eNews March 2, 2010

March 2, 2010

News Briefs

  1. Credit Congress Offers Excellent Business Meeting Opportunities
  2. ACM Merges With NCT to Create United Tranz*Actions
  3. Supreme Court Rules on "Principal Place of Business" Definition
  4. Economy to be Healthy in Late 2010 Without Government Stimulus
  5. SEC Pushes IFRS Decision Back to 2011, May Not Require Compliance Until 2015
  6. Toyota OK for the Long-term, But Near Future Looks Increasingly Rough
  7. February CMI Makes Small But Anticipated Gains After Big January

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Credit Congress Offers Excellent Business Meeting Opportunities

A recent Robert Half Management Resources survey showed there are places other than the office that can host successful business meetings. When asked "Other than in the office, what was the location of your most successful business meeting ever?," 36% of financial executives said "restaurant" and 25% said "trade show or conference."

As companies are still reeling from a rough 2009, many have reacted to the crisis by cutting what expenses they can, and travel is often one of the first. However, the results of the survey suggest the most lucrative business deals may not take place in the safe confines of a company's headquarters, and company leaders should keep this in mind before slashing budgets for airfare.

NACM's upcoming Credit Congress, scheduled for May 16-19, 2010 at the Rio Hotel in Las Vegas, offers credit professionals and their companies a one-of-a-kind trade show that will be attended by thousands of different professionals and vendors from various industries, all in a setting home to a wide array of world-class restaurants sure to impress and assure potential or existing clients. In addition to its standard top-notch educational and networking sessions, Credit Congress also offers companies and creditors the chance to use Las Vegas' considerable charms to wow their clients and business partners.

Learn more about Credit Congress and the wealth of opportunity Las Vegas offers business meetings at http://creditcongress.nacm.org. Also, be sure to look for articles, including a rundown of renowned local establishments in the March 2010 issue of Business Credit magazine. Click here to get your subscription started today.

Jacob Barron, NACM staff writer

Play Your Best at the Best at Credit Congress

The Legacy Golf Club in Las Vegas has been named one of the "Top Ten Courses You Can Play" by Golf Digest. Join the NACM Scholarship Foundation for its annual golf outing on this spectacular course. Proceeds from this event provide future financial assistance to credit professionals through educational opportunities.

The course features tee boxes in the shape of each playing card suit—the heart, diamond, club and spade—multi-tiered fairways, large greens and exciting challenges. Ready yourself, get your foursome together and register for the conference and golf outing today or use the add-on form to add it to your registration.

See you there!

ACM Merges With NCT to Create United Tranz*Actions

ACM, NACM's world-class payment processor partner, recently announced that it had merged with long-time competitor, National Check Trust, Inc. (NCT), to form a new financial services company known as United Tranz*Actions, LLC, or UTA for short.

The merger will provide NACM members an expanded product line, as well as a strengthened infrastructure to support continued growth and product expansion. "This is a powerhouse solution," said UTA President Dean Middleton. "We are truly a one-stop, fully loaded billing and payment solution."

"Our competitive advantage is that we are able to distribute your statement and invoicing as your customers want it, make those same documents available online and accept payment—all with the click of a mouse," he added.

NCT has historically focused its check guarantee services on the automotive industry and the buildings and materials industry, and has done so very successfully, producing an industry-leading product in a competitive marketplace. In addition to its check guarantee service, ACM has recently made great strides in developing its other electronic services, offering credit card processing, remote check deposit with no NSFs, electronic bill presentment and payment, online bill pay, EFT/ACH check by phone and its E-mmediate service, which offered check by phone with no NSFs.

Now, as UTA, the best of both worlds will be readily available to all NACM members, who can purchase services as a complete benefits package or a la carte.

For the time being, current customers will see no changes in existing services. "There's no rush to make change," said Middleton.

Source: NACM

Joint Check Agreements

How one crafts a joint check agreement can be crucial in how such a pact holds up in bankruptcy court. One certainty is that there is no such thing as a "standard" joint check agreement.

As such, James Fullerton Esq. will highlight the wide variety of wordings in such agreements as well as the protection they offer a supplier on a construction project during the NACM teleconference "Joint Check Agreements," on March 15th at 3:00pm EST. The Virginia-based attorney's firm, Fullerton & Knowles, P.C., is widely known for its Construction Law Survival Manual, which outlines everything from contract litigation to mechanic's liens to bankruptcy.

To learn more or register, click here.

Supreme Court Rules on "Principal Place of Business" Definition

The U.S. Supreme Court recently found in favor of the Hertz Corporation in a case that may, in the future, have ramifications for the Bankruptcy Code's venue provisions.

