June 2, 2011
The bottom seemed to drop out of the economic recovery in May. The first signs of trouble started to manifest in April, but by the end of May these threats had become very real and the economy took some steps backwards. The Credit Managers' Index (CMI) data in April had hinted at the problems with declining numbers in areas like sales, credit extension and dollars beyond terms, but by May these areas and others showed definite strain. "The momentum of the economic rebound has been reversed for the time being and for reasons that should not come as a shock to many," said Chris Kuehl, PhD, managing director of Armada Corporate Intelligence and National Association of Credit Management economic advisor.
The biggest drop in May was in sales. The 59.4 reading is the lowest since September 2010, and this decline was felt in both the manufacturing and service sectors. There is widespread concern that the consumer is retreating from spending again as retail numbers in general have been tepid. The only reason for an increase in retail activity is due to the hike in gas and food prices. These have forced more spending on the part of the consumer, but this spending has come at the expense of almost every category of retail.
"The CMI data reflects the decline in demand at the manufacturing and wholesale level, and it is very likely that consumer retail numbers will dip correspondingly in June," said Kuehl. "The CMI data generally presages activity in the consumer sector as it reflects the activity in the commercial sector."
There are other trouble areas showing up in the data this month. Dollar collections dropped to a level last seen in August 2010 as many companies found themselves in trouble as they were forced to start contending with inflation even as their business opportunities remain limited. This started to show up in April and has since accelerated. Within a very short period of time there will be cash flow challenges unless the expected demand manifests. The inflation that is complicating the financial situation for companies is also hitting the consumer and having a negative impact.
The index of favorable factors had been as high as 64.1 just three months ago in February. Now that index has fallen to levels not seen since October of last year. The index shows that there is still some growth in terms of credit applications and that bodes well for the future assuming that conditions improve and the rate of approvals starts to grow again. Right now there is still a sense that conditions will improve as the threat of inflation fades, but if the threat continues to advance there is likely to be another wave of negative responses.
"The most dramatic changes in the overall index represent an early warning of some bad times ahead if conditions do not improve on the inflation and growth fronts," said Kuehl. Three important categories have slipped into the 40s and that creates concern. The biggest drop was in dollars beyond terms—a slide from 50.7 to 46.5. Overall, the combined index fell 1.6%, from 55.8 to 54.2. Many companies are having problems staying current as the costs of inputs rise while their markets remain moribund. Kuehl said that, thus far, there has been little increase in areas like disputes, accounts out for collection and bankruptcies, but if the past is any pattern these areas will reflect the strain in the months to come as business customers continue to grapple with cash flow.
The inflation hike is not solely responsible for the problems manifesting in May, but it is playing a significant role for sure.
Missed Credit Congress? Keep an Eye on NACM's Blog
If you were not able to attend NACM's Credit Congress this year, be sure to stay tuned to NACM's Blog for regular updates!
The Expo hours at the 2011 Credit Congress found large crowds milling about and among the most common questions fielded at the NACM booth was "Where can I find out more about that new national credit report thing?"
NACM affiliates proudly unveiled the National Trade Credit Report, which features credit scores and "days beyond terms" statistics among tools designed to provide specific trade payment data drawn from a database of more than seven million trade lines, during Credit Congress' packed Super Session. Though already available, it was the first major public announcement of the evolved product. What followed was a steady stream of credit professionals looking for a demonstration and to answer their questions about it.
The NACM National Trade Credit Report came out of affiliate managers working in recent years to use existing software to pull national statistics together in an effort to offer members a broader picture, as far as place, yet a more specific picture, regarding industry.
"Because of the interest from all the affiliates, we sent out a questionnaire to our membership asking 'what segments of the reports are most important to you?' By far, trade information was the most valuable," said Bill Meeker, president of NACM Tampa. "With that, we're bringing this report out emphasizing the trade. When you get to talk about trade groups, you're talking about pure industry trade, how they're paying in their own industry. While it's important to see other trades, the first need is 'I want to see how they're paying in my industry.' That's what these credit reports are going to give them. It brings current trade lines to the members from their strong local bureaus and takes it to a national level."
Among the affiliates confirmed to be taking part in the NACM National Trade Credit Report effort are Atlanta, Birmingham, Boston, Carolinas, Chicago, Dallas, East Coast, Great Lakes, Hartford, Houston, Knoxville, Los Angeles, Louisiana, Louisville/Memphis, Nashville, Norfolk, Orlando, Portland, Salt Lake City, Spokane and Tampa. More affiliates are expected to come online in the future.
To find an affiliate in your area that provides industry credit reports, visit http://web.nacm.org/asp_aps/Affiliates/location/mmbr_map.asp. More information about the creation of the NACM National Trade Credit Report and the importance of reliable credit rating information is available in the June Business Credit story "Industry Credit Reports Continue to Demonstrate Credibility; Take a Big Step" on page 30.
Brian Shappell, NACM staff writer
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With small business exporting becoming an increasingly important element of U.S. commerce, attendees at NACM's 2011 Credit Congress in Nashville flocked by the dozens to the first in a series of five "Doing Business in..." sessions hosted by FCIB, NACM's international division.
