CMA Daily News

NACM Credit Congress Offers More Than Great Sessions

This year's Credit Congress will not only offer attendees an opportunity to network, grow and improve as credit professionals, but it will also give them the opportunity to delve into one of the nation's most culturally rich, and often overlooked, cities. Often called either "the southernmost northern city" or "the northernmost southern city," Louisville offers visitors both a quaint sense of traditional charm and comfort and also a cutting edge, bubbling sense of innovation. This contrast can be seen in the city's cuisine, which varies from classic comfort foods to new age delicacies, as well as the city's architecture and culture.

Dozens of world-class restaurants and eateries lie within a short ride of both the Galt House—the main Credit Congress hotel—and the Kentucky Convention Center, where a majority of the Congress' sessions will be held. These include Mazzoni's Oyster Café, known for its rolled oysters, Primo, a popular Italian restaurant, and 4th Street Live!, a collection of restaurants and nightclubs.

Louisville's architecture is both elaborately charming in older parts of town and decidedly modern in others. However, there is sufficient overlap between both styles that molds the city into a uniquely cohesive experience. Old Louisville, a cultural district just south of downtown, offers visitors a wide array of Victorian architecture as well as several shops and local eateries. Old Louisville also hosts a large student population, making it a lively cultural spot with occasional concerts and theatre productions held during the summer.

Just down the street from the Galt House is the West Main District, a popular cultural center nestled in downtown Louisville. Credit Congress attendees will have the chance to explore the district's Museum Row, a collection of museums located within walking distance of one another, including the Muhammad Ali Center, the Frazier International History Museum and the Louisville Slugger Museum.

For more information on Louisville and also a complete look at the exciting sessions to be offered at NACM's 2008 Credit Congress, be sure to pick up a copy of the February issue of Business Credit. Click here to get your subscription started today.

Jacob Barron, NACM staff writer

Master of the Matrix, Master of the Cs

The entry level NACM teleconference, "The Art of Credit Management," presented by Eddy Sumar, MBA, CCE, CICE, of ERS Consulting Services, was aimed at providing the groundwork for success for credit department members. In it, he discussed his theory of the 18 basic "Cs" of credit, the credit matrix and creating a fundamental checklist that every credit professional should keep in mind.

"I really believe, as credit professionals, we are artists," said Sumar. "That's why credit management isn't a science, it's an art."

The first step in Sumar's process was to look at the word itself. Credit is defined as a cooperative function between seller and buyer, or between creditor and debtor, that is based on agreed upon terms and mutual trust for both parties to deliver on their promises.

"This is how we define credit in the traditional way," explained Sumar. "But in order to become masters of our destinies and masterful at the art of credit management, we need to redefine credit."

He explained that credit is a sales tool and a marketing tool, and needs to be recognized as four-dimensional as a financial vehicle and as a strategic alliance. By looking at credit as possessing those four functions, he explained that it creates a better understanding of the connections between the credit executive, the credit department, the customer and the company.

"My motto is that as a credit person, I should be sales sensitive," explained Sumar. "Likewise, a sales person should be credit sensitive."

He said that the primary objective of a credit executive is to understand the vision of the company for which they work for, then figure out if there is a vision for the credit department. Credit professionals must understand the company's culture as well, and its policies and procedures.

"It's imperative, to be successful at credit, to understand the vision of the company," said Sumar. "You'll be surprised by what credit extensions you offer and all the credit offerings that you have. They are linked—directly or indirectly—to the vision of that company and to where the company wants to go. By understanding the vision of the company, you will create and carve a vision for your department."

Sumar's credit matrix is a simple, fundamental chart with four quadrants: "Able and Willing," "Able and Unwilling," "Unable and Willing" and "Unable and Unwilling." The purpose of the matrix is to help credit executives and sales people to make quick decisions on a customer.

"Now, I think this is a very crucial matrix because it is going to tell me, how do I follow the lead? Where do I concentrate my efforts?" explained Sumar. "Let's say I am a sales person, credit person, or a collector. Where do I want to target? I always recommend to go from Able/Willing to Willing/Unable."

