February 2, 2012
The gains from the end of last year have carried forward according to the January Credit Managers' Index (CMI), which rose from 54.4 to 54.8. This early activity is somewhat reminiscent of the enthusiasm that started 2011, but there are signs that this period of recovery might have more staying power than it did a year ago. The fear had been that all of these late gains would vanish as soon as the holiday impetus was gone, but the CMI numbers suggest that this is not the case—at least thus far. The most welcome gain was in sales. The reading in December was respectable at 60.5, but the new sales reading is at 63.5, the best performance since April 2011. It is more than a little encouraging that the January reading for this year is the same as it was in January 2011.
There are indicators signaling future strength. New credit applications reached 61.9, which is significantly higher than it has been in well over a year. This category has not been above 60 since February 2011 and the best reading then was 60.3. "The jump from December was nothing short of spectacular as the previous reading was only 55.3," said Chris Kuehl, PhD, National Association of Credit Management (NACM) economist. "The trend toward more credit applications suggests a lot of new activity; it is equally encouraging that there was a gain in the number of credit applications accepted." The overall amount of credit extended slipped a little from December—going from 64.7 to 63.3—but the decline still left the reading in the 60s and there is some evidence that there have been more extensions of credit to more companies but for smaller amounts. This may reflect caution on both sides, said Kuehl. The companies that are seeking credit for expansion are not willing to put themselves at too much risk, and the companies extending credit are also feeling a little protective.
The only negative trend in the set of favorable factors is a big drop in dollar collections, which is down from 61.4 in December to 56.8 in January. "This would be more of a concern if the latest number was not so consistent with the numbers noted for the last six months," said Kuehl. "Looking over the last half of 2011 it appears that the December gains were something of an anomaly and dollar collections may have settled back to a more 'normal' position."
Overall, the category of favorable factors rose from 60.5 to 61.4, spurred primarily by the gains in sales and credit application activity. The index of unfavorable factors did not perform quite as well, but neither was there a precipitous decline. It was essentially static—nudging from 50.4 to 50.3. This masked significant movement in some categories. The biggest change was in the number of credit applications rejected, which increased to 50.2 from 49.5 and reentered the world of expansion as opposed to contraction. There are still three categories that are below 50 and in contraction: accounts placed for collection, disputes and dollar amounts beyond terms. The good news is that in November five of the six categories were under 50 and in December there were four. The trend is headed in the right direction.
FCIB'S New York International Profit Summit Roundtable
March 14, 2012
This excellent opportunity to dissect your peers' "best practices" will provide invaluable information to potentially improve the productivity of your credit department, elevate your visibility and lead to an increased appreciation of how professional credit management contributes to your company's bottom line.
Join us as our moderator and panelists discuss:
- Recent changes and improvements they have made to their credit processes that have increased productivity
- How they have achieved closer cooperation between the credit and sales departments
- Elevating the visibility of the credit function within their company and overcoming negative perceptions
- Communicating the importance of the critical role the credit department plays in managing working capital, increasing cash flow, minimizing borrowing and thereby increasing profits
WE LOOK FORWARD TO SEEING YOU THERE!
Click here for more details and to register.
Revising a company's credit policy is typically an annual event, according to NACM's January monthly survey.
When asked how often their company updates or revises its credit policy, 38% of respondents answered "annually," while 20% said "less than once a year." Only 5% of participants noted either "quarterly" or "every six months," while only 1% said that revisions were made every month. Fourteen percent of respondents either never revised their company's policy or simply didn't have one.
The remaining 22% of participants noted that their company updates their credit policy according to some other schedule not offered as an answer. Most of these respondents noted that their company merely makes changes when necessary, sometimes yearly, sometimes daily and sometimes not at all.
"We change policies like the wind blows. It is impossible to keep our credit policy manual up to date," said one participant, who said their department was "always trying new things...at the whim of management," which has generated mixed results. "So far so good, but in this economy it would be better to have some consistency," they added. "It is very frustrating for A/R and to our customers. No one knows what to expect next."
Consistency and customer service were, perhaps surprisingly, common reasons not to revise or update a company's credit policy. "We tried to update them once several years ago," said one respondent. "We got so many angry calls from customers that we decided not to do a mass update again."
