June 7, 2012
The quality of services provided by a collections or legal services firm mattered most to creditors shopping for these items.
In NACM's monthly survey for May, when asked "What factor is most important for you when engaging a collections or legal services provider?" 50.1% of respondents answered "quality of services." The "recommendation of a colleague" came in a distant second with 12.1%, and "cost" came in third with 9.1%.
The specialization of a particular collections or legal services firm tied for fourth with participants who chose "other," with each receiving 8.6% of the total. Additional response choices, like "convenience" (5.0%), "certification" (4.8%), "location" (1.3%) and "firm size" (0.4%), received less attention.
While "quality of services" was expected to be the most popular choice, respondents' definitions of what constituted high-quality services were surprisingly varied. Some defined quality in terms of a firm that's accommodating, while others cited frequent communication practices or high recovery rates. "I prefer an agency that provides service based on our preferences and wants and needs, instead of providing service based on their preferences and wants and needs," said one participant. "We have engaged several different collection agencies and it always comes back to the quality of service and how well they kept us informed of the progress of collecting on the account," said another. "We have stopped using agencies that we rarely heard from or had to continue to contact for updates."
A personal touch also goes a long way, according to several respondents. "We stayed with one account rep who was at three different firms because of the high level of customer service she provided to our company," said one participant. "Each time she went to a new firm, we went with her."
Numerous respondents noted that their decision to use a particular collections or legal services firm came down to more than just one factor. However, if there was one factor that provided a quick, valuable assessment of a potential firm's services, it was whether or not the company came recommended by a colleague. "This is a great question and to pick one is difficult. Quality of services and specialization are as important, [but] I went with recommendation," said one participant. "If someone else has had a good experience with a firm, I believe I can trust them as well."
Certifications also provided respondents with other shortcuts to finding the right collections or legal services firm, especially a firm or service's affiliation with NACM. "I use NACM's collection department exclusively because I know they are honest and ethical," said one participant. "It also doesn't hurt that their fees are usually less than other collection firms."
For more information on NACM affiliate collection services, click here.
- Jacob Barron, CICP, NACM staff writer
Make Better Credit Decisions with Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data about the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
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equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
Stockton 'Hit the Wall,' Prepares Chapter 9 Filing
On a 6-1 vote Tuesday, the Stockton (CA) City Council approved a measure authorizing its city manager to file a petition seeking protection under Chapter 9 of the U.S. Bankruptcy Code. After more than two months of negotiations under a new California law that mandates talks between debtors and creditors and an extension that provided temporary hope of avoiding municipal bankruptcy, it appears the city could now end up in Chapter 9 before month's end.
The city, which boasts a large number of retiree entitlements and the second-highest foreclosure rate among U.S. cities, and its creditors, not coincidentally including a public retirees union and Wells Fargo, have agreed to continue to extend negotiations through June 25 while the filing is prepared. The talks began in February and, though promise was shown, progress has stalled.
"We have hit the wall," said Stockton Mayor Ann Johnston in a statement Tuesday. "This is the action that we must take to keep the services that are important for the safety and health of our citizens." The city is on track to run a $36 million deficit thanks in large part to the $700 million it owes to various creditors.
The 2011 California law's mandated mediation is aimed at keeping struggling municipalities from hastily entering into a Chapter 9. If eventually filed, Stockton would become the largest bankruptcy filing of any city in U.S. history.
Several other California communities, as well as cities in other parts of the country, are watching quite closely how this situation develops. Meanwhile, a new report out of the state last week noted that at least a dozen of California's public schools serving more than 2.5 million children do not have enough money to operate properly over the next year. Strained budgets could lead these schools to eye the same option Stockton leaders clearly appear to be leaning toward in an attempt to gain breathing room from their creditors.
- Brian Shappell, CBA, NACM staff writer
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Year-over-year commercial bankruptcy filings continued to plummet in May 2012. While total bankruptcy filings for last month decreased by 11% compared to the previous year, commercial filings for May 2012 were 5,259, representing a 21% decrease from the 6,631 filings during the same period in 2011.
The 104,133 total noncommercial filings for May also fell, representing a 10% drop from the May 2011 noncommercial filing total of 116,205. "Households have reduced their spending and businesses are benefiting from sustained low interest rates," said Samuel Gerdano, executive director of the American Bankruptcy Institute (ABI), which, along with Epiq Systems, Inc., keeps track of nationwide bankruptcy numbers. "Expect a continued drop in bankruptcy filing rates as families and business reinforce their balance sheets and cut costs."
Total commercial Chapter 11 filings also decreased in May, with the filing total of 682 representing a smaller, but still notable 6% decrease from May's 2011 total.
Despite the fact that commercial filing figures for 2012 have continued to throw last year's readings into sharp relief, on a month-to-month basis the results have been less encouraging. May's total commercial Chapter 11 filing represented a 3% increase over April 2012, and total commercial filings increased by 2% in May from the April total of 5,170.
