October 10, 2013
United TranzActions' Rudet Fountain agrees with the Federal Reserve regarding what it believes are existing problems within the payment systems world, especially regarding electronic payments. However, Fountain does worry that the solutions eventually proposed by the Fed will come up a bit short, especially if end-users like NACM's members do not make their voices heard in the coming weeks and months.
The Federal Reserve continues to accept public comments on perceived problems and solutions regarding electronic and other types of payments (see last week's eNews). Topics such as increased potential for fraud, international transactions, timeliness of funds availability and efficiency gaps are front of mind in the Fed's report titled Payment System Improvement–Public Consultation Paper. Fountain is among those who believe the Fed hit the mark in enumerating the problems. However, he fretted about the Fed issuing broad-brush solutions.
"Every industry is going to have unique needs," said Fountain, UTA's vice president of NACM relations. "To come up with a one-size-fits-all solution is virtually an impossible task." He also worried that because fixes for the B2B sector would be expensive for a relatively small number of parties compared to the business-to-consumer side, small and medium-sized businesses could possibly be underrepresented.
The Fed has generally skewed more toward consumer-based fixes, rather than B2B ones. However, without businesses coming forward to talk about what they need and how critical it is to understand the differences between consumer-based and B2B transactions, solutions could be even more mismatched to the B2B world, which is a headache small and medium-sized businesses do not need.
Along with the online survey that is open now through December 13, B2B credit professionals should consider attending regional Fed open forums on the topic once dates are announced to speak to what the credit industry needs in the way of potential Fed guidance and regulation. "We need to get people there as merchants because we have a vested interest in this," Fountain said. "The Fed said they wanted to have end-users involved because they are going to be the ones who have to use the solution. I think it is important for businesses to say what they think the solutions are."
Fountain recalled the problems businesses had last decade when the National Automated Clearing House Association (NACHA) made widespread ACH system changes. The rules were crafted almost solely on the recommendations of banks and technology companies when ACH moved from a bank-only to a B2B service. The fallout was that businesses had severe difficulty operating within such an inconvenient framework. Thus, the effort was not nearly as successful as it could have been. This effort, at least in theory, has a chance to be different.
"I do think there is room to get involved and have our voices heard as end-users," Fountain said.
- Brian Shappell, CBA, CICP, NACM staff writer
For more information on the Fed electronic payments effort or to fill out its online survey on the topic, click here. Check back with NACM's weekly eNews and our blog for more updates on the Fed effort and details about open forum events.
NACM National Trade Credit Report—By NACM Members, for NACM Members
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Recognizing the growing importance of international business, NACM is pleased to announce the Graduate School of Credit and Financial Management International (GSCFMI) beginning in June 2014. Developed in partnership with FCIB, the new, four-day program will run concurrent to the traditional Grad School program.
"Dealing cross-border and cross-culture can result in many pitfalls that, if not managed correctly, can negatively impact the value and collectability of receivables and, as a result, a company's balance sheet," said Craig Schurr, senior vice president and manager of international banking at FirstMerit Bank and instructor for GSCFMI. "The speed of business today, facilitated by technology and a seemingly endless sea of information heightens the importance of getting 'it' right every time. The added pressure of dealing with new and ever-expanding regulatory environments makes the job of today's international credit and finance professional even more challenging. It is more critical than ever that international businesspeople have up-to-date information, tools and connections to facilitate flawless performance of their responsibilities."
GSCFM alumni, CCE, CICP and ICCE designation-holders are encouraged to attend the program, which includes 24 hours of total educational programming on top of various networking opportunities. Michelle Sparks, CCE, a regional credit manager with Allied Building Products Corporation who recently completed Grad School, said she believes there is a need and demand for continuing education opportunities focused on international business and credit developments. "So many companies are international today, and the way credit is handled when dealing out of the country is so different. A program of this nature will be very helpful," Sparks said.
The schedule of classes and instructors list for GSCFMI is as follows:
- Export Compliance: Lizbeth Rodriquez, Esq., Holland & Hart LLP
- Investigation & International Business Ethics: Harry Brandon and Gene Smith, Smith Brandon International, Inc.
- Foreign Exchange: Kevin Hebner, JPMorgan Chase Bank
- Sovereign & Political Risks and the Role of International Credit Insurance: Jim Dezell, Marsh USA, Inc.
- Payment Methods and Legal Structures: Craig Schurr, FirstMerit Bank
- Incoterms and Their Applicability: Michael Ford, BDP International
For more information on GSCFMI, visit http://www.nacm.org/gscfm-international.html.