In its ruling on Hertz Corp. v. Friend et al., the high court sought to resolve different court interpretations given to the term "principal place of business," which determines the court with jurisdiction in cases involving corporations. In the unanimous opinion written by Justice Stephen Breyer, the court found that a corporation's "principal place of business" refers to "the place where the corporation's high level officers direct, control and coordinate the corporation's activities." Breyer noted that lower courts had referred to this place as the corporation's "nerve center," which the court believed would be found at a corporation's headquarters.

As previously covered in NACM's eNews, the original case was brought as a class action suit by Melinda Friend and John Nhieu in California state court. Hertz sought to have the case remanded to federal court, claiming that because it and Friend et al. were citizens of different states, the higher court possessed diversity-of-citizenship jurisdiction. The original plaintiffs however claimed Hertz was a California citizen, an assertion that the district court agreed with, and was affirmed by the Ninth Circuit upon appeal by Hertz.

The Supreme Court overruled, stating that the "nerve center" test provides a more consistent and easily applicable rule for courts to rely on than a frequently used general business activities test, whose results are scattershot at best.

"The application of a more general business activities test has led some courts, as in the present case, to look not at a particular place within a State, but incorrectly at the State itself, measuring the total amount of business activities that the corporation conducts there and determining whether they are significantly larger than in the next-ranking State," said Breyer. "Administrative simplicity is a major virtue in a jurisdictional statute. A 'nerve center' approach...is simple to apply comparatively speaking."

In addition to Hertz itself, the ruling was cheered by the Chamber of Commerce, the Business Roundtable and the American Trucking Association. It remains to be seen if the "nerve center" test will be used in situations other than class action lawsuits, most notably in bankruptcy, where filing debtors can "venue shop" around different courts in different states, often to the detriment of unsecured creditors.

Breyer made no mention of bankruptcy in the opinion and noted that the court's ruling will hardly be the last word on the subject. "While there may be no perfect test that satisfies all administrative and purposive criteria, and there will be hard cases under the 'nerve center' test adopted today," he said, "this test is relatively easier to apply and does not require courts to weigh corporate functions, assets or revenues different in kind, one from another."

Jacob Barron, NACM staff writer

Distressed Business Services

Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.

While courts can take several months or more to start a reorganization plan, NACM Affiliates can assist in getting a plan approved in as little as 30 days. Most helpful is the knowledge that experienced professionals are ready to step in at the most difficult time. NACM Affiliate staff members can serve as secretary to creditors' committees, provide other needed advisory services and are fully aware of the prevailing laws and regulations relevant to each situation.

Click here to learn more about NACM's Distressed Business Services.

Economy to be Healthy in Late 2010 Without Government Stimulus

The domestic economy is likely to see a solid recovery in the second half of 2010 even as the federal government looks to end various bailout efforts, said speakers at FCIB's New York International Round Table. The same apparently cannot be said about the situation in several European nations.

The key topic on the mind of Torsten Slok, director of global economics with Deutsche Bank Securities Inc., is what happens to the already slow economic rebound once the U.S. government ends various stimulus programs. The Federal Reserve has held firm on its predictions that it will end its purchasing of mortgage-backed securities through the Treasury Department, a move designed to clear bank sheets in an effort to increase lending, and it is widely speculated that the Federal Open Market Committee will begin increasing the target for the federal funds rate from its near-0% status by mid-year at the latest. Meanwhile, the Obama administration appears set on ending a host of programs, including TALF at the end of March, and allowing the homebuyer tax credit program to expire on April 30.

Still, Slok is confident the needed drivers of the economy—the housing and banking sectors—will be healthy enough to ensure a sustainable period of recovery. Key to said confidence is Slok's predicted "snapback" of cyclical components of the gross domestic product that have been muted because of the lengthy economic downturn. Additionally, Slok believes consumption activity will surge again by year's end as labor markets continue to right themselves.

"At the end of the day, the data doesn't show a sea change," said Slok of U.S. consumer behavior. "If the banking sector is in a terrible state, consumers will be the same. But I don't think the overall credit system will change much in the near-term." He added that the rise of savings levels likely was a short-term trend because asset losses forced fear and a more fiscally conservative personal finance culture during the last couple of years.

International Conditions
Creditors lending to companies in Europe are finding increasing payment delinquencies from companies, even historically reliable ones, in nations such as Greece. Greek economic policy appears to be wearing on the entire continent and beyond.

"The Euro is likely to be under pressure until the Greeks tighten their belts," said Slok. "I'm really warred about Greece. It'd kind of like educating your child. You can't let them jump on the couch and then give them candy. [Greece] needs to raise taxes and drop government expenditures." Continued bailouts from the European Union are likely to increase concerns of moral hazard.

