardship and biofuel development. The new bill also includes a new provision which intends to bar many of the country's wealthiest citizens from receiving any of the farm bill's considerable subsidies.

A full copy of the bill is available through the House Committee on Agriculture by clicking here.

Jacob Barron, NACM staff writer

Why CFDD?

Visit www.cfdd.org for more information.

Don't forget—the CFDD National Conference will be held October 22-25, 2008, in Kansas City, MO. To see the schedule of events, register or for more information, click here.

Government Contracts Domain Goes Live
In December, the Federal Acquisition Regulations (FAR) Part 3.10 took effect, meaning all government contractors are required to establish ethic programs suitable to the size of the company and the nature of their federal contract. To better help federal contractors and subcontractors meet standards, last month, the Open Compliance and Ethics Group (OCEG) launched an integrated database, the Government Contracts Domain, to aid these companies in remaining compliant.

OCEG President Carole Stern Switzer said FAR standards are designed to help prevent fraud and drive ethical conduct, "But like similar regulations imposed on other industries and activities, these regulations don't tell contractors how best to comply. To address this, OCEG is providing a searchable framework of clearly defined practices."

"Federal procurement rules and regulations are complex and the risks can be substantial if contracts are not entered into without sufficient due diligence on the part of the contractor," added Brian Simmons, national director, Ernst & Young's Government Contract Services.

Bureaucracy seems to be the biggest thorn in the side of government contractors. FAR regulations have been criticized for being full of good intentions, but at the same time offering little framework in the way of what an effective code of conduct should contain or what appropriate controls are. In a recent OCEG survey of more than 100 government contractors, over 45% listed financial risk, either through fines, penalties or settlements, as their greatest concern in government contracting.

"There are thousands of companies with either government prime contracts or subcontracts," said Alan Chvotkin, executive vice president and counsel, Professional Services Council. "For many, the federal marketplace is only a small part of their business. Until now, each contractor has had to search through a myriad of sources to determine what regulations apply to them and what steps must be taken to comply."

In the OCEG survey, one-third of respondents said that doing business with the government adds 10-25% to their costs, while another 15% of respondents saw increases between 25-50%.

Matthew Carr, NACM staff writer

Share Your Knowledge

Experts in an area are often the people who practice in that area every day. For business credit, that would be you, the NACM member. You can share your knowledge with your profession while earning recognition and roadmap points!

September's Business Credit features articles ways to get paid. Want to submit an article for this issue? To help us plan for your submission, email an abstract with the anticipated word count by July 1 to bcm@nacm.org. Article is due in on July 15. Please include "BCM submission" in the subject line. October's issue will feature articles solutions and troubleshooting, particularly with regard to technology. Abstracts for this issue should be emailed with the anticipated word count by August 1. Article is due in on August 15.

U.S.-China Strategic Economic Dialogue Convenes for Fourth Meeting
The fourth meeting of the U.S-China Strategic Economic Dialogue (SED) recently convened in Annapolis, Maryland, once again bringing together senior officials from the U.S. and China to discuss immediate and long-term economic objectives and other issues including international trade, financial sector reform and energy security.

"At this meeting we grappled with the most important, strategic issues in our economic relationship," said U.S. Treasury Secretary Henry Paulson in his closing remarks. "In particular, I believe we've begun two initiatives that over time will enable significant progress on two shared priorities—investment and energy and the environment."

Specifically, the two nations agreed to begin negotiations on a bilateral investment treaty (BIT). "The conclusion of a BIT would send a strong signal that our two nations welcome investment and will treat each other's investors in a fair and transparent manner," said Paulson. "The U.S. will pursue a comprehensive treaty based on the U.S. model BIT, which reflects high standards of investor protection and provides legal protections for all economic sectors. Our two governments will begin these negotiations soon and expect to have several rounds of discussions before the next SED meeting."

Both countries also agreed to long-term energy and environment cooperation while China agreed to allow for a pilot program that could expand U.S. company participation in consumer finance and allow certain qualified companies to list on Chinese stock exchanges.

