eNews May 29, 2014

May 29, 2014


News Briefs

  1. House-Passed NDAA Includes NACM-Supported Construction Provisions
  2. New York State Collections Bill Another Example of How Consumer, Commercial Credit Receives Similar Treatment
  3. Mechanic's Lien Changes on the Way in North Carolina?
  4. As Manufacturing Enters "Era of Disruptive Complexity," Sector Shifts Focus to Partnerships According to KPMG Report
  5. WTO Rules against China on Restricting American Auto Exports
  6. Housing Prices Continue to Rise, but Pace of Improvement Lagging


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House-Passed NDAA Includes NACM-Supported Construction Provisions

The US House of Representatives approved the National Defense Authorization Act (NDAA) for fiscal year 2015 late last week, sending the bill to the Senate for further consideration. Buried within the massive annual spending bill's more than 700 pages were some contracting provisions that NACM has argued could greatly benefit subcontractors and materials suppliers.

After previously emerging from the House Armed Services Committee earlier this month, the NDAA, H.R. 4435, moved on to the Senate with provisions from H.R. 776, the Security in Bonding Act, intact. The included provisions would, according to the Security in Bonding Act's original sponsor Rep. Richard Hanna (R-NY), amend the Federal Acquisition Regulation (FAR) to expand the licensing prerequisites that currently only apply to corporate sureties to so-called individual sureties as well, requiring "non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government" and requiring that "those assets be held by a government entity to ensure payments can be made in the event they are needed."

NACM endorsed H.R. 776 earlier this year when it was first under consideration in the House Small Business Committee. "For our members, when extending credit to a general contractor, the presence of a bond from a so-called 'individual surety' can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress," said NACM National Chairman Chris Myers and President Robin Schauseil, CAE in a letter of support. "This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy."

According to the Surety & Fidelity Association of America (SFAA), marked-up provisions related to H.R. 776 that have also made it into the NDAA, include a measure that would increase the Small Business Administration's (SBA's) maximum bond guarantee to the sureties in the Preferred Surety program of its Bond Guarantee Program from 70% to 90%, among other contracting amendments from other pieces of legislation.

Congress has passed the NDAA every year for nearly 40 years, making it a noteworthy target for lawmakers to attach other related pieces of legislation to what amounts to a must-pass bill that dictates the budget priorities of the Department of Defense for the coming fiscal year. NACM will monitor the legislation as it continues through the Senate.

- Jacob Barron, CICP, NACM staff writer

Check Out NACM's 2014 Issue Brief

The latest edition of the National Association of Credit Management's (NACM's) Legislative Introduction and Position Brief contains its first ever section dedicated to improving the nation's payment protections for construction subcontractors and materials suppliers, as well as an expanded, updated section of the vital differences between consumer and commercial credit reporting. Check out the 2014 Edition here, or look for it in the June 2014 issue of Business Credit.

New York State Collections Bill Another Example of How Consumer, Commercial Credit Receives Similar Treatment

A New York Assembly bill being considered in Albany seeks to force debt collection agencies to become licensed for all activities within the state's borders. While at least one expert attorney believes this won’t hurt trade creditors in a significant way, the proposal is another stark example of lawmakers treating commercial and consumer credit as one and the same.

New York's A00455, sponsored by Jeffrey Dinowitz (D-Bronx), passed its third reading earlier this month in the New York Assembly, and its next step will likely be a full vote. The legislation would require third-party debt collection agencies to obtain a license, which would cost $500 and last two years, to operate in the state. It would also require the agencies to obtain surety bonding in an amount between $10,000 and $75,000, depending on the number of employees. Violations would draw civil penalties between $100 and $10,000 per offense.

Wanda Borges, Esq. of Borges & Associates LLC said the proposal closely mirrors a similar licensing effort out of New York City pertaining to attorneys. That law remains in appeals court, as attorneys have argued they should be exempt because of existing and stringent state-based code and ethical standards for lawyers. The intent of the state lawmakers, unintended consequences aside, behind A00455 is to root out illegal or unethical activity from non-licensed collectors of consumer debts. Borges' interpretation is that the state proposal does appear to include exemptions for trade credit grantors collecting their own debts and law firms collecting debt tied to a court action or bankruptcy.

Most troubling is that several representatives of the bill's sponsors had no idea as to whether the provisions would impact trade creditors directly, when asked by NACM. In a follow-up, one lawmaker's representative said there was "no differentiation" in their eyes between consumer and B2B credit and no thought was given to separate the two when the legislation was crafted.

