July 31, 2014
The Credit Managers' Index (CMI) from the National Association of Credit Management (NACM) improved to 56.8 from 56.1 in July. The readings for the favorable and unfavorable factor indices improved, from 62.4 to 63.7 for the favorable factor index, marking the highest point in over four years, and from 52.0 to 52.2 for the unfavorable factor index. The latter being below marks set earlier in the year, but is at least trending in the preferred direction.
"The overall sense is that real progress in economic recovery is being made and the future looks brighter," said NACM Economist Chris Kuehl, PhD about the July CMI report. "But, not to rain on the parade, these numbers also looked good at the start of the year, and it has taken until mid-summer to regain that momentum." Winter weather was partly responsible for this struggle, as was the significant decline in exports of American goods, Kuehl noted. "The rebound in exports played a major role in getting the US back to growth, but the caution is that many of those importing nations are still not in very good economic shape," he said.
Significant readings within the favorable factors promise better days ahead. Sales improved from 63.9 to 65.2, back to the level set in May. "The sales reading has been strong for some months and that bodes well as sales will underpin any kind of real progress in the months to come," Kuehl said. New credit applications improved from 61.5 to 62.4, the second straight month above 60 and at a yearly high. Dollar collections got back on track and crested above 60 again, moving from 59.3 to 61.0. Finally, amount of credit extended jumped dramatically from 64.8 to 66.1. "This is the highest reading since the recession and suggests far more credit access than before," Kuehl said. "This tracks with the data that comes from the Federal Reserve on bank lending in general and that is very solid news for the economy as a whole."
The unfavorable factor index details are also instructive, just not as dramatic. The good news is that all of the factors that had fallen into contraction (below 50) returned to expansion territory. Disputes improved from 49.5 to 50.3, dollar amount beyond terms jumped from 49.6 to 51.1 and dollar amount of customer deductions rose from 49.4 to 50.6. Rejections of credit applications also improved, but barely, from 52.0 to 52.1. "Given the large hike in amount of credit extended, it appears there are still unworthy applications to credit issuers, but those that are acceptable seem to be asking for more credit than in the past," Kuehl said. Two factors fell. Accounts placed for collection declined from 52.5 to 51.5, indicating remaining strain in the creditor community and filings for bankruptcies fell from 58.9 to 57.6. "This remains a pretty healthy reading, but also suggests that not every sector of industry in the country is in the most robust of health," Kuehl said.
"There is a growing sense of confidence in the progress of the economy right now, although there are still many who see dark clouds behind the silver linings," Kuehl said. "The latest data releases all seem to point toward the kind of rebound expected by analysts at the start of the year. The level of consumer confidence is at a point not seen since before the recession hit and despite gasoline prices spiking for a part of the survey period. The latest GDP numbers were far higher than expected with a whopping 4% gain in Q2 that offset the decline in the first quarter, which was revised to 2.1%."
"The CMI has joined this parade with a set of readings that mark highs not seen in over a year in some cases," Kuehl said. "Given that the CMI is often predictive, it would appear that economic conditions for the coming months will continue tracking in a positive direction."
For a full breakdown of the manufacturing and service sector data and graphics, view the complete June 2014 report. CMI archives may also be viewed on NACMâ€™s website at http://web.nacm.org/cmi/cmi.asp.
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A growing problem in trade credit appears to be with email spam filters. It seems that an increasing number of wanted or essential emails from creditors, customers, trade associations and others arenâ€™t being received because IT departments continue to combat the influx of email related to potentially dangerous activity such as phishing scams, fraud schemes and aggressive marketing.
As company IT departments all over the world fight to prevent these attempts, other desired communications are inadvertently being kept out of inboxes. Words like "collections," "credit" and "past due" in the subject line or email body can trigger protections that send important messages to the dreaded spam box, where they may eventually end up getting automatically deletedâ€”unseen and unread.
"When I call for payment and they tell me they haven't been getting invoices, I ask them to check their junk mailbox and, lo and behold, there they are," said Rosemary Merola, a credit manager at Unilock.
