June 21, 2012
A frequently recurring topic at the 2012 Credit Congress was the use of personal guarantees when setting up a credit relationship. Once a given necessity, more credit professionals are wondering if the juice is worth the squeeze, so to speak. Still, plenty of experts continue to take a "why not" go after all remedies approach when asked if personal guarantees are worth the time for credit professionals.
During the "Credit Riskâ€”No Safe Havens" educational session, a somewhat rhetorical attendee question from BP's Christine Schaeffer, CCE on personal guarantees sparked quite a bit of pontification and debate:
"Are personal guarantees going the way of the typewriter? It seems like they're like a case of the teddy bear syndrome. We like having them and they make us feel good, but do they really help? Often, it seems like they're not worth the paper they're written on."
Credit Congress panelist Jackie Mulligan, of Procter & Gamble Distributing LLC, noted that her firm often does not even ask for them. Granted, they're not getting rid of them if already on file, but Mulligan admitted their diminishing importance.
"If you get one, you really don't know if there are liens on their assets," she said. "It really can become a cumbersome process. We've moved away from it. Just in asking, you've set up an expectation for the customerâ€”they now want something."
Other panelists including Kevin O'Brien, of Deutsch Bank AG, and Peter Knox, CCE, of Nestle USA, believe there is often a psychological impact from having one even in cases where there are few assets from which to draw. And they can be a proven motivator.
"We recently had a customer who stopped paying and stopped communicating," said Knox. "Our legal group reminded him of the signed guarantee, and we had a check the next day."
In short, that psychological impact, or "leverage" as the speakers of "Liens and Bonds: The Process through the Lens of Litigation" characterized it, can still prove handy. Both speakers, NACM's Mechanic's Lien and Bond Services Director Greg Powelson and Bell Nunnally's Karen Hart, Esq., noted that having them can often keep claims out of court, averting costs to both sides.
"No one wants to deal with a lawsuit on a claim for breach of a guarantee," Hart said. "It's another leverage tool. They may just be a regular Joe, but if the individual owns something like stock, you can use that leverage. It's worth the time."
More simply, as Powelson put it: "Why not?"
"Any additional remedies you can bring to the table, you should. You want to tie to as many assets as you can," he said. "And I would argue that personal guarantees are the least labor-intensive of administrative things you have to do. Many in credit look at it as a tear-pad item. Sometimes it's a home run, sometimes it's worth nothing. But you won't know that until later on. So, why not do it?"
- Brian Shappell, CBA, NACM staff writer
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Blockbuster Credit Management Session Covers All Bases
Back by popular demand were Credit Congress' renowned Executive Exchange sessions, offering attendees the chance to delve deeply into one specific topic. Among this year's selections were building and construction, bankruptcy, international credit and, appropriately, credit management, which featured a panel discussion led by O.D. Glaus Credit Executive of Distinction award winner Val Venable, CCE.
Serving on the panel were Scott Chase, CCE, CICP, of Amer Sports Winter and Outdoor Company, Michelle Higgins, CCE of Coca-Cola Refreshments and Michael Puccinelli, CCE of Equinix. Each of them brought a diverse set of experiences and abilities to the session, surrounding the practical day-to-day concerns of credit professionals and offering a selection of strategies and solutions.
The process of setting up a new customer was a hot topic early in the session, with Higgins and Chase offering an interesting dichotomy between what large and small companies do. "It's too risky to just ship to anybody without knowing who they are," said Higgins. "I can tell you that if the company has been in business for less than two years, we do require a personal guarantee."
The size and high profile of Higgins' company affords her some advantages, however, as far as risk is concerned. "We have the ability to take a bit more risk into our portfolio," she noted. "Sometimes it's just better to put an exposure on it. And the 'big red truck' [referring to Coca-Cola] does have the ability to sell a lot on a [cash on delivery] basis," Higgins added, noting that risk assessment is a different beast when your company can dictate terms.
Chase's experience as a risk manager for a vendor of winter sports equipment threw Higgins' into sharp relief. "Unlike my colleagues, I do not get a lot of new customers," he noted. "We really need to focus first on those markets where we can grow our business."
In terms of assessing a new customer's creditworthiness, however rarely that actually happens, Chase noted that the most cost-effective option was an industry credit group. "That is your lifeblood," he noted. "Joining an industry group is absolutely priceless."
As a service provider, Puccinelli's perspective slightly differed from those of Higgins and Chase, but his nearly 40 years of credit management experience allowed him to offer some valuable, and sometimes provocative, insights, particularly when assessing creditworthiness. "In my opinion, pulling trade references is a waste of time," said Puccinelli, to many attendees' surprise. "I have never had anyone in maybe 25 years call a credit reference."
Instead, Puccinelli recommended a credit report, and specifically NACM's new National Trade Credit Report. "All that information is there, so, spend a little money," he noted. "Quite frankly it's a lot less expensive than picking up the phone and calling references."
- Jacob Barron, CICP, NACM staff writer
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The NACM National Trade Credit Report (NTCR) officially launched its Preferred Partner Program at Credit Congress last week in Grapevine, TX.