"That part bothers me. They don't get it at all," said Borges. "It's just like with the Red Flag Rules a few years ago. These are not financial institutions, these are not consumers. I don’t think anyone in Albany focused on or even understood the difference between consumer and commercial debt."

The good news is that trade creditors likely won’t be affected in a direct, negative way by A00455 should it pass, as is expected. But the ignorance regarding the differences between trade and consumer credit in New York once again underscores the importance of NACM members keeping abreast of any proposed legislation in their areas, as unintended consequences often can carry a heightened potential to damage the trade credit industry.

- Brian Shappell, CBA, CICP, NACM staff writer

Credit Congress Session Highlight: Order-to-Cash (OTC) Metrics: The Essentials—Today and Tomorrow

Speaker: John Salek, Genpact

Measuring OTC and AR performance should be a critical part of any company’s strategy for achieving best-in-class operations. However, choosing the right metrics is equally important. Many companies track too many performance measures, burying themselves in data that adds little value. Some fail to track certain key performance indicators (KPIs) that could add significant business impact. Still others neglect to adjust metrics as their business changes, leaving them with performance gaps through which cash flow, profit and/or revenue is lost. This session focuses on the few, absolutely essential metrics your organization should track. It also explores case studies where the metrics requirement changed as the business evolved. Attendees gain a better understanding on how to keep their finger on the pulse of their OTC operations, and an awareness that those metrics should evolve as their business changes.

Learn more and register for Credit Congress here.

Mechanic's Lien Changes on the Way in North Carolina?

A committee within the General Assembly of North Carolina is expected this week to consider legislation that will make two sets of changes in the state's mechanic's lien law. One attorney with clients in the state believes the change could be positive for creditors and materials suppliers overall, but it could also allow the state to undermine some lien rights.

A Judiciary subcomittee was tentatively scheduled to consider the two-week-old mechanic's lien-related proposals (H.B. 1101 and H.B. 1102) on May 28. H.B. 1101 seeks to improve protections provided in the state on construction projects regarding performance bonds. James Hays, Esq., a partner with Gonzalez Saggio & Harlan, believes the changes will be good for creditors and subcontractors.

"It requires bonds for improvements when the state or county enters a long-term lease, such as to a Development Authority," Hays said. "Some projects where the owner is still the government, and therefore no lien rights exist, are now required to be protected by bonds as if the governing body was contracting for the work." As such, Hays believes it could possibly become a more frequent tactic by state governing bodies pursuing new development to go the P3 route. Note: The June issue of Business Credit discusses an exception written into the proposal for public-private partnerships P3s.

H.B. 1102 simply clarifies information required to be provided in a notice to a lien agent. Hays noted further that the notices should not alter anyone’s current approach to the lien law and that it "merely establishes that the preliminary notice does not serve as the required lien notice after the work has concluded."

- Brian Shappell, CBA, CICP, NACM staff writer

For extended analysis and breaking developments on this and other legislative efforts related to mechanic’s liens, members of NACM’s Secured Transaction Services can visit www.nacmsts.com.

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As Manufacturing Enters "Era of Disruptive Complexity," Sector Shifts Focus to Partnerships According to KPMG Report

Change is speeding up in the manufacturing world, presenting the sector with new and increasingly more cumbersome challenges according to the 2014 Global Manufacturing Outlook (GMO) published earlier this month by KPMG International.

Describing a new era of "disruptive complexity," this year's GMO revealed that the manufacturing sector is currently experiencing "hyper-innovation," according to KPMG Global Chair, Industrial Manufacturing and Partner Jeff Dobbs. "Over the past few years, manufacturers have seen an explosion of new technologies and innovative developments in material science, advanced manufacturing and synergistic operating models," he added. "With this accelerating pace of change, manufacturers the world over are now starting to take stock of the more complex world that they are operating in, and are using that insight to redefine 'the art of the possible.'"

In response, the study found that almost half of the 460 senior executives that participated in the survey planned to double their investment in research and development over the next two years, with 88% of respondents indicating that partnerships more than in-house efforts will shape their company's approach to innovation, up from 51% in the 2013 report. Furthermore, 68% of participants said they were adopting more collaborative business models with suppliers and customers, particularly respondents in Europe, the Middle East and Africa (EMEA), who overwhelmingly agreed (82%) with adopting more collaborative models.

