August 4, 2009
In an effort to provide up-to-the-minute coverage of issues affecting B2B credit professionals, NACM recently launched a blog called "Credit Real-Time: The Latest in Commercial Credit." Visitors to the blog will find regular updates on breaking commercial credit news stories and will also be able to comment on and discuss stories that pique their interest.
NACM's blog offers users a wealth of information on a wide array of topics, including legislative, legal, collections, technology, privacy, industry and international issues. Readers can also learn about NACM's advocacy work as it happens, and get sneak peeks into NACM events, educational programs and future articles to be featured in Business Credit magazine.
In addition to the blog, NACM has taken recent steps to increase its online and social networking presence in order to more effectively engage its membership. Most recently, NACM-National started its own Twitter account, offering credit professionals a chance to connect directly with NACM and hear about late-breaking updates to the NACM blog and website and other sources. To find us on Twitter, visit http://twitter.com/NACM_National. Be sure to check often for news and commentary on all things affecting the world of business credit. If you don't have an account yet, sign up for one at http://twitter.com/.
Additionally, NACM has worked to enhance activity through its LinkedIn page by encouraging discussion and posting news items for contacts of the association. Check out the NACM group page and get started on LinkedIn by clicking here today!
Jacob Barron, NACM staff writer
NACM's August Monthly Survey is Now Live!
NACM's newest monthly survey is now live at www.nacm.org! This month's question deals with economic indicators, such as NACM's Credit Managers' Index (CMI) and their effect on your company's policies and procedures. Participate today to earn .1 roadmap points toward an NACM certification and to be entered into a drawing to win a free teleconference registration! Click here today.
The Federal Trade Commission (FTC) recently announced yet another delay in the enforcement date for the agency's "Red Flags" Rules from August 1, 2009 to November 1, 2009, marking the third time in the regulations' lifespan that a delay in implementation was deemed necessary. Most notably, the announcement of the delay also contained some of the agency's strongest language on the persistent haze of confusion that has surrounded the Rules and their application to businesses.
"To assist small businesses and other entities, the Federal Trade Commission staff will redouble its efforts to educate them about compliance with the 'Red Flags' Rules and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the Rules and what they must do to comply," said the release. "The three-month extension, coupled with this new guidance, should enable businesses to gain a better understanding of the Rules and any obligations that they may have under it."
As previously mentioned in NACM's eNews, the FTC also concurrently released a collection of FAQs geared toward business creditors, which can be found here. In response to the question "Am I a creditor under the Rule if I extend credit to other businesses?" the FAQ explicitly answers "yes, you're a creditor whether you have consumer or business customers." Other questions the FAQ aims to answer are what it means to "regularly" extend credit and if covered accounts are possible if the entity in question is a business creditor. "There's no bright line definition for 'regularly,'" says the FAQ. "But if the activities that meet the definition of 'creditor' are more than just an isolated occurrence for your business, the 'Red Flags' Rule applies to you." In regards to the second issue, which covers accounts and business creditors, the FTC noted that "it depends. If you're a creditor with only business-to-business accounts, you have to assess whether those accounts pose a reasonably foreseeable risk from identity theft. If they do, they're covered accounts' under the Rules."
No date was given as to when small businesses and other entities anxious about the regulations will receive the FTC's proposed guidance. For now, the agency directed users to its "Red Flags" Rules website, wherein companies can design their own identity theft protection program. That site can be found here.
Other resources for companies can be found in Business Credit magazine, in the March, May and July/August 2009 issues.
Jacob Barron, NACM staff writer
Bankruptcy Legal Workshop
At NACM-National headquarters in Columbia on August 27-28, Wanda Borges, Esq., Borges & Associates, LLC and Bruce Nathan, Esq., Lowenstein Sandler, PC will present a wealth of information during this year's Bankruptcy Legal Workshop. If the current economic climate can teach credit professionals anything, it's that there isn't a commercial creditor in the field that won't experience a customer's insolvency at one time or another. Because of this, credit managers must know the precautionary steps that they should take to avoid preferences and other headaches triggered by a customer's bankruptcy proceedings. Borges and Nathan will provide a quick overview of bankruptcy basics, delve into the topics of automatic stays and discharge issues and claim issues on their way to more complicated subjects such as creditors' committees, voluntary and involuntary bankruptcy, bankruptcy alternatives and assignment for the benefit of creditors.
Business-to-business creditors wanting to broaden their knowledge of the bankruptcy process and better educate themselves on the options available to them can register for the workshop here.
