eNews January 13, 2009

eNews Weekly Update - National Association of Credit Management
January 13th, 2009

News Briefs

  1. APG Warns of Suspected Business Identity Theft
  2. NACM Survey Shows Virulent Opposition to Auto Bailout
  3. Outsourcing Top Trend for the Year Ahead?
  4. Court Caseloads Up in 2008
  5. Treasury and Fed Outline TALF Structure
  6. Obama Issues Job Plan Analysis in Wake of Ugly December Figures
  7. Construction Slips as Outlook Remains Grim
  8. U.S. Bankruptcy Process Works, Weeds Out Weak
  9. New Interest Rate Set for Late Payments on Federal Projects

1

APG Warns of Suspected Business Identity Theft

As a service to members, this alert was issued by NACM's Asset Protection Group:

APG has been informed of recent activities suspected to be cases of business identity theft among the membership. The information supplied on credit applications by the perpetrators seemingly matched the information of the legitimate business.

Please take a moment to cross-reference your records with the information provided below. Please contact APG at your earliest convenience with any additional information regarding this correspondence. If you have any questions or concerns, do not hesitate to call us. We thank you in advance for your time and cooperation.

This communication is in no way meant to harm the integrity of the legitimate business entity, but instead to serve as a caution to members.

Subject supplied the following information on the credit application:

SED International, Inc.
Shipping address: (not associated with the legitimate business, SED International, Inc.)
123 Devin Drive
Morage, CA  94556
310-929-5287 phone
&
21850 Edgewater Drive
Port Charlotte, FL  33952
310-929-5287 phone

Subject supplied the following information on the credit application:

Conti Electronics Ltd.
32 West 2nd Ave. (legitimate address for the legitimate business, Conti Electronics Ltd.)
Vancouver, BC  V5Y 1B3 Canada
Contact Name: Tim Alguire (legitimate employee of Conti Electronics Ltd.)
877-726-9102 phone and fax number (not associated with the legitimate business, Conti Electronics Ltd.)

Shipping Address:
Raymond Shepherd
700 Lawrence Road, #107
Hamilton, ON  L8K 1Z5
877-726-9102
(The shipping information provided above is not associated with the legitimate business, Conti Electronics Ltd.)

 

Getting Good Customer Information

Solid credit management can often come down to the quality and thoroughness of the information a company has on its customer. Businesses use credit reports and other third-party evidence to judge their customer's creditworthiness, but sometimes the best source of information about a customer is the customer itself, and nothing helps understanding the customer more than visitation. Through visitation, a thorough understanding of the customer and its operations aids in credit risk management, provides goodwill and can improve the company's competitive edge with its customer base. The credit department can realize significant value by participating in visits and meeting with key individuals. For more information on how to prepare for a visit, what to look for and inquire about during a visit, how to build stronger relationships with customers and how to follow up properly, join Susan Delloiacono, CCE on Wednesday, January 14, 2009 from 3:00-4:00pm EST for her NACM-sponsored teleconference, "Customer Visits." To learn more about Susan, or to register, click here.

 

2

NACM Survey Shows Virulent Opposition to Auto Bailout
Responses to NACM's December 2008 Survey question, "Do you support a government bailout of the 'Big 3' auto companies?" showed that a majority of respondents opposed the government's proposed bailout of the Ford Motor Co., General Motors Inc. and Chrysler LLC. All in all, 66.8% of participants answered "no," and 28.8% responded "yes." Only 4.4% noted that they had no opinion on the matter.

Last month's survey also elicited the most additional comments of any prior NACM survey, indicating the strength of respondent opinions and, in some instances, showing some participants' outright revulsion at the thought of a government bailout aimed at helping an industry that, many believe, dug its own grave. "Not only no, but hell no!" said one respondent. "The auto industry has been totally oblivious to the needs of their customers, selling whatever brought the highest profit. This allowed unions to demand ridiculous wages and executives to receive obscene pay levels. It's time to start over," said another respondent. "Stupid hurts. It's supposed to. That's how we learn," added another participant.

