Costs of Credit Card Payments Attracting More Attention in Courts, B2B Circles

Earlier this month, the 11th Circuit U.S. Court of Appeals struck down a Florida law that banned merchants from surcharging their customers who paid via credit card transactions. A similar law was, however, considered constitutional in New York by the 2nd Circuit U.S. Court of Appeals in September, and similar regulations are being reviewed in other states.

As technology continues to advance, the usage of credit cards between businesses will rise, even if it is not the payment method preferred by most credit managers. “The demand is increasing, but merchants are held hostage waiting on court decisions on how we can recoup our costs and remain competitive in pricing against companies that choose not to accept credit cards,” said an anonymous NACM member as part of an October survey that asked credit professionals to discuss their deepest industry concerns for 2016.

It is of critical importance for credit professionals to have an understanding of the regulations surrounding these fees. “As card usage and acceptance in the B2B industries increase, the costs associated with card acceptance receive more attention,” said Matt Fluegge, executive consultant for Vantiv and speaker in an upcoming  NACM webinar on B2B credit card acceptance. “That drives B2B card acceptors to consider surcharging as an option to offset some of their card acceptance costs.”

When imposing surcharge fees, credit managers and their companies should ask how it will impact their customers and competitiveness. It is also important to be knowledgeable about card network rules—which outline the requirements a merchant must follow when charging a fee—and with state and federal laws. Importantly, credit managers should consult with their legal counsel before implementing surcharge fees, Fluegge added.

While some credit managers have admitted that their companies do not accept credit cards because of associated costs, Fluegge suggested “that approach does not work for most NACM members due to the many benefits most suppliers receive by accepting cards.” These benefits can include obtaining new customers, increasing sales, faster payments and staying competitive.

- Jennifer Lehman, marketing and communications associate


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Firm Warns of Oil Price’s Collateral Impact on NAFTA Countries

The decline in oil prices and lower cost of importing Chinese steel are negatively impacting the revenue performance of several industries in North America’s three top economies, including the United States, according to a newly released analysis by Atradius.

U.S. steel and metals businesses have been particularly affected by muted oil values, according to Atradius’ Country Report on the North American Free Trade Agreement (NAFTA) countries.

“Competition is increasing, as companies try to expand their regional reach in order to find new business and increase revenue profits,” the report states. “Payment delays and defaults have increased and are expected to rise further, as the cash flow of end-buyers has been impacted by lower growth.”

U.S. gross domestic product (GDP) growth, nonetheless, is expected to accelerate in 2016. In addition, figures from the federal directory of official courts ( indicate that the number of bankruptcies filed by businesses declined by 18.8% from 2014. The U.S. automotive and construction sectors are both performing well, with new car sales approaching pre-recession levels and new housing demands continuing to rebound. Other than oil, retail bankruptcy trends have been a notable and negative counter to these industries (see eNews article below).

Industrial production in Mexico remains subdued and is expected to grow by 0.3% in 2015. “This, combined with fiscal consolidation measures aimed at the negative impact of lower oil prices on government finances, has resulted in sluggish real GDP,” according to the report. Domestic demand, however, is expected to increase, and economic growth is forecasted to reach 2.8% in 2016.

“In general, Mexico’s economy is well-positioned to deal with the current challenges stemming from decreased oil prices, a stronger U.S. dollar and the expected increase in U.S. interest rates (potentially leading to higher exchange rate volatility),” the report reads. “Its resilience is underpinned by prudent macroeconomic policies, a flexible exchange rate and solid external balances, with limited current account deficits.”

As the world’s fifth largest oil producer, Canada’s economy has been affected by the global decline in oil prices. While economic growth is forecast to slow in 2015, it is expected to rebound next year in part because the Canadian dollar depreciated further against the U.S. dollar and the Canadian Central Bank lowered the country’s interest rate on two occasions this year. “However, so far, the weaker exchange rate and lower interest rate have not led to a surge of exports of manufactured goods to the U.S., which accounts for more than 75% of Canadian exports,” the report states.

For the remainder of 2015, economists anticipate that Canadian industrial production will contract by 1.3%, and the growth of exports of goods and non-factor services will slow down to 2%.



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Study: Retail Bankruptcy Reorganizations Increasingly Ending in Failure

Suppliers and service providers holding out hope that retail debtors in bankruptcy will successfully reorganize may need to recalibrate their level of optimism. A new study illustrates an increasing trend toward liquidation above other outcomes, with little foreshadowing of a change in course.

Since 2005 changes to the U.S. Bankruptcy Code, 55% of retail businesses that filed for bankruptcy protection ended in liquidation, with the highest annual ratio of that outcome versus successful reorganizations and business sales occurring in 2014 and the first half of 2015, according to the AlixPartners Retail Bankruptcy Study. Worse yet, only one in the last 25 attempts at a retail reorganization since early 2012 proved successful.  

Creditors should note that the best chance for a successful reorganization of an insolvent retailer likely occurs when the debtor files late in the calendar year. This is especially important given the comparatively short “runway” of time retailers have to execute their respective reorganization plans, according to AlixPartners’ analysis.“It gives the flexibility to choose the best time to file—for instance, possibly before the winter holidays in order to maximize the ease of selling excess inventory or after the holiday, when retailers are likely to have more cash on hand.” However, an early December filing, for example, could also backfire because a bankruptcy is rarely good for branding and confidence among could-be shoppers, cautioned Bruce Nathan, Esq., partner with Lowenstein Sandler LLP and speaker in an upcoming NACM teleconference on how to react to a customer’s bankruptcy filing next month.