Part of the problem may be that the firewall is set too high for the intended party's company by their IT departments. Those with the controls cranked up, so to speak, often have attachments like PDFs listed high on the red flag list. "I have worked with a fair number of attorney firms that have this problem, especially if you attach a file," said Hal Schaeffer, CCE, CEW, president/CEO at D&H Credit Services, Inc. "I recommend sending them one without an attachment asking them to approve you as a recipient and then try to resend the email with the attachment to see if they get it. If not, then they need to work with their IT department to correct the problem."
In essence, it comes back to communication, which provides an opportunity or reason to speak with a customer by phone (or in person when possible). Itâ€™s something credit managers should be doing at times anyway to eliminate such e-communication problems. Reaching out in this manner often does help alleviate the problems, said Schaeffer and Sandy McConnell, credit and collections manager at Charleston Auto Parts, Inc. "Upon establishing a new account who would like to receive items via email, I will advise them to check their spam if they donâ€™t see anything from me," McConnell said. "I always ask any new email recipient on my cycle to make sure they add me to their safe senders list."
Here's a quick set of reminders to ensure you receive the important information so pertinent to your daily progress. Be sure to pass this along to those with whom you do business as well.
- Add key people, companies, associations and others to a â€śfavoritesâ€ť or â€śsafeâ€ť list
- Check your Junk/Spam boxes at least a couple times per week for messages that really should be going to your main inbox.
- Talk to your IT team or person about how to avoid problems or how to advise those you do business with on how to keep from getting flagged.
- Brian Shappell, CBA, CICP, NACM staff writer
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Thatâ€™s right, NACM members can now read Business Credit magazine on the goâ€”on any mobile device or tablet. Because Business Credit is a benefit of membership, youâ€™ll need to log in before viewing and reading it, but doing so gets you the credit and financial news and information you need as a business credit professional.
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The free cash margin index declined slightly for the 12-month period ending March 2014, but managed to remain within the ideal narrow range around 4.5%, according to the most recent report. Analysis of the latest free cash figures did include some positive news, however, in the form of a marked increase in capital spending, the first such increase since the end of 2012.
Published by Georgia Tech's Financial Analysis Lab, led by NACM Graduate School of Credit and Financial Management (GSCFM) Instructor and Georgia Tech Accounting Professor Charles Mulford, the free cash margin index measures the free cash flow divided by revenue of the nation's non-financial companies. It operates as a cash flow profit margin, indicating what percent of revenue is left for shareholders in the form of free and discretionary cash flow.
Since the index reflects expenditures as well as revenues, a decline doesn't necessarily mean something negative, as might well be the case with the most recent report in which the index fell from 4.56% for the 12-month period ending December 2013 to 4.38% for the same period ending March 2014.
The index was pinched by median revenues, which declined slightly in the latest data from $726.07 million to $725.47 million, marking an 8% decline from a post-recession high of $788.50 million in December 2012. The good news, however, was that the index was equally reduced by capital expenditures as a percentage of revenue, which increased to 3.52% for the twelve months ending March 2014, up from 3.49% in December 2013. This was the first observed period of increasing capital spending since December 2012, when the metric stood at 3.66%. "It appears that managers may be starting to boost capital spending again following a reduction in spending that had continued for four previous consecutive reporting periods," the report concluded.
While the long-awaited increase in expenditures signals a greater faith among corporations in the American economy, the data still has a long way to go before analysts feel confident in the still wavering recovery. "Many are attuned to monthly and quarterly economic reports for evidence that the US economy has finally entered a lasting growth phase," the report said. "Our data will confirm that the US economy is growing strongly when we see continuing improvement in median revenue and a stable free cash margin of around 4.5%, even as capital expenditures rise to something closer to 4% of revenue."
A full copy of the latest report can be found here.
- Jacob Barron, CICP, NACM staff writer
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A final version of the 2013 Federal Reserve Payment Study Detailed Report, which explores the future of traditional and electronic payments in the United States, is now available to the public.
