June 5, 2014
eNews will take a break next week for NACM's 118th Credit Congress in Orlando. The next issue of eNews will be published on June 19, 2014. For up-to-date credit news, visit NACM's blog.
The Credit Managers' Index (CMI), issued by the National Association of Credit Management (NACM), improved from 56 to 56.8 in May. This marks the second consecutive month of improvement for the index, further signaling the end of the first quarter's economic turmoil that appears to have been primarily caused by bad weather. Elsewhere in the May CMI report, the favorable factors index rose from 60.7 to 62.7, buoyed by a strong increase in sales, and the unfavorable factors index remained unchanged at 52.8, held back by a perplexing increase in disputes.
Earlier in 2014, the CMI predicted poor economic performance in the first quarter with a short series of declines that was eventually reflected in the US Commerce Department's recent revision of the US gross domestic product (GDP) figures, which indicated that the economy had endured negative growth at a rate of 1% for the first three months of the year. Recent CMI readings, however, have supported the hypothesis that analysts can expect the second quarter data to be much more positive.
The best news in the May report came in the favorable factors, which reached its highest reading in the last year thanks to a leap in sales. "The biggest jump took place in the sales category as the reading is now heading towards the 70 mark," said NACM Economist Chris Kuehl, PhD. "The index sits at 65.6 and that is by far the highest reading notched in well over three years." Indeed only one of the favorable factors now sits below 60 as of May's readings: new credit applications. The figure fell this month from 59.3 to 58.9, but the data suggest that while new applications for credit have slowed, fewer applications are also being rejected, which means that those applying for credit are in better financial shape. Furthermore, while new applications fell, amount of credit extended jumped considerably to 65, just shy of where it was at the start of the year. "There may be fewer applications, but there are more companies seeking larger amounts of credit," Kuehl said.
The unfavorable factors index remained flat at 52.8, which remains a respectable figure. Rejections of credit applications improved from 52.3 to 52.7 and accounts placed for collection improved as well from 51.7 to 53.8, suggesting that fewer business debtors overall are facing credit crises. An unexpectedly sharp deterioration in disputes, however, from 54.7 to 50.2, is most likely what held the index down. The decrease in disputes was somewhat baffling, and could have been driven by any of a number of different possibilities. "It may indicate that there is a stronger desire to adjust credit arrangements as companies anticipate a period of better growth," Kuehl noted. "It may also reflect the impact of the first quarter slump and the temporary nature of that economic dip."
Nonetheless, the combined index, coupled with improvements in both the manufacturing and service sectors, suggests that better days are ahead now that the winter doldrums are firmly in the past, barring any unforeseen surprises. "The impact of the bad first quarter is still being felt and it may be another month or two before the rebound noted in the favorable categories starts to make a real dent in the unfavorable categories," Kuehl said. "The news is good in the right places and there are fewer warning signs or cautionary notes this month. If that trend can be sustained for a few more months, one can talk of real recovery by the middle of the year, but thus far it seems that one good month is often followed by a more challenging one."
For a full breakdown of the manufacturing and service sector data and graphics, view the complete May 2014 report here. CMI archives may also be viewed on NACMâ€™s website at http://web.nacm.org/cmi/cmi.asp.
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The Arizona Supreme Court is considering a case, The Weitz Company, LLC v. Nicholas Heth, et al., in which one party is trying to use "equitable subrogation" to put lenders ahead of those holding mechanic's liens in construction disputes. The American Subcontractors Association has argued to the state's high court that failing to affirm a previous Arizona Court of Appeals' decision would "completely defeat" the legislative intent of the mechanic's lien code and unfairly shift added risk onto subcontractors to the benefit of owners. It argued the following in an amicus brief to the Arizona Supreme Court:
"The mechanic's lien statutes are one part of the intricate statutory framework adopted by the legislature to protect subcontractors and ensure that laborers and materialmen are paid for their work. All 50 states have some form of mechanic's lien statutes. The language and details of the statutes vary widely. However, the basic premise of all is that those whose labor or materials go into improving real estate should be permitted, in fairness, to satisfy their unpaid bills out of that real estate."
