November 7, 2013
Even though faster electronic options exist, many businesses continue to pay their creditors with traditional paper checks. While such activity is often chalked up to simply resisting change, the concern over fraud and the security of transactions is just as much a factor.
Rudet Fountain, a representative with payment solutions provider United Tranzactions, believes negative perceptions about the existing and potential security of electronic transactions are far from reality. "While the risk of electronic fraud is real, the truth is that most fraud still occurs at the human level. Data stolen from large-scale security breaches are rarely used to commit crime," he said. "Account data stolen by humans from humans, not computers, continues to be the primary source of fraudulent payment activities."
"The fraud question is a big, big question," said Federal Reserve Senior Vice President of Industry Relations Sean Rodriguez during a November 5 teleconference created exclusively for NACM members that focused on the Fed's initiative to improve U.S. payment systems. Safety and security is one of the key areas of focus in the Fed's current effort. However, Rodriguez admitted that fraud issues have not been reviewed nearly as much within its payments systems effort as have those of speed and efficiency. This is partially due to the lack of universal solutions for fraud, especially in the B2B sphere, and still-existing concerns regarding electronic payment options, whether warranted or not.
But this isn't the case everywhere. For instance, the United Kingdom's Faster Payments is an effort spearheaded by the Office of Fair Trading to speed up payment times and now includes at least 10 banks. Rodriguez praised the wide level of understanding of Faster Payments in the UK that was fostered not only by education, but also by a collective effort with the payments industryâ€”banking, third-party providers, end users, etc.â€”to build it at the onset. The Fed is hoping for a similar collaborative input in its payments system improvements initiative.
"We want to develop a payment landscape around safety and security issues, which includes fraud, to try to better define exactly what we are talking about," Rodriguez said. "This is why we think collaboration with the industry is so important. We, as the Federal Reserve, don't have direct interaction with consumers or businesses. If we actually have a collaborative effort toward creating some infrastructure that would lead to greater speed and efficiency and safety and security, we would hope that those solutions are solutions that businesses and consumers become aware of."
Safety, security and fraud are among topics to be considered during a series of open Fed Town Hall meetings starting next week. NACM encourages members in the following cities to attend and make the voice of today's credit professional heard:
â€˘ November 12 1:00â€“4:00pm (EST) Federal Reserve Bank of Atlanta
â€˘ November 13 1:00â€“4:00pm (EST) Federal Reserve Bank of Cleveland
â€˘ November 14 8:30â€“11:30am (CST) Federal Reserve Bank of Chicago
â€˘ November 15 8:30â€“11:30am (PST) Federal Reserve Bank of San Francisco
â€˘ November 18 8:30â€“11:30am (EST) Federal Reserve Bank of Boston
â€˘ November 20 8:30â€“11:30am (CST) Federal Reserve Bank of Dallas
For more information on these meetings, and to register, click here.
NACM members can also listen to a replay of the "Collaborating to Improve the U.S. Payment System" teleconference. To view the Fed's introductory report on the problems and opportunities in the U.S. payment system, visit FedPaymentsImprovement.org.
- Brian Shappell, CBA, CICP, NACM staff writer
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NACM joined forces with hundreds of other organizations this week by participating in International Fraud Awareness Week, November 3-9, in order to promote anti-fraud awareness and education.
Fraud continues to be a serious problem for companies worldwide. Organizations around the globe currently lose an estimated 5% of their revenue due to fraud, according to the Association of Certified Fraud Examiners (ACFE), which sponsors Fraud Week. "Organizations of all sizes and types are susceptible to fraud, and it can have a measurable impact on their bottom line," said ACFE President and CEO James Ratley, CFE. "While prevention and detection is a year-round endeavor, Fraud Week shines a spotlight on fraudâ€”and supporters of the campaign demonstrate their understanding that spreading awareness is key in combating the global fraud threat."