Businesses in the United States have become well acquainted with fraud. The cases of Enron, Tyco, WorldCom and a host of others pushed phrases like "cooking the books," "creative accounting" and "income smoothing" into the public vernacular as the country watched corporate empires, built upon foundations of brittle paper, topple. No matter what label is placed on the practice, the financial numbers game and financial statement distortions can result in widespread damage if companies aren't able to determine the exposure they face. In the wake of massive accounting scandals, Congress has tried to assist the Securities and Exchange Commission's (SEC) enforcement efforts with legislation like the Sarbanes-Oxley Act of 2002 (SOX), but commercial credit managers must be wary and establish their own ramparts through the use of forensic accounting and financial analysis to protect their companies.
"We're still using U.S. generally accepted accounting principles (GAAP), though we are moving to International Financial Reporting Standards (IFRS), but that's not likely to happen anytime soon here in the U.S.," said D.J. Masson, associate clinical professor of finance at Indiana University's Kelley School of Business during the NACM-sponsored teleconference "Advanced Issues in Financial Analysis." "There is a lot of leeway in GAAP. The SEC, through Sarbanes-Oxley and other legislation, has tried to tighten it up a bit, but there are still major loopholes and there's always the issue of management discretion. So we have to be careful."
One of the issues with GAAP, said Masson, is the flexibility that is employed to guide reported earnings toward a predetermined target of sustained, long-term growth. This can be accomplished by storing earnings for future years, taking the "big bath," or reporting special charges or purchased in-process research and development. Most often, companies will speed up revenues and delay the recognition of an expense because they will be short of making projections. Very often in GAAP, there is enough leeway to do that and it doesn't always have to be a large sum.
"How do they do this? Depending on the accounting policy that they choose, there still is leeway in management discretion that you can have two firms in exactly the same business with the exact same year and they can have very different looking accounting statements, and it's totally legitimate based on the assumptions they make and the policies that they use," explained Masson.
The reasons for attempting to commit financial distortions or outright fraud can be more than just wanting to bolster share prices, increase corporate valuation or line managers' pockets with money from corporate earnings bonus plans. Commercial creditors will often encounter companies that are distorting their financial statements to affect borrowing costs, which can translate into improved credit quality, higher debt ratings, less stringent financial covenants, as well as enable them to meet restrictive covenants.
"Obviously, the better my financial statement looks, the lower my borrowing costs will be; the better credit rating I can get," said Masson. "If there are things that I can do to make my balance sheet look a little bit better, or key ratios, like leverage ratios or coverage ratios look a little bit better, then I may want to go ahead and do that for the benefit of the company."
Matthew Carr, NACM staff writer
Humans communicate with each other through a variety of ways, both verbally and non-verbally, through the words we choose to speak and write, and even our body language. From birth, our lives are built around communicating with one another and our individual health is based on interactions with others. Unfortunately, the way we choose to communicate can paint a perception of us that isn't warranted and that we do not want, negatively impacting our personal and corporate relationships. Susan Lujan, CCE, corporate credit director, Kenworth Sales Company, will provide NACM members with ways that they can improve and make their verbal and written communiqués more effective during the teleconference "Headline Communications" on August 10, 2009. Credit managers looking to conquer challenges such as how to streamline their communication for precision and clarity, as well as set the right tone and delivery should register for the teleconference here.
"Nearly 80% of accounts payable organizations in large- and medium-sized companies cite e-Invoicing as their top automation goal for 2009," said Eric Self, vice president of program management for OB10, Inc. "If you haven't been asked to do invoicing yet, you will at some point in the future and that goes for whether you're a large supplier or a small supplier."
In the recent teleconference "Mythbusting B2B e-Invoicing," sponsored by NACM's Government Business Group (GBG), Self offered a list of several common misconceptions credit professionals and their companies hold about the e-Invoicing process. As a part of the OB10 global e-Invoicing network, Self was uniquely positioned to offer his thoughts on the matter.
Firstly, he noted that there's a major difference between e-Invoicing and sending invoices via email. "There's a perception that I send an email to my salesperson or to my customer and they take care of it for me," said Self. "But there's a little black hole and people don't know what happens when an email is sent." While using email to invoice customers is quicker than regular mail, the problem is that data still needs to be entered into a system for it to be of any use, and this slows down the process. With e-Invoicing, data is automatically taken care of and allotting time for data entry becomes unnecessary. Additionally, sometimes emailed documents might not really be any different from documents mailed the old-fashioned way. "Sometimes your email will be put into a large stack of invoices on the customer side, then they'll get walked down to the mailroom and included in the other pile," he said. "It's a great way for your customer to delay payment for you."
"Don't believe you're doing a customer or yourself a favor by sending them an email," Self added.