Among the "yes" respondents, most admitted that their positive responses were made begrudgingly and that they only supported the bailout because they feared the negative impact of a Big 3 bankruptcy, or that they would only support a bailout that came with major restrictions on executive salary, reduce company spending and concessions by the United Auto Workers union (UAW). "Yes, assuming that the bailout includes a comprehensive plan to address and remedy the industry's structural issues, particularly pension benefit and retiree healthcare expenses," said one respondent. "I am philosophically opposed to the bailouts in general. However, since the government has bailed out the financial sector to the extent they have, it makes no sense to let the Big 3 go under if it can be avoided," said another respondent, one of very few auto-industry sympathizers who participated in the survey. "No other industry has been more maligned, nit-picked and needlessly over-regulated as the automobile industry," the respondent added.

Many objected to the use of the term "bailout," insisting that they supported loans to the industry, rather than a "blank check" that the word "bailout" connotes. Other respondents rejected the idea of any government money not put toward a Chapter 11 filing supervised by the government, an option that many found fairer and preferable to federal financing. "The Detroit 3 must go prepackaged Chapter 11 more to get free from the UAW contracts and the dealer franchise organization," said one respondent. "The government, banks bailed out by the government and other major banks need to be the [debtor in possession] lenders. We all have a lot to gain if this is done correctly."

This month's survey asks for opinions on the value of customer visits. To participate, visit www.nacm.org.

Jacob Barron, NACM staff writer

 

It's a Cold World Out There

Well, it can be if you're not prepared for the professional challenges that inevitably spring up in today's unforgiving economic climate.

An NACM designation is a great way to show that you're prepared. It tells your employer and peers of your high level of motivation, attests to your competence and knowledge and demonstrates outstanding achievement.

Stay off thin ice by calling 800-955-8815 or visiting www.nacm.org today!

 

3

Outsourcing Top Trend for the Year Ahead?
With the horrors of 2008 in the rearview, companies are now faced with surviving 2009. The financial meltdown that began to really pick up steam in the final quarter of 2007 took its toll on nearly every facet of the economy over the past year, forcing banks to close their doors while ringing in epic, record-setting corporate collapses. To weather the maelstrom, companies had to streamline processes to keep overhead in check, while the layoffs further depressed the economy. In the year ahead, as firms are forced to further tighten their belts, cost-savings maneuvers such as business process outsourcing are expected to peak.

"We see a greater emphasis being placed on creating a buyer-provider relationship that improves not only short-term benefits, but also creates new opportunities through innovation in 2009," said Mark Vengroff, CEO, Vengroff, Williams and Associates (VWA), a receivables management and business process outsourcing provider. "VWA sees companies operating with legacy infrastructure and tools who are under tremendous pressure for productivity gains. These companies have been looking to modernize and run their operations using state of the art infrastructure and tools, and now more than ever, have a reason to look at BPO service providers."

In 2008, VWA saw a 32% increase in new business, with more than 30% of this activity related to third-party collection contracts. The company expects that as the credit squeeze continues to drain firms, there will continue to be strong outsourcing activity throughout the first quarter of 2009, particularly in financial services and banks. VWA expects CFOs to continue to pay close attention to both the payment terms their suppliers are demanding and the credit terms of their customers. The company cited EquaTerra Advisor's BPO/ITO Service Provider Pulse Survey for the third quarter of 2008 that demonstrated increased demand for BPO and IT outsourcing due to the current economic uncertainty. According to the survey, the combined growth rate of IT and business process outsourcing in the U.S. was 25% during the quarter, with Europe seeing much more aggressive growth approaching 64%.

But, the EquaTerra survey also found that the economy is acting as a double-edged sword as outsourcing initiatives by companies are being shelved because of uncertainty. Some 38% of respondents—the most in three quarters—cited tumultuous economic conditions as their reason for slowing or deferring outsourcing initiatives. What the company found was that the focus is shifting from longer-term initiatives aimed at improving end-to-end business processes toward efforts that deliver quick return on investment or facilitate short-term business objectives that bring immediate cost savings, help align operating costs to reduce revenue/profits levels and reduce short-term capital outlays.

The third quarter survey by EquaTerra also showed that more than half of service providers are seeing more aggressive pricing; the result of increased demand from buyers and competition for deals in a tight market.

Ben Trowbridge, CEO, Alsbridge, Inc., also sees outsourcing as a top corporate trend in 2009. He agreed that Alsbridge anticipates that organizations will shift their strategy, taking a longer-term view of sourcing options instead of a one-time decision on which functions to outsource or move to a client-owned offshore center.

A report by IDC Research is also predicting that F&A outsourcing will be on the rise, estimating that in the United States F&A BPO services will grow from $9.4 billion in 2006 to $19.4 billion by 2011.