FCIB members also noted significant delinquency issues coming from a number of customers in Italy, Spain and Portugal, as well. Round Table moderator Paul Angeli noted the GDP in Spain has virtually imploded as a result of problems in the construction industry there, and Italy is not faring much better.

"There's a general slowdown in all regions of Europe, and a lot of it is directly attributable to the economy," said Tina Mousouroulis, North America credit manager for Intel Americas Inc. She added economic woes are hitting southeastern European nations particularly hard. Angeli noted, jokingly, that southern Europe isn't known for being the most punctual with payments even during boom times.

"We used to joke about this in college, those Italians always want to pay you tomorrow," said Angeli, who is of Italian descent. "Maybe in those cold weather areas all they have to do is work."

For more on conducting international business, plan on attending the FCIB I.C.E. conference in Chicago, IL, April 18-20. To browse the conference schedule and to register, click here.

Brian Shappell, NACM staff writer

Certification Exams at Credit Congress

Start off your Credit Congress experience knowing you'll soon have a new designation! Credit Congress offers both an exam review the morning of Sunday, May 16 and the exams in the afternoon for each the CBA, CBF and CCE designations. Then unwind from it all with light fare and drinks at the Credit Congress Opening Reception in the Expo on Sunday evening.

Get ready now! The paperwork deadline for the May exams is March 29th. Contact the NACM Education Department for more information, and sign up through the Credit Congress registration form here.

SEC Pushes IFRS Decision Back to 2011, May Not Require Compliance Until 2015

The U.S. Securities and Exchange Commission (SEC) recently clarified its position on the ongoing convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) into one global set of accounting rules. While earlier statements made in 2008 and even earlier may have indicated something of a "gung-ho" attitude toward convergence, this most recent SEC comment reminded investors, and the world, that it reserves the right to accept a new global accounting standard only when it is good and ready to do so.

"For nearly 30 years, the SEC has promoted a single set of high-quality globally accepted accounting standards, which would advance the dual goals of improving financial reporting within the U.S. and reducing country-by-country disparities in financial reporting," said SEC Chairman Mary Schapiro. "But supporting this goal is only the beginning of the discussion, not the end."

The latest statement also marked the beginning of a new Work Plan for SEC staff, geared toward evaluating the impact that merging GAAP and IFRS would have on the U.S. market. Assuming timely completion of the plan, the SEC would decide in 2011 whether to incorporate IFRS into the U.S. financial reporting system, and if so, when and how.

The SEC last proposed a roadmap to convergence in November 2008, after which it received more than 200 comments from a broad selection of market actors including investors, regulators, academics and attorneys. According to the SEC, the comments supported the idea of a globally accepted accounting standard, but differed in opinions regarding the approach the agency was taking.

Additionally, in response to comments that suggested U.S. companies would need a four to five year window to successfully change reporting systems, the SEC noted that, should it decide to incorporate IFRS into the U.S. reporting system in 2011, U.S. companies would not be required to report under such a system until 2015, far later than originally proposed.

A full copy of the SEC's statement and press release on the matter can be found at the agency's website (www.sec.gov).

Jacob Barron, NACM staff writer

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Toyota OK for the Long-term, But Near Future Looks Increasingly Rough

Early last month, experts were clamoring to defend Toyota's long-term record of quality manufacturing and business practices. But with several weeks of new bad news, recalls and verbal floggings before U.S. and Chinese lawmakers, those in Toyota's supply lines need to prepare for the reality of leaner than expected times for at least a year or two, if not longer.

Toyota continues to take hits to its good reputation with consumers over slow recalls stemming from serious problems with floor mats, sticking accelerators pedals, brakes and possibly the electronics used in several of its car lines, most notably the award-winning Prius brand. Moreover, lawmakers—especially those from states closely tied to the U.S. automotive industry both for jobs in their district and/or significant campaign contributions—appear determined to take to their soapboxes and keep Toyota's recent stumbles in the public spotlight for as long as possible. Expect John Dingell (D-MI), whose close ties to the United Auto Workers union are well documented, to continuing leading that charge.

Jim Gillette, director of financial services at Michigan-based firm CSM Worldwide, was among those defending Toyota's reputation for good working relationships and workmanship. And while Toyota is known for taking care of the product manufacturers and distributors in its supply line, Gillette now admits the company will have no choice but to drastically cut its orders in 2010 and 2011.