Manufacturers have also become more focused on improving supply chain visibility, which is to say working to make their supply base and sellers more transparent. Thirty-eight percent of respondents said they lacked critical details on supplier performance and 36% said they lacked adequate supply chain IT systems. Still, visibility in the sector's supply chain has increased since 2013, with 22% of respondents claiming to have complete visibility, up from just 9% in 2013, driven primarily by stronger relationships between manufacturers and their top-tier suppliers.

A full copy of the report can be found here.

- Jacob Barron, CICP, NACM staff writer

Feel the Power of an NACM Industry Credit Group

Need information? Need to separate fact from fiction? NACM Industry Credit Groups are one of the best sources available to the credit professional to help form sound judgments on their customers. You'll enjoy the benefits of open communication lines for the exchange of credit information and discover new networking opportunities. The cumulative experience and expertise of many is power indeed!

Managed and operated by NACM Affiliates nationwide, credit groups:

  • Provide unparalleled networking opportunities
  • Assist in the exchange of credit information on common customers
  • Facilitate the receipt and analysis of information to make unilateral credit decisions
  • Provide a forum to discuss the latest developments on credit department procedures,
    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.

WTO Rules against China on Restricting American Auto Exports

The World Trade Organization (WTO) ruled against China on a trade dispute regarding China's policies on accepting US automotive exports last week.

US Trade Representative (USTR) Michael Froman brought the case on behalf of American auto manufacturers who argued that China's imposition of antidumping duties (ADs) and countervailing duties (CVDs) on US-made cars and sport-utility vehicles breached numerous international trade rules, and the WTO agreed.

This marks the third recent victory for the USTR in terms of WTO trade cases against the opaque way in which China sets its ADs and CVDs to prevent American exports from entering the world's most populous consumer market. The two previous cases, brought and won by the US against China through the WTO's dispute resolution process, involved US specialty steel products and chicken broiler products.

"This is the third time that the United States has prevailed in a WTO dispute challenging China's unjustified use of trade remedies. Each time, a WTO panel of experts has made clear that China had no basis whatsoever for imposing duties on American goods," Froman said. "The message is clear: China must follow the rules, just like other WTO members. USTR will keep pressing for China to change its trade remedies practices that unfairly restrict US exports."

The US exported $64.9 billion worth of autos in 2013, with $8.5 billion of that, 13% of the total, going to China, making it the second-largest export market for the US automotive industry behind Canada. According to the USTR, China's duties on these exports ranged up to 21.5% and affected an estimated $5.1 billion worth of US auto exports last year.

- Jacob Barron, CICP, NACM staff writer

See These Jobs and More—Right Now on NACM's Credit Career Center!

B2B Collections Specialist at Dayton Superior Corporation in Elk Grove Village. IL
Director of Financial Services at WESCO Distribution, Inc. in Pittsburgh, PA
Field Credit Manager at Sygma Network in Dublin, OH
Regional Credit Manager at Titan Florida LLC in Deerfield Beach, FL
Credit Manager - Contractor Direct at Bridgewell Resources LLC in Tigard, OR

View all current job postings.

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Employment Connections for the Business Credit Community.

Housing Prices Continue to Rise, but Pace of Improvement Lagging

March's S&P (Standard & Poor's)/Case-Shiller Home Price Indices showed both good news and bad news. While 19 of the nation’s 20 largest markets showed increases, the pace of the housing rebound is not advancing as quickly as recently predicted or reported.

S&P Dow Jones noted that its 10-City and 20-City Composite indices increased by 0.8% and 0.9%, respectively, in March. Though new record index levels were found in the Dallas and Denver markets and Chicago showed its best annual growth since the late 1980s, an easing of the growth rate demonstrated in "boom-bust" markets like Las Vegas and San Francisco was the big story from the May 26 data release.

David Blitzer, PhD, chairman of the Index Committee at S&P Dow Jones Indices, acknowledged that prices are rising more slowly and blamed factors such as the high student loan debt levels of would-be first-time homebuyers and tough bank lending standards for some of the drag on housing activity.

The top February-to-March gainer in the latest report was San Francisco at 2.4%, with Seattle close behind. The Bay Area market was also one of the top two in one-year growth at 20.9%, behind only Las Vegas' 21.2%. Though in the top two markets, it is troubling that each had been tracking gains between 25% and 30% during their post-downturn peaks, according to S&P/Case-Shiller statistics. New York was the only market to post a monthly loss (-3.3%) in March. The worst annual percentage change was found in Cleveland (3.9%) and Charlotte (4.9%).

- Brian Shappell, CBA, CICP, NACM staff writer


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