"Ability and willingness ultimately fall onto character," added Sumar. "That's why I always say become a master of the matrix, because the matrix helps you classify your customers as to character."

Matthew Carr, NACM staff writer

Advice from NACM Legal Workshop Credit Applications

On January 24th and 25th, attorneys Bruce Nathan, Esq., Lowenstein Sandler PC, and Wanda Borges, Esq., Borges & Associates LLC, hosted the first of three sessions in NACM's 2008 Legal Workshop series. The two attorneys are familiar faces in the association's educational programs, and teamed up to speak in-depth about credit applications and guaranties and the information that should and should not be included in them.

The two-day session provided a wealth of information and advice on topics ranging from references, stoppage of delivery, reclamation, compliance with federal law and the "Battle of the Forms" to navigating antitrust violations, and oft overlooked protections.

First and foremost, both agreed that every credit application should include language, in bold, that verifies that the grantor adheres to the provisions of the Equal Credit Opportunity Act (ECOA) and that there must be some reference to the grantor's standard terms and conditions, either by including them in the credit application or noting that they are posted on the creditor's website.

"Your terms and conditions have to be prevalent," said Borges. "If the first time your customer sees them is on the back of an invoice, you've got a problem. More and more companies are putting the data on their website. If you're going to put your terms and conditions on your website, you have to make them readily available."

Under Article II of the Uniform Commercial Code (UCC), the failings of which took centerstage, if the first time a customer sees terms and conditions is on an invoice, it won't always serve as confirmation or agreement to those terms.

"The thing I love about Article II is that everybody is right," said Nathan. "There are court cases that say the invoice serves as confirmation of terms and conditions, there are others that disagree. Do something such as posting them on a website to lock in the terms and conditions."

In terms and conditions, grantors want to make sure that the laws of the state where they are headquartered are recognized to rule in any legal proceedings. The two also suggested that interest rate charges and the reimbursement of at least a portion, such as 25%, or all legal fees are included in the terms and conditions or on the credit application as well. Credit executives need to be wary though that if they do include interest charges on invoices they must make their best effort to collect on them. If they are only collecting the charges from certain customers and not all, they may find themselves facing antitrust violations of the Robinson-Patman Act.

Common practices, such as asking for the social security numbers and home addresses of board members, officers and other executives may not always end in results, as most credit executives will know. The new privacy laws provide individuals protection against having to submit these on a credit application, and denying credit because an application is without these pieces of information may lead to violations. Though the majority of attendees of the workshop included sections on their applications asking for the social security numbers, they all agreed that it was irregular for those to be given.

Other basic measures Nathan and Borges discussed were the importance of verifying a company's legal name before granting credit, as well as verifying that the individual signing the application or a personal guaranty has the authority to do so. They suggested checking the Secretary of State records and website, and touted a subscription with court document websites such as PACER as a must.

The Legal Workshops will continue with Credit Enhancements, on March 6th.

Matthew Carr, NACM staff writer

NACM Resource Library

The quickest and easiest way to research the most current information on business credit topics is now a benefit of membership! (Formerly a subscription service, now available to members of record.)

Access this site using the same username (your e-mail address) and password as you currently use for all other services on the NACM-National and FCIB websites.

These publications are now accessible online at the NACM-National website:

    * Antitrust Guide for NACM Group Members (brochure)
    * Art & Science of Financial Risk Analysis
    * Bankruptcy Abuse Prevention & Consumer Protection Act of 2005
    * Construction Law Survival Manual
    * Credit Management: Principles and Practices
    * Equal Credit Opportunity Act (brochure)
    * From the Cutting Board to the Cutting Edge
    * Manual of Credit and Commercial Laws
    * Principles of Business Credit

Continually updated. Please visit www.nacm.org.

Woeful Farm Bill and Record Year Highlight Remarks by Secretary Conner

When Congress returns to session later this month, one of the pieces of business to finish is the reconciling of the House and Senate versions of the 2007 Farm Bill. Unfortunately, with the two versions suffering from some very fundamental differences, the outlook for a successful conference seems farfetched.