Matthew Carr, NACM staff writer

 

Business Credit Compensation Survey

NACM's groundbreaking Business Credit Compensation Survey provides invaluable data for the credit professional. This study is NACM's first comprehensive salary survey specific to the credit industry and includes compensation benchmarking information for individuals in comparable positions and with similar backgrounds, education and experience.

See how you stack up for your position nationwide.

Click here here to order the survey through the NACM Bookstore.

 

4

Court Caseloads Up in 2008
The Administrative Office of the U.S. Courts recently announced that total federal court caseloads across all levels of the system—the Supreme Court, courts of appeals, district courts and bankruptcy courts—increased in 2008. Bankruptcy courts experienced the largest increase in caseloads, with new filings rising by 30% to 1,042,993 cases.

"The increase in bankruptcy filings in 2008 is nearly equal to the decline in bankruptcy filings that occurred in 2007, the first fiscal year in which all 12 months of filings occurred after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)," said Chief Justice John Roberts in his year-end report for 2008. "Between 2007 and 2008, non-business filings, which accounted for 96% of all filings, rose by 30% and business filings increased by 49%. Chapter 7 filings increased by 40%, Chapter 11 filings by 49% and Chapter 13 filings by 14%, while Chapter 12 filings fell by 8% in 2008." Chapter 12 bankruptcy is similar to Chapter 13 but is only available to family farmers and fishermen in some situations.

In other sectors of the federal court system, caseloads also increased, although not as severely as in bankruptcy courts. Appeals filed in regional courts of appeals rose by 5% to 61,104 filings in FY 2008, the 12 month period ending September 30, 2008. Civil and criminal filings in U.S. district courts also increased, both by 4%, with civil filings jumping to 267,257 cases and criminal cases topping out at 70,896.

Jacob Barron, NACM staff writer

 

Full Disclosure—The Basics on Designing and Implementing
a Shared Services Concept

The shadow of recession has spread from the United States into Europe and Japan. Even China is seeing a dip in growth, though it is still expected to be one of the strongest economies in the near-term. For many companies, all of this downward pressure means a scaling back on expenditures and a greater onus placed on reducing costs. Those firms, both domestic and international, with a webbing of global networks could be witnessing a heyday for trends such as outsourcing and shared services centers.

After listening to other executives discuss their experiences with developing global shared service centers, Lori Martin, CCE, director, Global Credit & Collections, Juniper Networks, Inc. was disappointed no one explained the nuts and bolts of the process; the mountain of logistics to conquer. Martin provides a detailed outline on aspects overshadowed by initial cost-savings estimates for shared service centers in the January issue of Business Credit magazine.

Not a subscriber? Click here for the NACM Bookstore to start your subscription now.

 

5

Treasury and Fed Outline TALF Structure
The Small Business Administration (SBA) has been very busy the last five years, furiously approving agency-guaranteed loans at a record pace for the majority of that span. In 2007, the SBA set a high water mark with more than 110,000 loans approved. But, as the credit markets tightened, that number fell nearly 30% in 2008 while the dollar value declined 13% from $20.6 billion to $17.9 billion. At the same time, the average size of the loans increased from $142,000 to $183,000.

The problem the SBA is now facing is that the credit crunch is strangling its ability to continue to help small firms. The debt market freeze is hamstringing its partners' abilities to lend. As 2008 came to a close, the Treasury Department and the Federal Reserve Board unveiled details on how the Term Asset-Backed Securities Loan Facility (TALF) will function, a program that the Treasury hopes will relieve some of the market pressure. First, the government has decided to extend TALF loan terms, broaden the lending base and lay out the security ratings for SBA-guaranteed loans.

"SBA is very supportive of the TALF program, which will ultimately help bring much needed capital to the nation's small businesses," said SBA Acting Administrator Sandy Baruah. "With continued coordination between government and the lending industry, small businesses will be the driver of the economic recovery."

As it stands, about $4 billion in securities backed by SBA-guaranteed loans are bought and sold in the secondary market each year, with the total outstanding amounting to about $15 billion. Currently, a share of this year's volume of loans securitized by lenders—estimated to top as much as $3 billion—is essentially frozen. This lack of liquidity has serious implications on the ability of some SBA lending partners to make new SBA-backed loans. The agency has worked with the Treasury and the Fed to help restore the flow of buying activity and to ease the pressures on liquidity.

"A properly functioning secondary market for SBA-backed loans is necessary to provide liquidity to banks and will allow them to reach new small business borrowers," said Baruah.

