January 12, 2011
Credit applications might be one of the only things that aren't available online yet.
NACM's last monthly survey of 2011 found that an overwhelming majority of companies still rely on paper credit applications, rather than a more modern online counterpart. When asked "Does your company have a credit application that can be filled out and submitted online?" only 26% of respondents answered "yes," while 72% of participants answered "no." Only 2% weren't sure.
Some respondents noted that their companies were wary of the prospect of making their credit application available online, fearing illegal activity and indicating a general discomfort with the openness and uncertainty of the internet. "The overall credit quality of those applications coming in through online channels appears to be lower and the fraud is quite a bit higher as well," said one participant. Others noted that, since their company requires hard copies of other documents, it makes sense for the credit application to be on paper as well. "Since we also ask for financial statements, we require our business applicants to mail in the credit applications," said one respondent. "Online can be dangerous for any company that sends financials."
Industry practices also kept a number of companies from embracing the online option, or, in some instances, even the paper option too. "My industry does not use traditional credit applications," said one respondent, noting that there's still a great deal of technology involved in their system. "I can tell you that, besides prescreening prospective customers/clients, we have an automated work flow process that totally automates the credit processing and approval system while also engaging sales and management in the process."
Many participants noted that their companies were looking into the possibility of creating an online application, but were concerned about the concept of signing. While it may seem weaker than a real, ink signature, online signatures have become increasingly prevalent and hold up in court just as well as signatures on paper. "Comments from customers are very positive about this," said one respondent. "It works well for us. When [the] customer hits 'submit,' it goes directly to [the] credit department administrator for processing."
January's monthly survey is live now and asks about your company credit policy. Click here to participate today.
Jacob Barron, CICP, NACM staff writer
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In what could catch the radar of municipalities struggling with entitlement costs throughout the nation, a judge has approved a deal between public employees and a small Rhode Island city that was largely encouraged by a Chapter 9 filing in mid-2011.
U.S. Bankruptcy Judge Frank Bailey has approved a deal forged by Central Falls and many of its retired employees to voluntarily reduce the level of benefits they are receiving. The judge also approved a new collective bargaining agreement where current police and fire employees there are taking a haircut on future benefits. Not all are pleased, however, as a group of teachers reportedly may file an objection.
Retiree benefits and pensions obligations were the overwhelming cause for Central Falls to file in 2011 as communities throughout the country fret about escalating costs for retiree health care and pensions. Though unable to negotiate concessions beforehand, the Chapter 9 inspired public workers and retirees to take significant voluntary cuts because it, in theory, means they will keep more than if the benefits were slashed during the bankruptcy reorganization. It's estimated the newly forged deal will help the city save more than $1 million this year, which has been characterized as critical for Central Falls to resume any semblance of operational normalcy.
Chapter 9 bankruptcy can be a bit of a double-edged sword for creditors. On one hand, municipalities have the right to pay their vendors even while the reorganization is happening, unlike in Chapter 11, and, in theory, if a reorganization of things like collective bargaining agreements makes a city healthier financially, that's a win for the trades. However, creditors have little of the leverage they do in Chapter 11: they can't force any kind of liquidation and can't sue the city, and have almost no discernible power on a creditors' committee .
With more cities struggling with a host of financial challenges, most significantly entitlements, the issue could likely become increasingly common in the 26 states that allow municipal bankruptcy through Chapter 9 filings.
"There are big problems for a lot of these municipalities, especially the collective bargaining agreements that have built-in generous retirement obligations," said Bruce Nathan, Esq. of Lowenstein Sandler PC. "I think you will see this continue and increase well beyond this year. If state laws can be complied with, why wouldn't [struggling municipalities] do it if this is an option for them to deal with their financial problems?"
More on this topic and the court cases of greatest important to credit professionals will be featured in the coming February edition of Business Credit. Look for it!
Brian Shappell, NACM staff writer
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The Internal Revenue Service (IRS) last calculated the nation's tax gap, representing the annual difference between taxes legally owed and taxes collected, in 2001. At that time, the figure was $345 billion.
But last week the IRS released a more recent estimate, for 2006, and the news isn't good.
The nation's tax gap grew by more than $100 billion between 2001 and 2006, hitting $450 billion annually owed but uncollected. While startling from a layman's perspective, the change, when accounting for changes in the tax base, was relatively innocuous. For instance, 2001's $345 billion tax gap represented an 83.7% voluntary compliance rate, while 2006's $450 billion figure marks an 83.1% voluntary compliance rate, signaling a statistically insignificant change, as far as voluntary compliance is concerned.
While the IRS report essentially confirmed the validity of the agency's previous figures, that hasn't stopped budget-conscious lawmakers from touting the figures as an impetus for tax reform. Senate Finance Committee Chairman Max Baucus (D-MT) was the first, noting that narrowing the tax gap must be part of any comprehensive tax reform effort.
"This report shows that closing the tax gap needs to be a major focus of tax reform," said Baucus. "An improved tax code that's simple and fair to all Americans will help close the tax gap, boost our economy and create jobs. In an era when we're squeezing the federal budget for every dollar of savings, we have to make every effort to recover these lost funds."
"We simply can't afford to lose $450 billion while we're asking each American to pitch in to reduce the deficit," he added.
Congress has worked to address the tax gap before, but to little or no avail. The 3% withholding tax, enacted in 2006, was just such a measure, designed to increase tax compliance among government contractors at the expense of their cash flow, taking 3% of the payments made to them from local, state and federal governments. The measure was repealed last year.