"With all that has gone into this process, it would be great to stand up here and be able to tell you that we were just a few short steps away from wrapping up a final package that we can deliver to the President for his signature," Acting Secretary of Agriculture Chuck Conner told the South Dakota Corn Growers Association. "Unfortunately, ladies and gentlemen, that is not where we are right now."

Both House and Senate versions of the bill propose tax increases to fund programs, something that doesn't sit well with the Department of Agriculture and hasn't been done since 1933. Conner called the Senate version of the bill "full of gimmicks" and "illusionary savings," saying that he did not believe other sectors of the economy should be asked to pay additional taxes to support farm programs. He also stated he was concerned about the "trade-distorting effects of increasing target prices and loan rates" that the two versions contain and that there is no inclusion of a meaningful income cap on farm program participation or reform of the way that beneficial interest is applied in marketing loan transactions. To make his point clear, he showed the audience a map of New York City where a lot of farm program payments are handed out, saying "this has to stop."

Conner and other senior agriculture officials will recommend that President Bush veto any Farm Bill that does not rectify any of the mentioned points of discontent.

"Every farm bill is tough; every farm bill looks bleak until the last minute," said Conner. "This one looks bleak from my vantage point; I will tell you that. But I know that on the other side of that is an opportunity for us to sit down and work together as we have done so many times in the past, come up with the right plan, a reform-minded plan, one that's fair to the taxpayers, one that talks about the true costs of the bill."

Though the Farm Bill is a flop, there was good news.

For U.S. farmers, 2007 was an outstanding year, economically speaking. Corn prices hit an 11-year high. Soybeans hit a 34-year high while wheat prices have been at all-time records. U.S. agricultural exports topped $82 billion with expectations that trade in 2008 will reach $91 billion, and the Department of Agriculture is estimating that net cash farm income will be at $85.7 billion, up $18 billion, by next July. It is also no secret that the 2007 Energy Bill signed by President Bush on December 19 will be a boon for farmers as it is asks for extraordinary increases in the Renewable Fuels Standard (RFS) over the next several years.

"I remember the days not too long ago when we gauged our year in agriculture by whether or not we broke $50 billion of net cash farm income," said Conner. "We have not only broken that, we are way beyond anything historically ever used as a benchmark of measurement."

Matthew Carr, NACM staff writer

NACM Credit Managers Index December 2007

The seasonally adjusted Credit Manager’s Index (CMI) fell for the fourth consecutive month in December. The index lost 0.7%, and dropped to a record low of 52.4%. Six of the 10 components fell, including a 4% drop in dollar collections. Daniel North, chief economist with credit insurer Euler Hermes ACI, said, “While the manufacturing index actually gained 0.8%, it was overshadowed by a loss of 2.3% in the service index. The deterioration in the combined index matches that of other major indicators in the macroeconomy, including disappointing holiday sales, a weakening employment market, accelerating declines in housing prices, downgrades of banks and insurers, plummeting consumer confidence, and a rapid increase in delinquencies and defaults on many types of credit. It would appear that trade credit managers are now encountering the same difficulty found in other credit markets, that is, the inability of debtors to pay bills due to insufficient cash flow.”

Click here to view full CMI Report.

Recession Fears Mount as Holiday Shopping Season Hits Full Stride

Nearly One-Third of Americans Plan to Spend Less This Holiday Season; Americans Show Signs of Financial Discipline in the New Year
Volatile economic conditions and fear of a looming recession are weighing on the minds of Americans as they descend on shopping malls and online shopping sites this holiday season. The majority of American workers (71%) and retirees (72%) said they believe that the economy has fallen into a recession or fear that it is headed in that direction, according to the latest Principal Financial Well-Being Index^SM. More than one-third of workers (37%) expressed concern about their own job security, up significantly from second quarter this year, when only 22% of workers expressed concern.

According to the survey, if an economic slowdown forced workers and retirees to reduce their spending, more than three-fourths of workers (76%) and 49% of retirees say they would eat out less often. Both groups said they would cut back on buying clothing and consumer goods (69% of workers and 49% of retirees). Almost two-thirds of workers (63%) and more than one-third of retirees (39%) say they would cut back on entertainment to reduce spending, such as going to movies and concerts. Americans even indicated they would go as far as reducing their coffee intake—more than one-fourth of workers (27%) said they would purchase coffee less often. Finally, 11% of workers indicated they would lower their retirement plan contribution rate.