The Treasury Department announced at the end of November that it would allocate $20 billion to back the creation of the $200 billion TALF, which will make loans to investors who purchase asset-backed securities made up of small business loans guaranteed by SBA, auto loans, student loans, or credit card loans.

Matthew Carr, NACM staff writer

 

The Dawn of "Obamanomics"

Join FCIB for their upcoming teleconference, "The Dawn of Obamanomics," scheduled just four days prior to the inauguration of the next U.S. President on January 16th, 2009 from 11:00am-12:00pm EST. The Obama team has been preparing for its first 100 days since the election last November and it is obvious that global economic recovery will be the prime focus for this administration. There are a number of plans ready for implementation, most of which will have implications for the world, most notably the U.S., Europe and China, all of whom will be pushing new stimulus plans. Commodities prices will have tanked and this will impact the emerging markets in Latin America and Asia. The whole issue of trade will be on the table as everyone waits to see what the U.S. position will be going forward. These questions and many more will be addressed in this session by Chris Kuehl, Ph.D., managing director of Armada Corporate Intelligence who will also offer some forecasts regarding when the global economy will start to emerge from its current recession. For more information and to register, visit www.fcibglobal.com.

 

6

Obama Issues Job Plan Analysis in Wake of Ugly December Figures
As if there wasn't already a wealth of bad news to be found about the current state of the U.S. economy, the most recent national employment numbers, released by the U.S. Department of Labor's Bureau of Labor Statistics, painted a picture of an ugly situation getting uglier as the unemployment rate jumped from 6.8% to 7.2% in the final month of 2008 and jobs fell by 524,000 over the same period. Over the entire year, the U.S. economy lost 2.6 million jobs, marking the country's worst year since 1945.

Having already discussed and announced his planned economic stimulus package, dubbed the American Recovery and Reinvestment Plan, President-elect Barack Obama, in response to the striking job figures and to the fact that his plan has already received early criticism from both Republicans and Democrats, released his team's economic analysis of the potential job benefits to be gained from the passage of the $775 billion bill now under discussion. According to the 14-page report, conducted by Christina Romer, chair-nominee-designate for Obama's Council of Economic Advisers, and Jared Bernstein, an official from the Office of Vice President-elect Joe Biden, swift passage of the plan "is expected to create between three and four million jobs by the end of 2010." It also extolled the virtues of direct increases in government purchasing, which, it claimed, had the potential to create more jobs than tax cuts, especially temporary ones, and fiscal relief to the states. "However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tax cuts and state relief can be implemented quickly, they are crucial elements of any package aimed at easing economic distress quickly," the report added.

The report also noted that certain industries such as construction and manufacturing are likely to experience especially strong job growth from a recovery package like Obama's that includes emphasis on infrastructure, energy and school repair. Additionally, more than 90% of the jobs the plan is expected to create are expected to come in the private sector.

Authors Romer and Bernstein cautioned, however, that, because of the hypothetical nature of the plan's implementation and the use of uncertain historical data, all of the report's estimates are subject to high margins of error. "Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity," they said. Additionally, the report offers little in the way of specific details about the construction of tax cuts and amounts allotted for states or public works projects, which have yet to be announced by the incoming administration.

A full copy of the report, as well as the President-elect's other comments on the plan, can be found on the transition team's website.

Jacob Barron, NACM staff writer

 

Stories of Victory and Defeat…The Winners Have Been Chosen!

Winners of Business Credit's Credit Words short story contest will be announced right here, next week, in the January 20 edition.

The competition was tough, but the front runners eventually emerged to take the top spots. We can hardly wait to share them with you!

 

7

Construction Slips as Outlook Remains Grim
The United States is on the cusp of one of the worst recessions in decades. The housing market collapse has left the wounded limping in a variety of sectors and has outright devastated banks and other financial institutions heavily invested in mortgage-backed securities. Over the past year, construction spending continued to slip, falling more than 3% year-over-year, but the November report from the Department of Commerce was not as bad as many expected.

The seasonally adjusted annual rate of sector spending in November was $1.078 trillion, 0.6% below the revised October estimate of $1.085 trillion. According to the Department of Commerce, spending for the first 11 months of 2008 totaled $998.4 billion, 5.3% below the $1.054 trillion seen for the same period the year before.