The average nationwide per capita bankruptcy filing rate for the first five calendar months of 2012 increased to 4.13 per 1,000 residents, up from 4.10 for the first four months. States with the highest per capital filing rate were Nevada (7.17), Tennessee (7.01) and Georgia (6.45).
- Jacob Barron, CICP, NACM staff writer
For exclusive analysis on this topic from New York University’s Ed Altman, PhD, the father of the famous Z-Score bankruptcy model, visit our blog. Altman will be speaking at the 2012 Credit Congress next week on the topic of corporate distress prediction. Registration is still available (on-site only) as are discounts for NACM members on the new Z-Score smart phone app. For more information on the upcoming Credit Congress, click here.
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Not content to let Greece steal all the headlines, Spain's economic woes prompted an emergency meeting of the Group of Seven (G7) finance ministers this week. While the meeting was ostensibly about the entire European Union crisis, the Spanish banking crisis was at the top of the agenda since it poses greater risks to the global economy and will ultimately involve more complex solutions.
Greece's troubles stem from the perennially spendthrift government's inability to meet its payment obligations, but Spain's stem from the fact that the country's banks are in severe crisis and in need of assistance that the government can't provide. Spain's banks were caught up in the same property rush that gripped the United States in the last decade, but the housing boom in Spain made the one in the U.S. look minor by comparison. "The prices of homes spiraled upwards in an uncontrolled speculative frenzy and led the whole economy down an unsustainable path," said NACM Economist Chris Kuehl, PhD. "The collapse was faster and more dramatic than it was in the United States and all those construction jobs seemed to vanish overnight. In a matter of months, the rate of joblessness surged to 25% and Spain was in financial crisis."
While banks in the U.S. softened the blow of the housing crisis with mortgage-backed securities, Spanish banks had no such risk mitigation tools in place. "Now these banks are woefully undercapitalized and desperately need rescuing," said Kuehl.
However, the solutions to the problem involve getting the investor community to buy Spanish bonds, a task much more easily said than done. Yields have risen to the same crisis point that provoked a rescue for Greece and Ireland, but there is no certainty that Spain will be eligible for the same sort of consideration, due mainly to one important detail: the euro zone is "essentially tapped out," as Kuehl put it.
"The only country with the wherewithal to help is Germany, but there is not enough that Germans could offer—even if they elected to do so," he added, noting that this dearth of bailout money has now become an issue for the G7. "The action needed is for these states to somehow guarantee the Spanish bonds so that the government can meet its fiscal obligations while working out some kind of rescue for their banks," said Kuehl. "This means that this collection of cash-strapped nations will be trying to cobble together a multi-billion dollar bailout for the Spanish and the Europeans in general. The options are just not very promising."
- Jacob Barron, CICP, NACM staff writer
For more information on navigating your way through global markets, visit the Finance, Credit and International Business Association's website at www.fcibglobal.com.
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C4F: Employment Connections for the Business Credit Community
Though recent big-picture stories about problems with government debt throughout the world, notably Europe (see above story on Spain), can seem somewhat tangential, credit professionals need to be on top of the happenings if their companies are doing any level of business abroad. And, with a growing White House emphasis on exporting, who isn't exporting or thinking of doing so in the not-so-distant future?
In the June issue of Business Credit, 2012 Credit Congress Speaker Karen Hart, partner at Bell Nunnally and Martin LLP, noted that government debt issues are not just matters for the politicians to fix, because, eventually, "it all boils down to the banks."
"As the banks feel the pinch, so too will your customers," said Hart. "If your customer takes a hit, bad things may be in store for their accounts with your company. So, pay close attention to what is happening in these forums." She added that, because of banking issues and the impact of the more interconnected global economy, now is perhaps the most important time to be searching actively for red flags.
As such, those doing business where instability, whether geopolitically or financially based, should at least investigate options to protect their investments by reviewing terms as well as considering credit insurance or letters of credit. Granted, it is critical for credit professionals to remember that nothing is a catch-all even if the option does (and it doesn't always) offer the right fit for their company's size or policies.
"Credit insurance and letters of credit will not solve every problem, every time," Hart said. "For example, with letters of credit, you have to know the reputation and financial soundness of the financial institution you are dealing with. You may not know your customer's bank, and European banks are getting hammered in the crisis."
- Brian Shappell, CBA, NACM staff writer
The June edition of Business Credit is now available online now for members. Hart recently received a Women in Business Award from the Dallas Business Journal and was mentioned as a "Rising Star" in Texas Monthly. She will be a panelist for the "International Credit" Executive Exchange Session and help present "Liens and Bonds: The Process through the Lens of Litigation" at this year's Credit Congress. For more information, click here.
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Many sections within the chapters have also been reworked, including those covering cellphone-based collection efforts, FTC rulemaking in terms of decedent estates and data security/breach initiatives at the federal government level.
Click here to visit NACM's online Bookstore for Manual features and updates, and more information about the wide array of resources available to today's credit professionals.
To view past eNews issues or to visit the NACM Archives, click here.