Released this month, the study also notes that only about 5% of businesses in other industries eventually liquidated during the last decade. AlixPartners blamed 2005 changes to the Bankruptcy Code that shortened the restructuring timetable and argued that retailers’ past ability to spend more time, often years, working to reorganize in previous decades improved the chances of successfully emerging from Chapter 11 protection.

In addition, the firm believes the more liquid and moveable nature of retail inventories compared with industries heavy in “fixed assets” puts the former at a disadvantage, especially because a debtor “must pass the best-interest test, proving that each class does better” by reorganizing instead of liquidating. Secured debtors often consider liquidation easier and more apt to generate what AlixPartners characterized as “good returns,” at least for those at the top of the proverbial payment food chain (re: not unsecured creditors, including most goods and service providers). Nathan, however, suggests this logic ignores some critical elements driving retail bankruptcies.

“That doesn’t put enough blame on poorly run companies or management that did not effectively deal with the realities of a changing marketplace,” said Nathan, who referenced the rise of online shopping and home delivery, especially on the part of Amazon. “If the companies were viable or well run, they would have been converted or sold. Somebody would have stepped up to buy them.”

- Brian Shappell, CBA, CICP, NACM managing editor



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Chinese Yuan Closer to Becoming Global Currency

International Monetary Fund (IMF) staff has recommended adding the Chinese yuan, also known as the renminbi, to the organization’s special drawing rights (SDR) basket of currencies used to value its own de facto currency.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for “freely usable” currencies. As of Sept. 10, 204.1 billion SDRs (approximately $280 billion) were created and allocated to members.

Staff members determined that the yuan meets export criterion as well as other requirements for inclusion, meaning they consider it a viable currency that can be “widely used” for international transactions and “widely traded” in principal foreign exchange markets.

If IMF’s executive board agrees, the Chinese currency will join the British pound, euro, Japanese yen and the U.S. dollar. Notably, this should not create any problems for businesses in general or the trade credit industry at large, said Leland Miller, president of China Beige Book International. "This is important to the Chinese for domestic political reasons, but it means very little to global finance or the [U.S. dollar],” Miller told NACM this week. “With its peg, the yuan is effectively the dollar painted red."

IMF staff also determined Chinese authorities addressed “operational issues identified in an initial staff analysis submitted to the executive board in July,” said Christine Lagarde, managing director of the IMF, in a statement. The board, which Lagarde chairs, is scheduled to consider the issue on Nov. 30.



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Volume II: Commercial and Consumer Credit Topics, 2015
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CFOs Looking to Spend, Banks Tightening Business Credit

Two new surveys consider business spending: one from the perspective of business leaders and the other from that of banks.

A majority (61%) of respondents, which included CFOs and other corporate financial decision makers at middle-market and large corporations, in a new TD Bank survey said they expect to increase capital expenditures. Key areas for spending were technology (58%), existing facilities (44%) and data security (41%).  About 74% stated an interest rate hike by the Fed would not impact their borrowing, and 6% said it would make them more likely to borrow.

Respondents, however, noted several challenges to their cash flow cycle:

  • Timeliness in collecting payments (29%)
  • Outdated systems creating inefficiencies in operations (21%)
  • Manual processes associated with payment initiation (17%)

“We’ve seen a significant shift in sentiment over the five years we’ve been surveying the market, as a number of looming economic headaches have largely subsided,” said Greg Braca, executive vice president and head of corporate and specialty banking at TD Bank. “Rising interest rates may create headline noise, which impacts the stock market, but executives are prepared for an eventual rate increase and are moving forward with investments in their infrastructure, facilities and people. It’s clear that businesses have adjusted to the ‘new normal’ and are focused on growing within that environment.”

Meanwhile, the Federal Reserve’s October 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices, which includes responses from 69 domestic banks and 23 U.S. branches and agencies of foreign banks, indicates that, on balance, banks reported little change in their standards on commercial and industrial (C&I) loans in the third quarter of 2015. “Among the modest number of banks that indicated they had changed their C&I lending standards, reports of tightening were more frequent, especially for large and middle-market borrowers,” the report states.

Banks reduced costs of credit lines and narrowed loan spreads for large and middle-market firms and smaller firms on net. Some also said they eased maturities on loans and credit lines for all firms. Premiums charged on riskier loans for large and middle-market firms on net were also increased. Foreign respondents stated their lending standards were basically unchanged with a few of them reporting they tightened the cost of credit lines and premiums on riskier loans.

Reasons for tightening standards or terms included:

  • Less favorable or certain economic outlook
  • Worsening industry-specific problems
  • Reduced risk tolerance
  • Decreased liquidity in the secondary market for these loans
  • Increased concerns about the effects of legislative activity, supervisory actions or changes in accounting standards.

The few banks that eased standards in the Fed survey did so because of more-aggressive competition from other banks or nonbank lenders, increased tolerance for risk or a more favorable or less uncertain economic outlook.



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