August 1, 2013
The Credit Managers' Index (CMI) fell from its June high of 56.1 to 55.5 in July, led by a sharp decline in collections.
The "dollar collections" category moved from 59.3 to 57.5, taking the category down to some of the lowest readings of the past year. Only three of the last 12 months were lower than July's, suggesting that there are some additional strains showing up within the creditor community. All of the other favorable factors declined as well, and the favorable index as a whole fell from 62.8 to 62.4.
Some favorable factors fell more precipitously than others. "Sales" is still in the 60s with a reading of 61.4, but this is lower than was recorded in either May or June. "New credit applications" had been surging along in recent months, but in July it retreated from 58.8 to 58. "This is not a big drop and this month is still stronger than any of the previous months, except for May and June," said NACM Economist Chris Kuehl, PhD. "There is a slowing of credit interest but nothing that would suggest a mass reversal."
There was also some change and adjustment in the unfavorable index, which also fell from 53 to 52.6, although unlike in the favorable factors, some unfavorable categories saw improvement. "Rejections of credit applications" moved from 52.5 to 53.2, reinforcing the notion that there is still tolerance for risk in the credit community. "Accounts placed for collection" slid just slightly from 53.9 to 53.6, which is essentially flat. "There is no real sense that there is a crisis in payments across the board," said Kuehl.
All in all, the July data suggests that growth slowed but not enough to plunge companies into full-blown crisis. "Given that the national data has been pointing towards a slowing economy this is not too shocking," said Kuehl. "There are some clear areas of retreat, but just as important is the fact that there are some clear areas of growth and that provides some encouragement for the rest of the year."
A full copy of July's CMI report, complete with graphs and commentary, can be found here.
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The Virginia Small Business Commission scheduled another meeting later this month to discuss the future of House Bill 2198, which could affect the exchange of commercial credit information on businesses in the commonwealth.
According to the Commission's website, the next meeting will take place on August 29 in Richmond, VA. While no agenda has been made available to the public as yet, NACM has been in contact with Commission staff members who have made it clear that the meeting will consist of the HB 2198 workgroup, a group of proponents and opponents of the bill that was informally established at the Commission's last meeting in June.
NACM has opposed HB 2198 since its introduction and will attend the hearing on August 29 to continue to ensure that the interests of unsecured trade credit grantors are considered by Virginia legislators. The results of the workgroup's efforts in August will be presented to the full Small Business Commission at their next meeting on September 10.
The provision of HB 2198 causing the most concern would require commercial credit reporting agencies to make the source of a certain piece of information on a commercial credit report known to the subject of that report, if the information was considered "negative," which is a term the bill fails to define. Other provisions of the bill aim to more closely regulate commercial credit reports, and bear close consideration as well.
At the June meeting, the Commission made no recommendation about whether to endorse or reject the legislation, instead urging both sides of the debate to work together on a more agreeable measure. Commission members were especially receptive to testimony, provided by Richmond-area NACM member and Credit Manager Doug Strobel and NACM South Atlantic COO Anton Goddard, that illuminated the importance of the free and open exchange of trade credit information, including the facilitating effect that anonymity can have on this process, as well as how any measures jeopardizing that could affect the speed and accuracy of the credit decision process.
NACM will continue monitoring the bill in all its forms throughout and opposing any provisions that could restrict the free and open exchange of credit information. If you have any questions or comments about HB 2198, contact Jacob Barron, CICP at email@example.com.
- Jacob Barron, CICP, NACM staff writer
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Despite growing concern about the debt woes of various U.S. municipalities that spiked with Detroit's recent Chapter 9 filing, Standard & Poor's (S&P) does not believe the problem will spread.
S&P analysts view fiscal problems that could necessitate Chapter 9 filings more as isolated pockets of distress than something that will affect other cities as a trend. "We view Detroit's default and subsequent bankruptcy filing as idiosyncratic, and not as a symptom of a wider issue," said S&P credit analyst Jane Hudson Ridley. S&P also characterized the municipal sector as generally stable and resilient.