In Pennsylvania, there is legislation in both the House and the Senate related to lien law. In the House, Rep. Thomas Killion is pushing legislation to amend the stateâ€™s 20-year-old Contractor and Subcontractor Payment law. The Republican lawmaker argues that there are too many elements in the current statute that actually impede the ability of subcontractors to collect money owed to them by problem property owners or developers. A previous effort (HB 1602) spearheaded by Killion seeking to help subcontractors with payment on private construction projects passed the House by a 190-8 margin, yet it was not picked up for action by the Senate prior to the 2013-2014 Pennsylvania General Assembly session.
Meanwhile, on the Senate side, legislation being sponsored by Sen. Kim Ward and more than a dozen others seeks to amend the Mechanic's Lien Law of 1963 and is much further along. S.145 has advanced out of committee and to the Senate floor and seeks to clarify some issues, mostly language-related. It aims to provide new definitions of "costs of construction," and provide for stronger language regarding the right to lien and amount, for priority of lien and discharge or reduction of lien on payment into court or entry of security.
In West Virginia, June 6 marks the change of law in which it becomes a full-price lien state, instead of an unpaid balance state, for certain residential projects. Residential owners will not be indebted to a contractor when the property is an existing single-family home, if the residence in question is a new owner's primary residence or if the property is an owner-occupied single-family dwelling. This subdivision does not apply to a developer or builder of multiple residences except for the residence that is occupied as the primary residence of the developer or builder.
"States with unpaid balance lien laws require an extra level of diligence for suppliers and contractors," said Chris Ring, of NACM's Secured Transaction Services (STS). "These parties can't rely on a definitive date of last furnishing to file their lien because the lien is limited to funds remaining to be paid on a general contract. Because these parties are often not aware of when draw payments are cut, they are often forced to consider filing their lien well before a date of last furnishing. This is especially problematic for trades that are last on the job, such as flooring, casement and paint."
- Brian Shappell, CBA, CICP, NACM staff writer
More on these stories and other developments are available now for NACM Secured Transaction Services members at www.nacmsts.com in the NewsMakers section.
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 on 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.
In January, NACM received 141 entries to its first-ever elevator speech contest, in which credit professionals shared their best short monologue given to people they meet that explains what they do in their job in about 30 seconds, or approximately as long as it takes to ride an elevator. Then in May, NACM asked its survey respondents to pick their favorites to determine a winner of the contest, and the association is pleased to announce Brandy Sailers-Dow, CICP of Hypertherm, Inc. as the winner of NACM's first elevator speech contest.
Sailers-Dow's entry, printed below, received 36% of votes cast:
I work in commercial credit and collections. Many people think that means I'm a bill collector, but really I'm a relationship manager who works to minimize risk and maximize profits. At a conference I once heard the phrase that people pay people before they pay companies, so I do my best to be the person that they want to pay. The most rewarding part of my job is partnering with businesses to make good decisions that benefit us both, which is better for everyone's bottom line. It's not always easy, that's true, but the complex issues can often be the most rewarding.
Two runners up were also chosen by the May survey respondents. The first of these was Jim King, CCE of the TII Family of Companies, whose entry garnered 20% of the vote:
My job as credit manager is to facilitate growth by SERVING our customers using cutting-edge credit reporting services to maximize their credit line. I am also responsible for maximizing the value of our accounts receivable by minimizing bad debt expense and PROTECTING the A/R by maintaining an acceptable level of risk. Lastly, but just as important, I guide my staff in COLLECTING all past dues while preserving exceptional customer relationships. In a nutshell, I am here to serve, protect and collect.
And with 15% of the vote was an entry by Sabrina Perez, CBA, CICP of Ametek Programmable Power, Inc.:
I am responsible for managing our customers during their lifecycle with our organization. I am an advocate for the customer in ensuring our organization meets their needs with excellent customer service and quality products and that we develop a strategic, profitable business relationship that ensures positive growth for us and our customer. I am a sales person; I sell credit offerings to our customers to keep them engaged with us while maintaining expectations that meet our organizational goals. I am an advisor; I advise our sales group/management on credit issues and customer status and I advise our customers on ways to improve their account status.