The bright spots were non-residential lodging, public safety, power and manufacturing related spending, which saw year-over-year growth of 26% or more, with total manufacturing spending up more than 50%. The bad news continues to come from the residential sector, which was at a seasonally adjusted rate of $328 billion in November, down 4.2% from October and off nearly 23.4% from November 2007.

Unfortunately, according to the National Association of Realtors (NAR), pending home sales continued to slide, falling 4% in November to the lowest point since the association began cobbling the index in 2001.

"Mounting job losses and very weak consumer confidence deterred home buyers from signing contracts in November," said Lawrence Yun, chief economist, NAR. "December's housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed."

Yun said the outlook for the housing sector is placed squarely on the shoulders of a possible stimulus package. "With a proper real-estate focused stimulus measure, home sales could rise more than expected, by more than 10% to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country," said Yun. "Stable home prices will, in turn, lessen foreclosure pressures and lay the foundations for a solid economic recovery as the nation's 75 million homeowners regain confidence."

Public construction spending continued to see modest gains as the seasonally adjusted annual rate was $322 billion in November, up 1.4% from October and up 7.9% year-over-year.

Matthew Carr, NACM staff writer

Reap the Rewards of Participation

NACM surveys exist to benefit you, the credit professional. NACM conducts two surveys on a monthly basis: the NACM Monthly Survey and the Credit Manager's Index.

These surveys don't just give us data, they help us produce the resources and answers you need for your day-to-day accomplishments.

NACM appreciates your participation in both on a monthly basis. Just look to your email for monthly reminders!

8

U.S. Bankruptcy Process Works, Weeds Out Weak
With high-profile company bankruptcies becoming distressingly common, many would be hard-pressed to find an upside. According to a new study by three finance researchers at the University of Utah's David Eccles School of Business, however, there might be a silver lining of sorts: the effectiveness of the U.S. bankruptcy system.

They found that 80% of fundamentally sound companies, those with good business models but too much debt, reorganized and emerged from Chapter 11 with only 7% fewer assets. On the other hand, just 37% of economically distressed companies, those with severe business problems such as poor management, outdated technology or flawed business models, reorganized with less than 50% of their original assets. The remainder were liquidated or purchased by other firms. In addition, all reorganized firms had reduced debt by 50% by the time they emerged from Chapter 11.

"We found that the bankruptcy system is largely successful at helping fundamentally strong companies recover, while dismantling weaker companies whose troubles are more severe," said Elizabeth Tashjian, associate professor of finance and a member of the Academic Advisory Council of the Turnaround Management Association.

The study reviews data from 530 companies that entered bankruptcy between 1991 and 2004, making it more comprehensive than previous research, said Tashjian. "There's no question that the process isn't perfect, but it seems that Chapter 11 is doing what it's supposed to do," she said, "taking away assets from firms that are destroying their value and retaining them in firms with a good chance of surviving and creating value."

While previous research has focused on the average outcomes of firms entering Chapter 11, Tashjian said she and her co-authors, Utah professor of finance Michael Lemmon and Ph.D. student Yung-Yu Ma, recognize that firms file for bankruptcy for different reasons. The researchers used two accounting variables: operating earnings to assets, with profit margins adjusted by industry, and debt to value: the amount of leverage a company has. Financially distressed firms tended to have bad debt ratios but good operating performance. With economically distressed firms, it was the other way around.

Source: David Eccles School of Business

 

Credit Reports

The collection of information about a potential customer enhances the quality of the credit granting decision. That same information also has strategic implications: it can strengthen a company's understanding of its customer base and lead to expanding that base. The credit department is, in effect, an information warehouse within any company.

NACM understands that business credit reports are the keystones that help credit professionals make sound credit decisions. NACM Affiliates can provide credit professionals with the most complete, objective and accurate reports available.

Business Credit Reports:

Click here to learn more about NACM's Credit Reports.

 

9

New Interest Rate Set for Late Payments on Federal Projects
On Dec. 30, 2008, the U.S. Department of the Treasury's Fiscal Service published a notice that the interest rate used to determine the penalty for late payments by federal agencies and upper-tier contractors on federal projects will be 5.625% effective Jan. 1, 2009, through June 30, 2009. The Contract Disputes Act of 1978 and the Prompt Payment Act of 1982 give the Secretary of the Treasury the authority to set the rate used to calculate interest due to providers of goods and services to the federal government. The Fiscal Service updates the rate every six months.

Source: American Subcontractors Association, Inc.

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