It appears that more recently reported troubles in Chicago likely place it outside of that "generally stable" prediction. Moody's Investors Service cut several of Chicago's credit ratings last month, including its general obligation, sales tax and water and sewer lien revenue ratings. The primary reason listed by Moody's was escalating pension funding issues. In addition, public officials there have been talking openly about the Detroit filing while discussing their own problems in keeping up with resource costs and aforementioned retiree entitlements.
In fact, Bruce Nathan, Esq., partner at Lowenstein Sandler LLP, noted in the immediate wake of the Detroit filing that Chicago also faced deep fiscal problems. Nathan still believes, unlike S&P, that the increased attention on municipal bankruptcy as a result of Detroit's filing could inspire a trend among struggling U.S. cities. If nothing else, as he predicted months before the filing, the Detroit case has more media and market watchers than ever before talking about Chapter 9 and the effect pension payments are having on city budgets throughout the country.
- Brian Shappell, CBA, CICP, NACM staff writer
Businesses risk billions of dollars each year on sales on credit. How do you find your way between fact and fiction, hope and charity, and faith and foolishness?
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While the fight over credit card interchange fees continues to work its way through courts in the United States, Canada and the European Union have also waded into the battle, both focusing more on new regulations than on legal rulings.
Canada's Competition Tribunal ruled against the Commissioner of Competition last week in a case brought against the Canadian arms of Visa and MasterCard over the card networks' surcharging and acceptance requirements. The Commissioner, which serves as Canada's consumer watchdog, alleged that Visa and MasterCard rules that bar merchants from levying surcharges on card users and force merchants to accept all of each company's credit cards, including those with higher interchange fees, have "an adverse effect on competition."
Although the Tribunal dismissed the case, it acknowledged that these rules were anti-competitive, but also said that the solution to the problem lay in a change in Canada's regulatory framework, leaving the door open for future challenges, according to the Canadian Federation of Independent Business (CFIB). "While the decision is disappointing, CFIB is pleased the Competition Tribunal recognized the adverse effect Visa and MasterCard policies have had on competition," said CFIB President Dan Kelly. "The Tribunal has also suggested a regulatory solution."
Should it come to that, Canada's regulatory solution might resemble the bold proposal put forth by the European Commission a day after the Competition Tribunal's ruling. Under the EU's plan, interchange fees for cross-border consumer debit and credit card transactions would be capped at 0.2% and 0.3%, respectively, starting two months after the proposal is approved. These limits would be expanded to apply to all consumer debit and credit transactions in the EU two years later.
The commercial application of these limits could differ on a sovereign-by-sovereign basis. The Commission's proposal uses a previous regulatory directive's definitions, which state that "as consumers and enterprises are not in the same position, they do not need the same level of protection." However, the same directive provides that member states should be able to treat smaller businesses as they would consumers, and that certain "core provisions" of the proposal should always be applicable, regardless of the status of the user.
- Jacob Barron, CICP, NACM staff writer
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South Korea continues to show strength with the recent news of its best quarterly growth rate since early 2011. This comes as the emerging economies of Brazil, Russia, India, China and South Africa—the BRICS countries—which South Korea trails just behind, report significant declines in growth rates and business conditions.
The nation posted 1.1% growth for the second quarter, beating Q1 2013 and Q2 2012 results and analysts' estimates. Confidence appears to be booming on other fronts, as well. A Wall Street Journal report found that business startups have nearly doubled over the last four years.
NACM Economist Chris Kuehl, PhD said the latest news out of South Korea "verges on the spectacular. The growth is the fastest seen in two years, and the reason for the surge is a rapid expansion of the consumer sector." The expansion was particularly interesting given the turmoil with North Korea and easing growth in China, its biggest destination for exports, Kuehl said.
China's growth issue has many analysts concerned about South Korea's prospects beyond the short term. Wells Fargo Securities LLC Economics Group analysts noted Korean exports to China comprised more than 10% of its overall GDP. Other worries listed in a Wells Fargo report published late last week include a shrinking workforce due to an aging population, as well as perceived advantages that other countries, including China, have in the region when it comes to currency value.
- Brian Shappell, CBA, CICP, NACM staff writer
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