Jacob Barron, NACM staff writer

Flexibility When You Need It

NACM independent study courses presented online are designed to provide a more convenient alternative to traditional courses while also offering a network of support. Our courses allow the flexibility to choose the most opportune times to study and take exams, be it morning or evening, weekday or weekend. They grant the freedom from being required to attend scheduled classes; however, students follow a weekly syllabus so that they stay motivated to complete their course.

A course facilitator is available for each class to provide assistance. Our instructors are accessible through e-mail to answer questions, provide guidance and help students prepare for the online exams.

Registration is now open for these college-level courses, beginning this fall:

- Accounting
- Business Law
- Credit Law
 
Click here for more information.

Agencies Propose Mandatory E-Verify Use on Federal
Following President Bush's June 6 executive order directing federal agencies to require their contractors to use the federal E-Verify system, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council proposed a rule on June 12 to require contractors and subcontractors that perform work on the federal government's domestic construction projects to use E-Verify. The proposal to amend the Federal Acquisition Regulation would insert a clause in prime contracts for federal construction requiring contractors to:

Currently voluntary, E-Verify is an Internet-based system for submitting employees' names, dates of birth and Social Security numbers to check against federal databases for work authorization purposes. If the U.S. Department of Homeland Security or the Social Security Administration finds a mismatch in the submitted information, the employer and employee must follow a confirmation process. The acquisition councils estimate that the average cost for a contractor with 50 employees to participate in E-Verify for the first year is $1,168. Employers that participate in E-Verify must also sign a Memorandum of Understanding (MOU) with DHS and SSA agreeing to abide by current legal hiring procedures and to ensure that no employee will be unfairly discriminated against in the E-Verify process.

In the written explanations accompanying their proposed rule, the acquisition councils said they would consider compliance with the MOU "a performance requirement under the terms of the Federal contract or subcontract." Some state governments also see E-Verify as part of the answer to the federal government's flawed immigration policies. In Missouri, a new law requires all employers receiving money from the state or tax credits in excess of $5,000 to use E-Verify. A new law in South Carolina also requires any company doing business with the state to use the system. For more information, contact ASA Director of Government Relations Freeman Smith at 703-684-3450, Ext. 1321, or fsmith@asa-hq.com.

Source: American Subcontractors Association

Participate in NACM's June Survey!

Miss out on NACM's May survey? Be sure to visit www.nacm.org in order to participate in NACM's monthly survey for June! This month's question asks about your credit department's position when compared to the sales department by asking if sales teams in your company can override a credit decision. Click here to participate and earn .1 roadmap points as well as a chance to win a free NACM teleconference registration.

U.S. Commercial Construction to Face Tougher Times
U.S. commercial construction surged 12.9% in 2007, responding to high occupancy rates and easy financing, said an article published recently by Standard & Poor's. The article, which is titled "U.S. Commercial Construction: After the Wave Comes the Trough," says that new activity dropped sharply in the fourth quarter as financing became more difficult and employment growth slowed. We expect new commercial starts to weaken further in 2008, but the carry-through from buildings that reached groundbreaking in 2007 should keep construction spending above that of 2007.

All categories of commercial construction plus multifamily housing are likely to weaken, with apartments in the greatest danger and offices the least. On the positive side, the degree of overbuilding in commercial properties is far less than it was in the late 1980s, where downtown office vacancy rates were 20% even before the start of the recession. At the end of 2007, vacancies were averaging about half that level. But a recession reduces demand for office and retail space.

Overall, we expect commercial construction starts (inflation adjusted) to drop 16% in 2008 and 9% in 2009. A deeper recession would mean a worse decline. In our severe recession alternative, building drops 20% in both 2008 and 2009. The boom has come to an early end. The good news: It never got too far out of hand.

The report is available to subscribers of RatingsDirect, at http://www.ratingsdirect.com/. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to research_request@standardandpoors.com.

Source: Standard & Poor's