Now Surveying: Eastern Europe
FCIB's International Credit and Collections Survey is the only monthly survey of its kind. The easy-to-answer, six-question survey asks credit and risk management professionals to share payment trends and collection experience in categories like:
- Top payment method
- Average number of days granted
- Average number of past due accounts
- Average payment delay
The unique survey results, in conjunction with invaluable archived data, give FCIB's members critical insight into current and past global credit practices. Participation* enters you into a raffle for a chance to win a complimentary live or recorded one-day webinar of your choice from FCIB's Executive Development Webinar Series.
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*International Certified Credit Executive (ICCE) applicants and renewals earn 1 participation point.
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While cash flow trends stabilized in the most recent readings from the Georgia Tech Financial Analysis Lab, a continued decline in company revenues and a drop in capital spending suggest a looming economic slowdown for the United States.
The lab, led by NACM Graduate School of Credit and Financial Management (GSCFM) Instructor and Georgia Tech Accounting Professor Charles Mulford, examines cash flow trends by measuring free cash flow, meaning a company's discretionary cash flow that can be used for acquisitions, debt retirement, stock buybacks and dividends without affecting the firm's ability to grow and generate more revenue. Each quarterly report produces a free cash margin index by surveying nearly 3,000 companies with a market capitalization of at least $50 million and dividing their free cash flow by their revenue. While this index dropped from 4.76% to 4.52% in the last report, reflecting the 12 months ending March 2013, the most recent figures recovered to 4.63% for the 12 months ending June 2013. For comparison's sake, in December 2008 during the height of the recession, the index was at 3.96% and its most recent high was at 7.18% in March 2010.
This recovery of the free cash margin index was driven by an increase in profitability, which was a result of a reduction in selling, general and administrative (SG&A) expenses and capital spending during the second quarter of 2013. While an increase in free cash flow as a percentage of revenue could be considered a positive, the decline in capital spending also mirrored a decline in median revenues, which fell to $736.85 million in the 12 months ending June 2013 from $747.23 million for the same period ending March 2013 and from $753.35 million in the period ending June 2012.
Put simply, according to the report, "the quarterly decline of 1.39% and year-over-year decline of 2.19% signal a slowdown for the U.S. economy." The reason is that while the increase in the free cash margin index is a stabilizing sign for the economy after the first quarter's large decrease, the reduction in SG&A expenses and capital spending is not sustainable in the long term. In short, "free cash margin has ticked up, just as it did during the recession, but for all the wrong reasons," the report warned.
"As we complete this report, so-called 'nonessential' operations of the U.S. government remain closed as members of Congress debate aspects of the Affordable Health Care Act specifically, and overall government spending generally. Making discussions difficult is the added pressure of the upcoming debate focused on increasing the debt limit," the report said. "Such high-level brinksmanship does not foster business confidence and weighs on business activities. We are already seeing signs of a slowdown as median revenues and spending on capital assets decline...We will only know with the prescience of time where these measures will ultimately lead."
A full copy of the most recent report can be found here.
- Jacob Barron, CICP, NACM staff writer
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Reports out of Indonesia, where most nations involved in the Trans-Pacific Partnership (TPP) gathered this week, indicate that much progress was made and the free trade agreement (FTA) could be completed by year's end. While that's encouraging, there are many concerns, especially from U.S. businesses, about specifics and what countries didn't have representatives in attendance.
Trade representatives and leaders from nations involved in the TPP believe enough progress has been made for the FTA to be completed in the coming months, though it would be subject to approval by individual governments. Because of the involvement of Japan, which has historically been viewed as protectionist in such situations, the level of optimism among participants was somewhat surprising. Japan's presence, and in some ways that of the United States, had more than a few experts wary of a quick resolution.
While speaking at FCIB's 24th Annual Global Conference in September, Peter Blair Henry, dean of the Leonard N. Stern School of Business at New York University, scoffed at reported predictions of a completed FTA as early as October. "It takes two to tango," said Henry of the willingness on the part of two power economies accustomed to getting their way to negotiate, especially since Japan has only been involved for a couple of months. "This is almost always missed," he said, believing the hopes of a quick resolution to be overly optimistic. Notably, it wouldn't be a first for an FTA, especially involving the U.S. or Japan, to near completion only to experience massive roadblocks and delays at the last minute.
Another problem with this week's optimism is that many in the U.S. business community, including the Chamber of Commerce, are troubled by the lack of specific details that have emerged from the meeting to date. Also troubling was who did not attend, namely anyone from the Obama Administration. Any U.S. presence at the negotiations was nixed because of the government shutdown and debt-ceiling impasse. Such political factors also could come into play regarding U.S. Congressional passage of an eventual TPP pact. After all, partisan infighting between Congress and the Administration played a role in the previous enactment delays of three long-completed trade pacts, described by some as "no-brainers," with Colombia, Panama and South Korea.