Released on July 24, the Fed's Financial Services Division revealed that businesses continue to use wire transfers at a high rate (287.5 billion transactions worth more than $1 trillion in 2012 alone), the desire for mobile payment options is increasing quickly even in B2B circles and check writing has decreased tremendously where the transaction is a considered a smaller than average (for the payee) amount.
At this year's Credit Congress, where the preliminary findings were announced, and in the July/August issue of Business Credit, Dan Gonzalez, vice president of industry engagement and awareness for the Federal Reserve Bank of Chicago, outlined a number of other B2B-specific findings in the report. It was found that businesses were more than twice as likely to be willing to spend more money for payment speed improvements than consumers, won't use a payment method unless it is widely accepted, would rather share an email address or a phone number for making and receiving payments to avoid divulging sensitive bank account information to the payee, and now fear fraud tactics more than ever.
The report, available here, provides detailed information about the summary findings from research done in conjunction with several organizations, including NACM (an active member of the Federal Reserve Bank of Minnesota-led Remittance Coalition), which hosted a fall teleconference and Q&A on the topic.
"The 2013 Federal Reserve Payments Study collected a broad cross-section of information related to complex consumer and business payments use, and the overview contained in today's report offers a more complete picture of how the information can be used to better understand developments in the payments system," said Jim McKee, senior vice president of the Federal Reserve Bank of Atlanta, this week. "The industry can use this data to continue to improve the US payments system."
Research on the payments effort has been described as "ongoing," and the issue of fraud appears to be the paramount area of focus, going forward.
- Brian Shappell, CBA, CICP, NACM staff writer
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The US economy grew at a rate of 4% in the second quarter according to the latest GDP data released yesterday by the US Bureau of Economic Analysis (BEA). In its latest report, the BEA also revised the first quarter's figure from a GDP decline of 2.9% to a slightly less objectionable decline of 2.1%.
After its series of starkly negative revisions for the first quarter's figures, which started out as a measly 0.1% decline, then decayed to a 1.0% decline before bottoming out to a negative 2.9% rate by June, the Bureau took care in its release this week to highlight that the 4% growth figure for the second quarter was an advance estimate, and that a downward revision might be likely. "The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency," said the BEA in its release, noting that its second, more accurate figure will be released on August 28.
Still, the data is, at first glance, much more positive than analysts expected, even though many agreed that the first quarter's downward rate was an anomaly driven by the negative influence of bad weather. Similarly, the advance estimate for the second quarter's growth might be benefitting from the unique phenomenon of an early-quarter spending craze by consumers who celebrated the end of winter with new purchases. More complete data should mitigate the outliers in the earliest data, which could in turn reduce the growth rate overall.
The recent saga of ping-ponging GDP figures serves as a lesson for not placing too much faith in one number, despite how all-encompassing that number might actually be. "Over the years every nation has struggled with how to accurately assess the growth of its GDP, as this is a very large and complex number," said NACM Economist Chris Kuehl, PhD. "How does one actually compute the sum total of everything made or provided in the countryâ€”from Boeing aircraft to the guy shining shoes at the airport? It is amazing to understand how close to accurate it all is, but it is wise to understand the limitations and to resist the temptation to assert that any one number can be that descriptive."
- Jacob Barron, CICP, NACM staff writer
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The latest S&P/Case-Shiller Home Price Indices continued to show growth in housing prices in May, but the pace of the gains was troublingly slower. The 10-City Composite Index was up 9.4% (year-over-year) and the 20-City Composite was up 9.3%. Each tracked at 1.5 basis/percentage points higher than last month. The June performance marks the worst growth in housing since February 2013. The deceleration has been most notable in markets like San Diego and Phoenix.
Still, David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said there was reason to be optimistic, including several strong, double-digit gains apparent in Sun Belt markets. "The broader economy, especially employment, is showing larger improvements and substantial gains."
The highest total annual gain, though well off from early 2014 levels, was Las Vegas' 16.9% surge. Tampa represented the best increase between April and May at 1.8%.
- Brian Shappell, CBA, CICP, NACM staff writer
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