"From a supplier perspective, they should be much more worried than they were even three weeks ago," said Gillette. "The evidence seems to be weighing against Toyota's ability to quickly respond to their problems. They're taking serious damage to their public image right now. I still think they'll be fine in the long-term, but in the meantime, suppliers are likely to see drastically lower volumes for parts this year than we planned on."

Toyota is known for being accurate with its predictions for how much they will need in terms of materials within a two-plus year window and, as such, suppliers typically count on that accuracy. Hence, if you're a supplier dependent on Toyota for a large amount of business and were expecting to provide them with 150,000 units of your product this and next year, it's time to make downward revisions right away.

As for how long it will take Toyota to put present problems behind them in the minds of U.S. consumers, that remains difficult to forecast. While Ford was able to regain trust quickly in the 1990's after deflecting responsibility for tire de-lamination problems on its Explorer-brand vehicles onto the tire manufacturer, it took Audi nearly a decade to regain market share when its officials were unwilling to offer an earnest mea culpa for its defects in the 1980's.

Still, there are two things about which Gillette remains confident: Toyota will not throw any of its suppliers under the bus if the products were defective both because maintaining business relationships remains important to company officials and because they approved of the parts upon inspection, and the company will maintain its position as one of the top three automotive manufacturers in the world at the end of this decade.

Brian Shappell, NACM staff writer

New MLBS Half-day Workshop Coming in March!

Join NACM's Mechanic's Lien & Bond Services (MLBS) Director Greg Powelson for his next half-day lien and bond workshop on March 19th at the Norwalk Marriott in Norwalk, CA. In "Liens & Bonds: Building the Optimal Credit Department," Powelson will take attendees through the many idiosyncrasies that accompany construction credit and the many ways in which liens and bonds can be used to secure payment on what are often risky projects. From collecting job information all the way through foreclosure, attendees will get a fast-paced look into how they can create the optimal construction credit department.

To learn more about the program, register or read testimonials about Powelson's previous presentations, click here.

February CMI Makes Small But Anticipated Gains After Big January

The growth manifested in January has been interrupted. However, the drop in activity in February was not enough to plunge the Credit Managers' Index (CMI) back into negative territory. In fact, a marginal gain moved the combined index from 55.1 to 55.2 and was somewhat anticipated due to the inspiring recent expansion in the manufacturing sector. Still, it feels more like a decline when compared to the big gains made in January.

"Starting in the latter part of 2009, manufacturing sector businesses began rebuilding inventories back to respectable levels; a process the CMI predicted," said Chris Kuehl, Ph.D., economist for the National Association of Credit Management, which issues the CMI report each month. During the depths of this recession, most businesses did everything possible to reduce costs and protect cash flow. For several months, the CMI illustrated this point with reports of worsening unfavorable factors: more disputes, rejections of credit applications and dollars beyond terms. By the end of 2009, the CMI began to show a shift—businesses that owed money started the process of paying down debt in anticipation of needing access to credit in the near future. This shift in attitude has historically shown that expansion begins within a month or two, which is what started to transpire in December 2009 and January of this year.

"The development in manufacturing was matched to a lesser extent by similar movement in the service sector, and other economic indicators added to the notion that something was stirring in the economy," said Kuehl. Fourth quarter GDP numbers for 2009 were up 5.9%, and the Purchasing Managers Index climbed to the mid-50s with new orders all the way up to the mid-60s. "There now appears to be a reversal under way, but it may be more accurate to refer to this as a breather," Kuehl said.

"The first phase in an economic recovery is the replenishment of reduced inventory and there can't be growth without the supply to meet expected demand," said Kuehl. "If there had been no effort to bolster inventory levels, the arrival of demand would have provoked massive shortages, bottlenecks and ultimately inflation. For now, businesses are looking at low interest rates, commodity prices and labor costs. This is the safest time to build that base, but now they have to wait for the second phase—consumer confidence, which remains in the doldrums to an extent."

Conference Board reports show a big drop in consumer confidence because of concerns about the employment situation. At the same time, there are reports coming in from big retailers such as Lowe's and The Home Depot suggesting that consumers are shopping again. The consumer has yet to commit and until that happens, the economy remains in a waiting position.

The CMI shows that sales were flat in February after a major jump in January, but slight increases in new credit applications and the amount of credit extended indicate that credit remains somewhat accessible. Among the negative factors, the biggest changes took place in disputes and bankruptcies. Neither was unexpected: more companies are struggling with debt and will be maneuvering for more time, and the end of a recession is often harder on companies than the recession itself as they start to see pressure from competitors and may not have the ability to respond.

To read how the manufacturing and service sectors fared in February, view the full report, complete with tables and graphs, click here.

Source: NACM

To view past eNews issues or to visit the NACM Archives, click here.

 

 

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