NACM was founded on the belief that the solution to reducing fraud losses is the free and open exchange of historical credit information between businesses, and the organization has worked for more than a century to support a business environment where this exchange is possible. Billions of dollars of goods and services are transacted daily through the business credit process and in many instances fraudulent activity can be detected through the careful review of a credit report like NACM's National Trade Credit Report (NTCR). Of course, the more companies report this data, the more focused and preventative the NTCR becomes.
"Simply put, the more data there is out there on businesses, the fewer places fraudsters will have to hide," said NACM President Robin Schauseil, CAE. "Preventing fraud was the whole reason that NACM was founded more than 100 years ago, and what was true then is true now: one of the best ways for the business community to collectively reduce the risk of fraud is to embrace the free and open exchange of credit information by sharing their accounts receivable data with businesses and organizations that offer trade credit reports."
To learn more about the NTCR and how your company can contribute data to this powerful fraud prevention tool, click here.
- Jacob Barron, CICP, NACM staff writer
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The credit quality of U.S. small businesses improved again in the third quarter despite business weakness on the Eastern seaboard and the federal government shutdown, according to the just-released Experian/Moody's Analytics Small Business Credit Index.
The index, which measures the credit quality of firms with fewer than 100 employees, rose 2.3 points to 118.5, marking the highest reading since its launch early this decade. The improvement was supported by a strong increase in total credit outstanding. Experian/Moody analysts believe the credit market for small businesses "is finally starting to thaw" and hinted that more small firms have the confidence to borrow and expand.
Delinquency rates for small businesses continued to decline, though much of this improvement appears to be due to labor cuts. The most recent report suggests that the reductions could be tied to small firm performance still lagging behind that of larger counterparts. Experian/Moody's appears optimistic about the climb in construction company revenues, though both residential and nonresidential companies still "have a long way back" from the bubble burst of several years ago.
Credit quality for the quarter was strongest in the West, particularly in Utah, Arizona and Idaho. The weakest credit performance was found in Florida, where delinquency rates exceeded 20% in agriculture, business services and real estate, with wholesale trade not far behind. The Sunshine State is not alone though. Nearly every Atlantic Coast state up to Massachusetts reported delinquency rates well above, and sometimes double, the U.S. average of 10%. Confidence in several of the markets more dependent on government contracts and operations could again be rattled as U.S. lawmakers continue to flounder on forging long-term fiscal solutions.
"Consumer and business confidence will be tested as policymakers once again negotiate a budget and raise the debt ceiling in just a few months...it wouldn't be surprising if credit conditions for small businesses fail to improve further over the next couple of quarters," Experian/Moody's analysts noted, predicting another Congressional showdown in early 2014.
- Brian Shappell, CBA, CICP, NACM staff writer
Join an NACM Industry Credit Group
Businesses risk billions of dollars each year on sales on credit. Find your way between fact and fiction, hope and charity, and faith and foolishness by joining an NACM industry credit group.
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Despite a minor autumn jump, the downward trend in bankruptcy filings continued in October. The number of bankruptcies filed last month increased by 11% over September's figures, totaling 89,875. Of those, 77,274 were noncommercial filings, representing a 12% increase over September's noncommercial total, and 3,544 were commercial filings, marking a 4% increase from the 3,394 commercial filings in September.
On a year-over-year basis, total October bankruptcies were down 11% from the same period in 2012, as were total noncommercial filings. Commercial bankruptcies in October 2013 were also a whopping 27% lower than they were in October 2012. "Monthly year-over-year filing totals have declined for 35 consecutive months," said American Bankruptcy Institute (ABI) Executive Director Samuel Gerdano. "We expect the full year total to drop to a level last seen in 2008, as sustained low interest rates and sluggish consumer spending continue to suppress bankruptcy filings."
On the whole, bankruptcy filings by businesses have been consistently lower than other types of filings, as the commercial readings regularly register stronger decreases, and weaker month-to-month increases, than their noncommercial counterparts. The October commercial data also dovetails with July's Credit Managers' Index (CMI), which tends to precede other indicators by a few months on average. The July CMI showed a rise in filings for bankruptcy number, which signals improvement in the factor and fewer filings overall.