Jacob Barron, CICP, NACM staff writer
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Indexes tracking either survivability or optimism of U.S. businesses large and small are turning up positive, much to the relief of domestic market-watchers.
The latest was an increase of the National Federation of Independent Business' (NFIB) Optimism Index tracking the outlook of smaller firms. Though only a small uptick (1.8%) for the month of December, it's part of a greater, four-month bump that suggests the rising trend might stick:
"Concerns about business conditions over the next six months have subsided, and many small business owners have improved their expectations for real sales gains in the coming months," said Bill Dunkelberg, NFIB's chief economist. Dunkelberg did warn, however, that the "economic winter" must still be contended with as similar gains in early 2011 evaporated quickly. To wit, sales have remained well below levels considered normal and a top concern of many businesses polled for the index. Expectations for future sales increases did, however, gain five points (+9% of those polled) in December alone.
Despite the challenges, NACM Economist Chris Kuehl, PhD believes the news is quite positive, even if the reading is historically fairly low at 93.8, some 50 points below readings during the boom years:
"The importance of the small business community is hard to overstate, and it is getting more influential all the time due to the way that larger corporations are adding capacity. The majority of the hiring that has taken place in the last two decades has been in the small- and medium-sized business category and, if there is to be a solution to long-term employment issues, it will have to come from this category."
Meanwhile, a BankruptcyData.com survey found Chapter 11 and Chapter 7 bankruptcies down significantly this year among publically-traded companies: from 106 filings to 86. The value of assets included did, however, rise by about $15 billion to $104 billion thanks largely to the massive and controversial MF Global Holdings LTD filing ($40.5 billion) in October, the eighth largest in U.S. history. No filing from 2011 cracked the dubious top 10. Those findings of reduced bankruptcy activity are similar to those of Epiq Systems about a week before, which found a double-digit drop in the number of filings. That study noted small business Chapter 11 and Chapter 7 filings, particularly, were considerably less prevalent.
Still, producers of both surveys noted that the positive moment does not guarantee the decline will continue in 2012 amid economic pressures. In fact, New Generation Research Inc.'s George Putnam, speaking on behalf of the BankruptcyData.com survey, warned "some of the massive amount of debt that was issued before 2008 begins to come due [this year]."
Brian Shappell, NACM staff writer
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The Commerce Department's recently delivered report on American competitiveness pushes Congress on a number of "bipartisan priorities," many of which probably won't turn out to be all that bipartisan.
Dubbed "The Competitiveness and Innovative Capacity of the United States," the report serves as "a call to arms," according to the department, and identifies three important concepts that should, ideally, help shape future legislation:
- Federal investments in research, education and infrastructure were critical building blocks for American economic competitiveness, business expansion and job creation in the last century.
- Failures to properly invest in, and have comprehensive strategies for, those areas have eroded America's competitive position.
- In a constrained budgetary environment, prioritizing support for these pillars is imperative for America's economic future and will provide a strong return on investment for the U.S. taxpayer.
The report was mandated as part of the America COMPETES Reauthorization Act, signed into law by President Barack Obama last January. It addresses a diverse range of topics and policy options, and in many cases, makes a case for the benefits of government spending. Some key recommendations include increases in federal funding for basic research, extensions of tax credits designed to spur innovation and enhancements to the nation's increasingly outdated infrastructure. It also highlights the efforts of the Obama administration that have worked toward these ends.
"This is a topic of pivotal importance," said Commerce Secretary John Bryson, in an event before the Center for American Progress (CAP). "Our ability to innovate as a nation will determine what kind of economy—what kind of country—our children and grandchildren will inherit, and whether it's a country that holds the same promise for them as it did for our parents and grandparents."
Although the report was delivered to Congress last week, both chambers remain out of session until next week for the House of Representatives and until the week after that for the Senate.
Jacob Barron, CICP, NACM staff writer
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It's hard to garner sympathy or fear for the Chinese trade situation when they boast a $155 billion trade surplus, even if that is a three-year low. However, the declines in activity and concern over a shrinking economic expansion have market-watchers and businesses increasingly reliant on Chinese buying habits and production capabilities starting to fret openly.
Chinese statistics indicate annual export growth was 13.4% in December, the lowest in more than two years. It's indicating that problems with lackluster growth in the United States and the debt-fueled financial mess in the European Union might be busting previous assertions that China and other BRICs nations were somewhat shielded from problems outside of the emerging economies block (as noted in last week's eNews story about Brazil).
Moreover, there are a slew of problems facing the Chinese as they look to stabilize the narrowing importing and exporting activity.
"They are now sitting on massive property bubbles that will inevitably burst—the same fate of what bursting property bubbles did to the U.S., the UK and Spain now awaits the Chinese," said NACM Economist Chris Kuehl, PhD. "A second problem stems from the impact that rapid growth has on all manner of supply chains and business processes. There have been severe capacity constraints [insufficient power production, poor transportation infrastructure, qualified labor shortages]. All of these capacity issues create more inflation issues."
Still, experts like New York Federal Reserve Bank VP Matthew Higgins have remained bullish on Chinese prospects for the coming years. Even Kuehl admits the problems should not inspire panic.
"None of this is to say that the BRICs are heading back into obscurity or even that their economic challenges will be any worse or better than those facing the U.S. and Europe," said Kuehl. "It is simply to point out that no set of nations finds itself immune from the vagaries of the global economy."
Brian Shappell, NACM staff writer
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