The Preferred Partner Program is designed to help eliminate some perceived technical obstacles to using and sharing information with the NTCR initiative and its database. The partners will be working with interested NACM members and their clients to optimize the interface and ease information extraction and reporting for the report.
The current preferred partners are Billfire, CreditPoint Software, Cforia, Credit Management Systems, Inc., Forseva, High Radius and Workflow A/R.
The NTCR illuminates elements such as credit scores, trade payment data and "days beyond terms" statistics, which are drawn from a growing database fed by more than 10,000 businesses and 1,000 trade groups nationwide. The report website at http://www.tradecreditreport.com is now live and designed to educate potential users by providing information on various aspects of what is included in the reports, viewable samples, downloadable brochures and links to help find NACM affiliates selling the NTCR, among other features.
- Brian Shappell, CBA, NACM staff writer
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Yet another in a string of solar products companies filed for bankruptcy this week. Still, at least one study points to positive consumer outlook on solar, and the industry is threatening to do booming business in at least one or two power economies abroad.
NovaSolar, Inc., producers of "thin-film" technology used in solar power capture, filed for bankruptcy protection as its debts are more than double its $6 million in assets. The story is catching attention because, like previous California-based Chapter 11 filer Solyndra with President Barack Obama, NovaSolar received a ringing endorsement in 2009 from a prominent politician on the national stageâ€”then California Gov. Arnold Schwarzenegger.
It's the latest in a series of filings by overleveraged alternative energy companies, which was predicted in Business Credit last spring. Producers have alleged that Asian competitors have been offered subsidies by their governments and they can no longer compete because they are being undercut so drastically on pricing and costs. Others note that a major factor is oversaturation in the U.S. solar energy/products manufacturing industry, which saw rapid, perhaps unsustainable, interest during the waning days of the last economic boom. Among those who have fallen into bankruptcy since last spring have been Solyndra, Energy Conversion Devices, Stirling Energy Systems and SpectraWatt, Inc. And this doesn't include companies which simply relocated to Asia, like the BP solar operation, formerly based in Frederick, MD.
Meanwhile, a new study by California firm Applied Materials found that 55% of consumers polled in four major economic powers (the United States, Japan, India and China), believe solar energy is and will continue to be less expensive than traditional energy sources. India, particularly, appeared positive and welcoming to more solar use, according to the study. Granted, Applied Materials is far from an objective third-party, as it is a producer of solar photovoltaic equipment.
In addition, the need for clean energy in Japan as well as the nation's freshly announced "feed-in" energy tariff has some anticipating a boom of sorts for solar energy-related products there. Reports indicate companies such as Sharp and Panasonic are already boosting their solar panel and battery production capabilities in a significant fashion.
- Brian Shappell, CBA, NACM staff writer
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The list of western nations sitting at the negotiating table for the Trans-Pacific Partnership (TPP) agreement continues to grow, as Canada and Mexico were offered invitations this week.
Eight nations currently serve as TPP countries, namely Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. The United States is also negotiating its way into the agreement, as is Japan, and now Canada and Mexico.
In addition to already in force free trade agreements (FTAs) that the U.S. has with Colombia, Panama and South Korea, the TPP is a key element of the Obama Administration's efforts to support the creation and retention of American jobs by increasing exports.
Cheers arose from Capitol Hill, and elsewhere, with the news. "Inviting Canada to join the TPP negotiations presents a unique opportunity for the United States to build upon this already dynamic trading relationship. Through TPP, we are bringing the relationship with our largest trading partner into the 21st century," said U.S. Trade Ambassador Ron Kirk. He had previously lauded Mexico's entrance earlier in the week. "Mexico's interest in the TPP reflects its recognition that the TPP presents the most promising pathway to boosting trade across the Asia Pacific and to encouraging regional trade integration," he said.
While ostensibly designed to integrate and expand the Pacific Rim economy, the TPP also functionally aims to mitigate China's increasing influence in the region, a fact not lost on trade-minded Republican lawmakers. "The TPP talks are critical to establishing strong economic footing for the United States in the Pacific region and providing a counterbalance to China," said House Ways and Means Committee Chairman Dave Camp (R-MI).
Business groups such as the U.S. Chamber of Commerce also applauded the announcement, with President and CEO Thomas Donohue noting that "the TPP has the potential to set the table for the next round of global economic growth. This deal could not come at a more important time for the American economy."
Canada and Mexico will still be required to meet certain criteria for full participation in TPP negotiations. The Obama Administration will notify Congress of its intent to include Canada and Mexico in the TPP negotiations, triggering a 90-day consultation period with Congress on U.S. negotiating objectives.
TPP negotiations will host their 13th and final round in early July, in San Diego, CA.
- Jacob Barron, CICP, NACM staff writer
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Now in four separate volumes to meet your specific needs. Buy whatever volumes you need, or get the complete set at a significant savings!
NACM has re-envisioned and revitalized the Manual of Credit and Commercial Laws. Not only will the new edition continue to provide essential information for credit and finance professionals, it will do so in a highly flexible and more affordable format. In its new form, the Manual of Credit now comprises four volumes that may either be purchased separately or as a comprehensive set. Chapters and appendices from the book have been reorganized under the following headings:
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â€˘ Volume IV: Bankruptcy and Insolvency Issues
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.
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