There was an average of 2,899 total filings per day in October 2013, an 11% decrease from the 3,271 total daily filings in the same period last year. States with the highest per capita rate of filings, measuring total filings per 1,000 population, through the first 10 months of 2013 were Tennessee (6.81), Georgia (5.90), Alabama (5.83), Utah (5.38) and Indiana (5.25). Nationally, the per capita filing rate for last month was 3.45.
- Jacob Barron, CICP, NACM staff writer
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On the heels of Spain's first GDP and credit outlook improvements in several quarters, the euro zone got more good news this week as monthly manufacturing numbers rolled in.
Though Markit's overall composite PMI for the euro zone actually dipped slightly in October, the decline was less than expected. Perhaps more importantly, manufacturing production grew in several key areas. German manufacturing, particularly, continued to regain its trademark strength, which is important to the economic recovery of the European Union. It's noteworthy on the world stage as well because of the historic effect German exporting activity outside of Europe has had on its economic performance.
"October data signaled a solid increase in new work received by services providers," Markit said in a statement on November 6. "The latest expansion was the most marked since January and widely linked to improving business and consumer confidence." Markit added that there was a surge of new orders in October, which boasted "the strongest business outlook for [the last] six months."
Meanwhile, manufacturing growth was also noteworthy in the United Kingdom. The UK's Office for National Statistics reported a 0.9% manufacturing increase between the second and third quarters. The monthly improvement between August and September was even better (1.2%). Statistics indicate particular strength in the automotive, pharmaceuticals and computer product industries. Its service sector PMI also performed surprisingly well, as NACM Economist Chris Kuehl, PhD noted. "The service sector PMI registered the best number in 16 years as it moved to a reading of 62.3. The reasons for this surge are somewhat complex, and that is good news," Kuehl said. "There are several parts to the service sector, and almost all of them are showing progress. In the great scheme of things, it is far better to see this kind of dispersed growth compared to seeing just one sector booming along."
The European economy is by no means out of the woods yet. The key economies of France, which had shown growth in September, and Italy turned in lackluster October statistics. Still, news of increasing orders and activity in Germany and the United Kingdom, as well as Austria and the Netherlands, is being treated as a potential marker of a turnaround for the beleaguered region.
- Brian Shappell, CBA, CICP, NACM staff writer
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The United States exported $189.2 billion worth of goods and services in August 2013, slightly lower than July's total of $189.3 billion and June's all-time record high of $190.5 billion, according to data released by the Commerce Department's Bureau of Economic Analysis last week.
Export-Import Bank Chairman and President Fred Hochberg singled out manufacturing as one particular slice of the economy that continues to grow through increases in international sales. "Our exporters continue to drive the U.S. economy and employ more American workers in high-paying, skilled export-related jobs, especially in the manufacturing sector," he said. "Every month brings us closer toward achieving President Obama's ambitious goal of doubling U.S. exports by 2015."
While that goal might still remain just out of reach, exports from the U.S. have continued to be a remarkably resilient economic figure despite continued global uncertainty and seemingly biennial fiscal crises here at home. Over the last 12 months, exports of goods and services have totaled $2.2 trillion, which is 42.2% above the levels of exports in 2009 and signifies growth at an annualized rate of 10.1%, compared again to 2009.
Among major export markets, meaning countries with at least $6 billion worth of annual imports of U.S. goods, the list of countries registering the largest annualized increases in U.S. goods purchases when compared to 2009 is dominated by Latin American economies. Panama (28.8%), Peru (20.9%), Chile (20.3%), Colombia (19.3%), Argentina (17.8%) and Ecuador (17.6%) have all registered regular increases in goods purchases from U.S. sellers.
- Jacob Barron, CICP, NACM staff writer
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