The first, "Doing Business in Canada," drew well in excess of 100 people and became one of the first standing room only, so to speak, sessions of Credit Congress this year. Hubert Sibre, of Davis LLP, described Canadian business terms as extremely varied depending on the province. For example, Alberta is considered very liberal from a pro-debtor standpoint, while Quebec is considered much more conservative on matters of business and credit. Sibre suggested that registering one's business in every province is almost essential because it greatly improves one's position to protect intellectual property in Canadian courts, among other things. It also helps to have a subsidiary based there because a bankruptcy judgment made in the United States is unenforceable without a Canadian court officially recognizing it.
A subsequent session on South Korea was led by Kyle Choi, Esq., of Bluestone Law Ltd. Choi spoke on the various aspects of why the nation's stock is rising in the international business community, which includes a highly evolved infrastructure, a wealth of available credit information on companies there and business-friendly law. Also helpful is its prestigious business quality rating by the World Bank and, according to Choi, that its free-trade agreements with the United States and the European Union will increase competitive fairness by reducing the gap in tariffs, estimated by some at 10%. But there are many cultural differences and barriers that need to be taken into account, such as a desire for officials at companies to speak directly with employees on their level with your company and the need for formality even in email correspondence.
Choi also led the "Doing Business in China" session focusing on opportunity, cultural nuances and the often overlooked yet critical topic of population breakdowns. "Some people are worried about not having enough population growth," said Choi, noting that this is a remarkable sentiment to be felt in a country comprised of 1.3 billion residents. Referring to China's one-child policy, he quipped, "in 10 to 20 years, we're going to have huge aging population issues." Choi went on to warn that China's meteoric growth could soon become a thing of the past as the nation tries to grapple with inflationary concerns.
"Doing Business in Brazil" was an especially well-attended session under the direction of native Brazilian Octávio Aronis, of Aronis Advogados. The interactive session included significant discussion on collections in Brazil, a topic that has frustrated many companies and credit professionals involved in Latin America's hottest market. "Based on collecting over there, I think it's much better if you hire somebody in Brazil to do your collections," said Aronis. "This is the best procedure. You send them to the local professional, and he knows the law. I wouldn't be wasting my time with overseas collectors."
Hiring a local also became a hot topic during the final session of the five-part series, which focused on Chile. Christian Laborda Mora, of Laborda Abogados & Asociados LTDA, said credit professionals/businesses who do not sweat the small stuff when dealing with Chilean businesses often simply don't get paid.
"Basically, the bank executive will not provide you information if you have a problem; also, culturally, you're likely to offend when the bank tells the representatives from the company that you were investigating them," he said, noting it's part of why employing someone who knows the business and communications culture there is a near necessity. "You should probably hire a Chilean lawyer. There are often good results even when we just send a letter. People don't like receiving a letter from the lawyer and, if they see the letter is coming from Chile, they know you're serious and think 'I could face problems.'"
More coverage from the "Doing Business in..." series will be featured via a variety of NACM platforms including our blog at nacm.org, the summer edition of the FCIB newsletter and the July/August edition of Business Credit.
Brian Shappell and Jacob Barron, NACM staff writers
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NACM's Credit Executive of the Year winners of the past have always held an appreciation and awareness of the honor. The weight of the award this year—renamed in honor of the late O.D. Glaus—also wasn't lost on this year's winner, one of the namesake's students from three decades prior.
Mike "Pooch" Puccinelli earned the 2011 O.D. Glaus Credit Executive of Distinction and was presented with the award at May's Credit Congress in Nashville, Glaus' home turf. It's the first time the award bore Glaus' name, as the NACM National Board of Directors opted to rename the National Credit Executive of the Year Award shortly after the revered credit professional's death in February 2010. At the time, the board was eager to hone the nomination criteria to recognize those who strive to emulate Glaus' legacy.
"He epitomized everything about a professional in credit, in education," Puccinelli said. "He was the quintessential southern gentleman. O.D. always had a three-piece suit and a hanky to match the color of his tie, and you could comb your hair by looking at the reflection in his shoes. To be given an award named after him is really something special to me."
Part of what made things more special this year, aside from the award being presented in Glaus' beloved Nashville, was that Puccinelli actually was one of Glaus' students and a member who had cultivated a relationship with him over the years.
"Way back in 1980, he had a traveling road show, a two-day seminar with two other credit professionals. It was the first overnight class I'd gone to and really the first class I ever took [in the industry]. He made quite an impression," Puccinelli recalled. "Certainly, he made it very enjoyable, and it was probably the first experience I had where someone who actually did the work taught the class. He did it and could actually tell you what it was like. That made a big impression at the time, and I went on over the years to take many classes. I would see him from time to time and at Credit Congress every year, and he always remembered me and would ask how I was doing and what I was up to."