The TPP represents a greater interest from developed economies in the "Pivot to Asia" in the fast-emerging southeast part of the continent. The pact would also include economies like Vietnam, and Singapore, as well as Chile and Australia, among others. Carlos Montoulieu, of the U.S. Department of Commerce, told NACM in late 2012 that the TPP was the Obama Administration's top priority regarding trade.
- Brian Shappell, CBA, CICP, NACM staff writer
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A federal judge in Manhattan struck down New York's surcharge ban last week, allowing merchants in the state to pass down their card processing fees to credit card-using customers.
A group of small businesses from across the state challenged the ban, enacted in Section 518 of the New York General Business Law, on the grounds that it violated the First Amendment by arbitrarily penalizing businesses for surcharging while simultaneously granting them the right to offer discounts to cash or debit card-using customers. U.S. District Judge Jed Rakoff agreed and ordered the state not to enforce the ban. "Alice in Wonderland has nothing on Section 518 of the New York General Business Law," Rakoff wrote. "This virtually incomprehensible distinction between what a vendor can and cannot tell its customers offends the First Amendment and renders Section 518 unconstitutional."
New York is one of 10 states with a de jure surcharging ban, and as the language in the other nine states' statutes is largely similar to the language rejected by Judge Rakoff in New York, his ruling could result in a wave of similar legal challenges in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas. Furthermore, the ruling could cool efforts in at least 18 other states to institute surcharging bans of their own.
A de facto ban on surcharging existed nationwide until January, when the preliminary approval of a settlement in the antitrust case against Visa and MasterCard granted merchants the right to pass on their credit card processing costs to their customers. That settlement, which has faced widespread merchant opposition, is still under consideration by U.S. District Court Judge John Gleeson in Brooklyn. Additional terms of the settlement include $7.25 billion in payments to merchants and a controversial provision that releases Visa and MasterCard from future antitrust suits against the way they set their interchange, or "swipe," fees.
The still-pending settlement's provisions that allowed merchants to surcharge credit card users were included in order to soothe the concerns of merchants who felt that the agreement was an otherwise raw deal. However, merchants, and especially retailers, have argued that surcharging is an untenable solution to the problem of high interchange fees, which, they argue, are set by Visa and MasterCard unilaterally and in secret. Part of the merchants' argument has hinged on the fact that the settlement would not supersede state-wide surcharging bans, like those in the states mentioned above and the one recently found unconstitutional in New York, making the settlement's surcharging allowance largely useless. Further rulings finding surcharging bans unconstitutional could strengthen the settlement's chances for full approval, as the state-law bans on this behavior become less of an obstacle to merchants seeking some form relief from their card processing fees.
- Jacob Barron, CICP, NACM staff writer
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This week's HSBC Global Connections Trade Report indicated that U.S. business leaders expected trade to rise over the next six months as global economic conditions improve and demand for infrastructure goods soars.
So confident are U.S. small and middle-market businesses in their near-term trade prospects that their responses to HSBC's survey drove the HSBC Trade Confidence Index from 107 to 114, an all-time high since the index's inception and higher than the global average of 112. Additionally, 67% of U.S. business leaders surveyed expected export and import volumes to rise in the next six months, up from 48% in the second half of 2012, and 29% cited improved global economic conditions as the main reason for increasing business, the report found.
The increasing infrastructure needs of emerging markets are expected to drive increases in U.S. exports. In particular, the report found that industrial machinery and transport equipment are expected to be the top sectors for U.S. export growth, accounting for 35% of the growth in exports over the next three years. On a global basis, HSBC reported that infrastructure trade, meaning imports and exports of both infrastructure goods and investment equipment, is set to triple by 2030, growing at an average annual rate of 9% from 2013 to 2030 and eventually accounting for 54% of total global goods exports by 2030. Currently infrastructure trade only accounts for 45% of total goods exports.
"Infrastructure is the bedrock that enables economic activity," said Steve Bottomley, group general manager and head of commercial banking in North America for HSBC. "The investment countries are making in infrastructure is phenomenal and provides a huge opportunity for U.S. businesses looking to grow and develop."
On a regional basis, the survey found that U.S. businesses consider Latin America to be the most promising region for export trade growth in the near term, with China and Canada following closely behind.
- Jacob Barron, CICP, NACM staff writer
To view past eNews issues or to visit the NACM Archives, click here.