Another closely-held myth that Self discussed was the concept that there's nothing in e-Invoicing for suppliers. "Most of our suppliers are really interested in optimizing their cash flow and getting paid earlier, quicker and more efficiently," he said, noting that many suppliers experienced several positive effects after switching to an e-Invoicing network. "They got a faster payment out of their customer, improved DSO and a much more secure transmission of information. They know when they send an invoice, and it drives the customer's accountability, so there's a lot in it for you."
Self also discussed the difference between e-Invoicing and electronic data interchange (EDI), the IT concerns that keep many companies from adopting an e-Invoicing network and the intricacies of the big three e-Invoicing networks.
Jacob Barron, NACM staff writer
NACM Certificate Programs
For a quick and comprehensive way to earn your CBA or CBF designation, or prepare for the CCE exam, attend an NACM Certificate Session. Each session provides an intensive six-day program designed to fulfill education requirements for your professional designation. Sessions are held at NACM-National Headquarters in Columbia, MD.
For more details and a schedule of upcoming programs, click here.
NACM wants to remind its members that, as of August 1, new amendments to Arkansas' mechanic's and materialmen's lien statutes went into effect. In March of this year, Arkansas Governor Mike Beebe signed into law Act 454, which began its legislative journey as H.B. 1549, sponsored by Arkansas House Majority Leader Steve Harrelson (D), Representative Bruce Maloch (D) and Senator Jim Luker (D).
Some of the amendments going into effect include that every contractor, subcontractor, material supplier, architect, engineer, surveyor, landscaper, abstractor or title insurance agent putting in soil, drain pipe or drainage tile shall have a lien for each 40 acres or less on which the pipe is placed and the notice requirements will be the same as Sections 18-44-114 and 115.
Section 18-44-108 is amended pertaining to the penalties for contractors or subcontractors for refusing to provide an owner of the property a list of all parties doing work or furnishing materials on the project and the amount due to each. It also covers certification that the owner has received an actual preliminary notice. Contractors and subcontractors have five days to provide this information to the owner or face fines up to $2,500.
The law will also trigger changes to Sections 18-44-113 and 118 that state the owner must receive the actual notice within 30 days of assignment.
Section 18-44-115 will be amended so that no lien upon a residential property containing less than four units will be accepted unless the owner is accurately notified and, if the residential contract fails to give notice, they are barred from bringing further action to enforce any provision of the residential contract. The penalty for failing to give notice is a fine of up to $1,000. At the same time, the new statute will allow any lien notice by any subcontractor or material supplier provided before the commencement of work to be effective for all subcontractors and other claimants.
The full text of the law can be found here.
Matthew Carr, NACM staff writer
CFDD National Conference: Learn Effective Networking from the Best
According to networking expert Hazel Walker, it's important to recognize that the word "networking" includes the four-letter word "work." Join CFDD in October to hear Walker speak.
In her presentation, she'll outline six important steps to successful networking. Some of the work includes:
1. Know why you are networking
2. Know the rules of the game
3. Know who you need to network with and why
4. Know your message
5. Know how to build your message
Don't miss Hazel Walker at the CFDD National Conference in Denver.
Over the last couple of weeks, the House Agriculture Committee held hearings on the failing health of the agricultural industry, particularly the dairy sector. The low price of milk combined with the high cost of inputs and energy has pushed the dairy sector toward the brink of disaster. U.S. dairy exports increased from $1.5 billion in 2004 to a record-high of $3.8 billion in 2008. However, 2009 will likely finish with dairy exports down 27-40%, prices for milk at historic lows and farmers across the country struggling to avoid default.
As economies around the world deflated, governments have had to step in, either by wholly taking over collapsing enterprises, establishing more enticing loan programs or crafting strategies to keep entire industries afloat. The U.S. Department of Agriculture (USDA) has watched dairy farms across the nation struggle as their debts increase and profits shrink—from January to April this year the U.S. all-milk price averaged $4.80 per hundredweight below the average cash cost of production—and the agency realized drastic steps needed to be taken. The White House agreed and Agriculture Secretary Tom Vilsack announced that the USDA will temporarily increase the amount paid for products through the Dairy Product Price Support Program (DPPSP). This move brought cheers from a wide range of individuals coping with the sector's collapse.
"Wisconsin is home to more dairy farms than any other state in the union," said Senator Herb Kohl (D-WI). "We produce 2.1 billion pounds of milk each month. About half of the state's $51 billion agriculture economy is directly tied to dairy. So when the dairy sector hurts, Wisconsin hurts. And I will say in no uncertain terms that the pain in dairy across America is very, very acute right now."