Despite these concerns, the majority of participants noted that an up-to-date credit policy was extremely beneficial, no matter how frequently the revisions are made. "Laws and internal procedures change quickly and without reviewing and/or updating the policy semi-annually we have employees performing critical functions in credit, extending credit and the collection process, without the benefit of being current on the changing laws and procedures," said one respondent. "The job of credit management is challenging enough without expecting the employee to operate without a sound and updated credit policy."
Credit professionals looking to develop or improve their company's credit policy should check out "Developing Your Credit Policy," a session at this year's Credit Congress led by Ron Sereika, CCE. To learn more about Credit Congress, or to take advantage of a Groundhog Day-only savings deal on registration, click here.
NACM's February survey is now live. Participating can win you a free teleconference registration!
Jacob Barron, CICP, NACM staff writer
Distressed Business Services
Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.
While courts can take several months or more to start a reorganization plan, NACM Affiliates can assist in getting a plan approved in as little as 30 days. Most helpful is the knowledge that experienced professionals are ready to step in at the most difficult time. NACM Affiliate staff members can serve as secretary to creditors' committees, provide other needed advisory services and are fully aware of the prevailing laws and regulations relevant to each situation.
Click here to learn more about NACM's Distressed Business Services.
The stagnant global economy and the impact of problems with several European Union members continue to act as a drag on businesses. However, there is a silver lining within a new study of global business and services providers for those who oppose the idea of outsourcing and champion technological advancements.
KPMG's 4Q11 Sourcing Advisory Pulse Survey found most providers and field advisors had a negative view of the health of the overall economy. The survey said about 61% of service providers reported pipeline growth during the last three months, down about 15% from the previous quarter. And less than half of those polled expected any notable increase in demand before mid-year, a sentiment showing a similar drop from the last metric. Among the things being rethought or dismissed by many companies is the idea of outsourcing job functions, according to the study.
"Given the economic uncertainty, all efforts undertaken will occur under watchful, cost-conscious eyes," said Stan Lepeak, global research director for KPMG's Management Consulting Group. "Buyers and providers are smarter, more experienced and less likely to enter into larger and more risky deals. Evolutionary innovations such as cloud computing and targeted BPO are changing the nature of what constitutes outsourcing."
To wit, respondents to the study noted that technological investment was the second most important priority initiative, with 50% of advisors and 62% of service providers listing it, behind only the all-important "lowering costs" goal. Therein, business respondents made it known that investments of time or money in IT improvements and bolstering their social media platforms are front of mind.
Jay Mathews, collection manager for NACM-Shreveport (LA), in a late 2010 interview for Business Credit noted that it was amazing how fast social media platforms like Facebook, Twitter and LinkedIn have evolved not just for personal use but business strategies as well.
"People [in the credit and collections industry] are now using Facebook a lot," Matthews told NACM, noting that he wouldn't have considered using it just one year prior for any business purposes. "People put all kind of personal details up there. It's fascinating to me the amount of details they put up and amazing what you can gather from Facebook, for example."
Brian Shappell, NACM staff writer
Put Social Media to Work for You
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Building on proposals broadly outlined in his State of the Union address, President Barack Obama sent a more detailed small business agenda to Congress this week. At the heart of the plan are four tax breaks for smaller firms and four proposals designed to expand these companies' access to capital.
The president's proposal was submitted on the anniversary of two previously implemented initiatives aimed at startups and small businesses. "One year ago today, I called for an all hands on deck effort to ensure that America remains the best place on Earth to turn a great idea into a successful business," said Obama. "The private sector responded, with the Startup America Partnership launching new entrepreneurial networks all across the country. Today, we're taking new steps that build on that progress, and I urge Congress to send me a common-sense bipartisan bill that does even more to expand access to capital and cut taxes for America's entrepreneurs and small businesses."
Specifically, the president's plan, dubbed the Startup America Legislative Agenda, would make permanent a tax cut originally signed into law in 2010 that eliminates taxes on capital gains in key investments in small businesses. The agenda would also create a new 10% income tax credit on new payroll for small businesses in order to entice companies to hire or create new positions. Other tax breaks include a permanent doubling of the amount of startup expenses entrepreneurs can deduct from their taxes, from $5,000 to $10,000, and a one-year extension of 100% first-year depreciation on qualified property acquired and placed in service before January 1, 2013.