The elevator speech is an important networking tool that all professionals should master in order to sell themselves and their work to others, and NACM received many great examples that credit professionals can use in their day-to-day lives. Look for them in Business Credit and elsewhere in NACM's publications throughout the rest of the year.
NACM thanks all of its participants and respondents to both the January and May surveys for their contributions. The June 2014 survey is now live and asks about disputes. Click here to participate today!
- Jacob Barron, CICP, NACM staff writer
Now Surveying: Eastern Europe
FCIB's International Credit and Collections Survey is the only monthly survey of its kind. The easy-to-answer survey asks credit and risk management professionals to share payment trends and collection experience in categories like:
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The United States reported its sharpest rise in production levels since February 2011, while the United Kingdom and Czech Republic also ran near peak performance levels during May, according to recent statistics released by Markit Economics. However, there were only a few other significant examples globally of hot or even mildly encouraging growth.
The Global Manufacturing PMI, produced jointly by Markit and JPMorgan, increased to 52.2 from Aprilâ€™s six-month low of 51.9. This was helped dramatically with the full-point rise of the Markit US Manufacturing PMI to a level of 56.4. Markit noted that categories nearly across the board in the US "signaled a robust improvement in overall business conditions."
Not surprisingly, China continued to show some struggles and continued "marginal deterioration" of conditions in May even though its overall level improved, according to HSBC. The HSBC China Manufacturing PMI moved to 49.4 in May from its previous reading of 48.1. But the story here is that indicators of the ongoing health of the manufacturing sector continue to foreshadow a major decline for Chinese manufacturers.
What was more surprising was the backslide of the previously recovering European Union. The Markit Eurozone Manufacturing PMI slid from Aprilâ€™s 53.4 to 52.2. It represented the worst performance in six months and failed to reach even the flash estimates released between the two sets of final statistics. The only major EU economies showing a rise were Spain, which reached a 49-month high, and the Netherlands, whose increase was considerably less noteworthy. Meanwhile, Germany fell to a 7-month low and, troublingly, France fell back into contraction territory.
- Brian Shappell, CBA, CICP, NACM staff writer
Enjoy the Benefits 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:
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equipment and other credit management functions
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Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
On both a year-over-year and a month-to-month basis, commercial bankruptcies notched notably lower figures in May. Total business filings last month decreased to 3,190, representing a 21% decline from the 4,055 business filings recorded in May 2013, according to the American Bankruptcy Institute (ABI), who collects bankruptcy filing data with Epiq Systems, Inc.
May's commercial filing total also represented a 6% decrease from the April 2014 commercial filing total of 3,387. Commercial Chapter 11 filings took an even steeper dive as they experienced a 21% decrease in May 2014 to 429 filings, down from 540 filings in May 2013 and 38% lower when compared to the 687 filings registered in April 2014. "Bankruptcy filings continue to nose dive in the current environment of sustained low interest rates for business borrowers and lower than expected consumer spending," said ABI Executive Director Samuel Gerdano. "As these conditions persist, bankruptcy filings will continue to decrease."
Total filings, meaning consumer and commercial cases, decreased 11% in May 2014 over May of last year, from 96,495 to 85,664. They also declined by 3% from April to May as well.
On a per capita basis, meaning total filings per 1,000 per population, the bankruptcy filing rate actually managed to register an increase to 3.13, which is higher than the 3.09 rate registered in the first four months of 2014. Average total filings per day in May were 2,763, an 11% decrease from the 3,113 total daily filings in May 2013. States with the highest per capita filing rates in May 2014 were Tennessee (6.30), Alabama (5.26), Georgia (5.25), Illinois (5.03) and Utah (4.96).
- Jacob Barron, CICP, NACM staff writer
See These Jobs and Moreâ€”Right Now on NACM's Credit Career Center!
Credit and Collections Manager at Gordon Flesch Company in the Madison area, WI
Senior Credit Analyst at Intrepid Potash, Inc. in Denver, CO
B2B Collections Specialist at Dayton Superior Corporation in Elk Grove Village. IL
Director of Financial Services at WESCO Distribution, Inc. in Pittsburgh, PA
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