The DPPSP was extended as part of the Food, Conservation and Energy Act of 2008 (Farm Bill), which authorizes the USDA to serve as buyer of last resort during periods of turmoil and to support the price of dairy products by purchasing storable dairy products at predetermined prices. The current authorization, which allows the USDA to raise or lower prices up to two times within a calendar year, went into effect on January 1, 2008 and will extend until December 31, 2012. The agency clears the clogged commodities from the system and stores the glut in government warehouses.
With the new, immediate increases, the USDA is raising the price paid for nonfat dry milk from $0.80 per pound to $0.92 per pound, the price paid for cheddar blocks is increasing from $1.13 per pound to $1.31 per pound and the price of cheddar barrels is being raised from $1.10 per pound to $1.28 per pound. While the temporary payment increases are in effect, they are expected to increase dairy farmers' revenues from August through October by $243 million.
"The Obama administration is committed to pursuing all options to help dairy producers," said Vilsack. "The price increase announced today will provide immediate relief to dairy farmers around the country and keep many on the farm while they weather one of the worst dairy crises in decades."
John Wilson, senior vice president, marketing and industry affairs, Dairy Farmers of America (DFA) has also applauded the move. "Every initiative we can successfully implement to bolster milk prices makes a vital difference to the dairy farmers who are fighting hard to maintain their livelihoods," he said.
Because of the complex and interwoven formulas used, the increase the USDA pays will in turn increase the all-milk price received by dairy producers. It will also mean that the government will purchase an additional 150 million pounds of non-fat dry milk and an additional 75 million pounds of cheese. These products are then released back to American families, such as in March, when the USDA transferred 200 million pounds of non-fat dry milk to the agency's Food and Nutrition Service, which is then provided to low-income families.
During fiscal year 2009, the USDA is anticipating to spend more than $1 billion on dairy product purchases through programs like DPPSP and through payments to dairy producers via the Milk Income Loss Contract (MILC) program.
Matthew Carr, NACM staff writer
Look for the "A" Players
You need the "A" players. They're the most qualified—the most productive people—in your organization. And, for any open positions you have, you need them fast because any interruptions in staffing can mean missed deadlines, a breakdown in operations and loss of productivity—consequences you can't afford.
You'll find the "A" players at Careers in Commercial Credit, Collections & Finance (C4F), the online resource for the people who are educated and experienced in your related field, and who are looking for the opportunities you can provide.
Click here to get started!
C4F: Employment Connections for the Business Credit Community
For the sixth straight month, the Credit Managers' Index (CMI) indicates that there is growth in the availability of capital. The recovery in the index started in February of this year, supporting the notion that the economy was starting to show some rebound and "green shoots." The July index also moved much closer to the magic number of 50, signaling expansion is taking place. The reading is now at 48.
Over the last two months, the dominant economic debate has focused on whether the recession has already ended, is ending now or is in the process of ending. The data coming from the housing sector is generally very positive with sales of both existing and new homes up. There are improvements in some of the manufacturing indicators, and some data suggests overseas sales have been improving. At the same time, there are concerns about the continued high rate of unemployment and the lingering impact of the downturn.
At the core of this debate is consumer confidence. Data from the Conference Board and the University of Michigan show some erosion of confidence lately, but at the core of that measure is whether consumers and businesses are seeing improved access to capital. The latest CMI suggests that credit markets are continuing to edge toward expansion. If the trend of the last several months continues, the index may soon break 50. The current score for the combined index is 48, up from June's number of 46.4. Once the index crests 50, it will signal that expansion is taking place.
"This marks the sixth straight month of improvement in the index, and it now looks likely that expansion will be under way by the end of the third quarter," said Dr. Chris Kuehl, NACM's economic analyst. The specific improvements in performance are even more encouraging. Sales and the amount of credit extended both jumped dramatically. Sales were up from 44.8 in June to 48.6 in July, while the credit extended measure went from 46.1 to 48.2. The index of favorable factors as a whole reached the critical 50 point, and two of the measures moved into expansion territory as new credit applications moved to 52.6 and dollar collections went to 50.8. The unfavorable indicators also moved in the right direction as there were fewer disputes, fewer bankruptcies, fewer credit rejections and fewer dollars beyond terms. "The sense is that the weakest companies fell by the wayside as the economy toughened and now all that is left are the survivors," said Kuehl. "The good news is that in a recession, this process allows the solid companies to pick up market share and recover much faster. There is some anecdotal evidence that this process is taking place. As some businesses vanish, their slice of the business is being absorbed by other competitors."
Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, 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
Click here to learn more about NACM credit groups and find the group for your industry.
To view past eNews issues or to visit the NACM Archives, click here.