In a blog post, House Speaker John Boehner (R-OH) responded to the president's proposal by pointing out how closely Obama's recommendations resemble already-approved House Republican measures. "House Republicans have spent the last year focused on helping American small businesses expand and create new jobs. Today, the president unveiled a package of ideas designed to do the same—and most of them look strikingly familiar," said Boehner in the post. "In fact, many of the ideas endorsed by the president today have already been put forward—and acted upon—by House Republicans. The proposals could already be law if the United States Senate would simply act."
"Republicans appreciate the president sending these bills to Congress today, but perhaps to speed the process along, he should simply submit them to the Senate—now the last roadblock to helping American small business job creators," he added.
Jacob Barron, CICP, NACM staff writer
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Please join us for two new MLBS Workshops: Liens & Bonds: Managing the Process from a National Perspective and/or UCC Filings and the Best Possible Position to Get Paid. To be held on Wednesday, March 21, 2012, 8:00am to 12:30pm and/or 1:00pm - 3:15pm, Los Angeles, California.
For more information on NACM's MLBS, click here.
Last month, one of the "Big Three" U.S.-based ratings agencies noted deep concern with what appeared to be civil unrest with the Russian government, more specifically Prime Minister/soon-to-be second-time President Vladimir Putin. Little has happened in the interim to paint the Fitch decision to downgrade its long-term prospects as outside the lines, as so many ratings agency downgrades have been criticized of late.
Though Putin's reelection as president in March is all but guaranteed, there is widespread evidence of unrest in the form of in-country blogging and public demonstrations stemming from alleged deep corruption in Russian politics. The growing and surprisingly brazen unrest has not been so public since the fall of the Soviet Union. This week, there was what amounted to an organized, 500-car protest parade around Moscow's "Garden Ring," a stretch of road in the city that passes by the Kremlin. It was described in some ways as an opening act to bigger protests planned in February and garnered worldwide attention.
John LaRocca, direct of global credit for Hitachi Data Systems Corp., said that, despite the public criticism being unprecedented and that a chance for business disruptions do exist, sweeping changes are slim in the near-term. So the worst-case scenario, a Russian version of last year's "Arab Spring," remains highly unlikely at this point.
"Everyone knows, if business is interrupted, there will be a penalty," said LaRocca, a member of FCIB's board of directors. "I think politicians in Russia aren't that different from politicians in other places. They don't want to lose their power. There's too much good business to be done. Ultimately, they're going to work with their constituency."
Still, the situation warrants watching by sales and credit professionals and drives home the point of how important it is to know what's going on around one's customers.
FCIB will be presenting a "Doing Business in Russia" webinar featuring John McCaslin, a minister counselor for commercial affairs with the U.S. Commercial Service office in Moscow, in March. For more information or to register, visit www.fcibglobal.com.
Brian Shappell, NACM staff writer
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The World Trade Organization (WTO) Appellate Body ruled in favor of the United States in a dispute over China's export restraints on several industrial raw materials. WTO officials originally found in favor of the U.S. in July 2011, and this most recent ruling affirms the original one.
"Today's report is a tremendous victory for the United States, particularly its manufacturers and workers," said U.S. Trade Representative Ron Kirk after the appellate ruling. "The Obama Administration will continue to ensure that China and every other country play by the rules so that U.S. workers and companies can compete and succeed on a level playing field."
China had attempted to portray its export restraints as conservation or environmental protection measures taken to manage critical shortages of supply, but the WTO's Appellate Body disagreed, and found the regulations inconsistent with China's WTO obligations.
"During his State of the Union Address last week, the president laid out a blueprint for an economy that's built to last—an economy built with the renewed strength of American manufacturing," Kirk added. "Today's decision ensures that core manufacturing industries in this country can get the materials they need to produce and compete on a level playing field."
Restraints challenged in the dispute included export quotas and export duties, as well as related minimum export price, export licensing and export quota administration requirements implemented by China. Restrains such as these can, according to Kirk, skew the playing field against the U.S. and other countries in the production and export of a number of products. Simultaneously, they can artificially increase world prices for these raw materials while artificially lowering prices for Chinese producers, allowing them to produce lower-priced goods and giving them a significant advantage over other producers, both in China's market and elsewhere.
Mexico and the European Union both joined the U.S. as co-complainants in the dispute.
Jacob Barron, CICP, NACM staff writer
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