In addition to presenting the O.D. Glaus Credit Executive of Distinction to Puccinelli, NACM was also pleased to announce the following award winners during the General Session:
• CCE Designation of Excellence: Shera "Sheila" Roames, CCE
• CBF Designation of Excellence: Don Kruggel, CBF
• CBA Designation of Excellence: Kathy Antoine, CBA
• Mentor of the Year: Gwen Stroops, CCE
• NACM/Robert Half Finance and Accounting and Accountemps Instructor of the Year: Gwen Stroops, CCE
• NACM/Robert Half Finance and Accounting and Accountemps Student of the Year: Shane Norman, CCE
• Alice M.H. McGregor Award of Exceptional Achievement: Phyllis Truitt, CCE
During the same session, Chairman Kathy Tomlin also officially announced that Toni Drake, CCE had been named 2012 Chairman-Elect and will assume the chairman role following the term of Marshall Kahn, CCE.
Tuesday's Super Session rounded out this year's awards presentation with membership awards to:
• NACM Upstate New York
• NACM Wisconsin
• NACM East Tennessee in Knoxville
• NACM Rhode Island & Southeastern New England
The NACM Graduate School of Credit & Financial Management's class of 2010 Best Student Award was also awarded at the Super Session to Ryan Napp, CCE.
Congratulations to all this year's award winners!
For more Credit Congress coverage, visit the NACM blog.
Brian Shappell, NACM staff writer
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In a gesture designed to make a point about spending cuts, the House of Representatives voted down an increase in the debt ceiling last week. The bill would've increased the nation's statutory debt limit, which is the amount of money the U.S. government can legally borrow to meet its obligations, by $2.4 trillion, without making any other spending cuts or tax increases.
House Republicans introduced the bill knowing that it would be quickly defeated, using the vote as political theater built to reinforce a demand that any increase in the debt ceiling be coupled with cuts to government spending. The final tally was 318 against the bill and only 97 in favor.
Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee, introduced the bill, and then was put in a unique position to criticize the very bill he had introduced. "Let me be clear: I do not support and will not vote for a debt limit increase that does not contain significant spending cuts and budgetary reforms," said Camp. "Our current path is unsustainable and unacceptable. We must force Washington to live within its means, and any deal on the debt limit should include real reforms including entitlement programs like Medicare."
"The president's budget calls for a $2.4 trillion increase in the debt limit through the end of next year. The legislation I filed today will allow the House to reject a clean increase in the debt limit proving to the American people, the financial markets and the administration that we are serious about tackling our debt and deficit problems," he added.
On Tuesday, Mary Miller, assistant secretary for financial markets at the U.S. Treasury, issued a statement reiterating the seriousness of a debt ceiling increase, noting that the U.S. is still set to default on its debt for the first time in history on August 2. "On the basis of careful analysis of actual and projected revenues and expenditures, the Treasury Department continues to project that the U.S. will exhaust its borrowing authority under the debt limit on August 2, 2011," said Miller. "[U.S. Treasury] Secretary [Timothy] Geithner continues to urge Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner."
Jacob Barron, NACM staff writer
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NACM's recently concluded 115th Credit Congress offered attendees a number of ways to support the NACM Scholarship Foundation, which helps credit professionals get the education they need. The two largest events were the 6th Annual Scholarship Fund Golf Outing and the Silent Auction, which is held annually at Credit Congress' Beer & Browse event.
The 6th Annual Scholarship Fund Golf Outing was an enormous success. This year's 2011 edition was hosted at Gaylord Springs Golf Links, a short bus ride away from the Gaylord Opryland Hotel, the site of this year's Credit Congress. Although there was an early threat of rain, the weather held off through the afternoon, giving the golfers a sunny day of competition on the links.
Mulligans, throws and other score-reducing items were offered for sale to all golfers, and they took great advantage of them to jockey their foursome into first place. Although the competition was fierce, only one foursome could prevail, and the one that did consisted of Jim Epperson, Betsy Rhodes, Tommy Rhodes and Chuck Scott, with a collective score of 19 under par.
Other individuals winning prizes were D'Wana Chadwick, who won the ladies' closest-to-the-pin contest; Darlene Pratt, who won the ladies' long drive contest; Joe Grier, who won the men's long drive contest; and Michael Williams, who won the men's closest-to-the-pin contest. Williams generously returned his winning gift card so that it could contribute to the NACM Scholarship Foundation Silent Auction, providing the fund with yet another opportunity to provide scholarships to commercial credit professionals in need.
NACM thanks all of its golfers for their participation and support! Special thanks also to MiTek Inc., which donated golf towels for the event, and United TranzActions (UTA), which donated water bottles.
The annual Silent Auction had a near record year, netting more than $12,000 to be distributed as scholarships to deserving credit professionals.
Previous events have auctioned off purses, clothing, hotel stays and personal electronics. This year featured an equally eclectic collection of items including Nashville-inspired items like Jack Daniels' Tennessee Whiskey and collections of classic country albums, while others included Kindle e-readers, iPods and elegant jewelry.
Attendees did their best to outbid their competition all in a fun, spirited atmosphere, and for the benefit of the Foundation, which provides credit professionals with more opportunities to enhance their skills and raises the profile of the commercial credit field in general. NACM congratulates all of the event's winners and thanks everyone for participating!
To learn more about NACM's Scholarship Foundation, click here.
Jacob Barron, NACM staff writer
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