"Uncertainty about the direction of the economy clearly is top of mind as Americans navigate the holiday shopping season, which has turned into a gift giving extravaganza," said Dan Houston, executive vice president of Retirement and Investor Services, The Principal. "Americans are underestimating their real spending. To get on solid financial footing, I recommend that every person set a budget, prioritize gift purchases and use a high degree of fiscal discipline."

Spending for the Holidays
Americans are planning to tighten their financial belts when it comes to spending during the holidays. When asked about their intentions for spending this holiday season, 29% of workers and retirees indicated they plan to spend less money than last year. More than half of workers (59%) and nearly two-thirds of retirees (64%) plan to spend the same amount as last year while 12% of workers and 7% of retirees plan to spend more money. According to the survey, nearly half of workers and retirees (49% and 46%, respectively) are planning to spend between $101 and $500 throughout the holiday season. Just more than one-fourth of workers (27%) and less than one-fourth of retirees (22%) plan to spend between $501 and $1,000 this holiday season.

Stepping Into the New Year—Financial Resolutions
Americans were given a list of potential financial resolutions they intend to make as New Year's resolutions in 2008. The top two resolutions selected by workers were paying off credit card debt (40%), followed by putting a set amount of money into savings each month (39%). Compared with fourth quarter 2006, significantly more workers are making resolutions to save more each month (39%, up 6 percentage points from 2006) and to stop using their credit cards (22%, up 4 percentage points from 2006). Less than one-fourth of workers (23%) indicated they do not intend to make a resolution, and nearly half of retirees (49%) have no such plans.

"There still may be a financial hangover from last year's holiday season," Houston said. "American workers need to put retirement savings before buying the next plasma TV or cashmere sweater."

Too Much Plastic?
The index also reveals that more than one-third of workers (39%) report having credit card debt between $1 and $5,000 compared to just 21% of retirees. While retirees have significantly more credit cards in their name for personal use than do workers, significantly more retirees than workers report having no credit card debt (66% versus 33%). More than one-third (34%) of retirees and 29% of workers reported they have five or more cards. However, when asked how many of these cards they use on a regular basis, only 5% of retirees and 2% of workers reported using five or more cards regularly. On average, retirees report having 4.4 credit cards in their name for personal use compared with workers (3.7).

Know Your Credit Score?
At least six out of 10 workers (66%) and retirees (62%) have ordered a credit report in the past. However, more than half of workers (51%) and six out of 10 retirees (61%) do not know their credit score, despite the fact that Americans can request a free annual credit report.
Source: The Principal Financial Group®

Hidden Gold for Trade Creditors

When dealing with an insolvent or bankrupt debtor, creditors will do everything in their power to reclaim the money they were owed. Whether securing transactions prior to sale or using specific legal defenses in the courtroom, every credit manager can get hit by a debtor who won't or can't pay, so it's best to have as many tools available as possible to better protect a company's assets. Two of the most overlooked options that creditors can use to get back part of what they're owed are setoff and recoupment.

"What I find interesting in all of these conversations is the lack of knowledge that creditors have of this right," said Bruce Nathan, Esq. in a recent NACM-sponsored teleconference entitled "Setoff and Recoupment: Hidden Gold for Trade Creditors." Nathan noted that setoff, although not explicitly listed in the Bankruptcy Code, is a state law right that is viewed as a self-help measure that creditors can use whenever they'd like. It can be used when a creditor and debtor are doing business with one another and owe each other money. It makes little sense to pay a debt when the payee owes the payor money, so setoff allows both parties to reduce their obligations to one another by setting off one claim against another.

There are, however, legal requirements that need to be satisfied for creditors to use setoff, and, in his presentation, Nathan discussed these, making certain that attendees knew how to avoid any legal missteps that might preclude any successful setoff. Nathan also noted that after a debtor has filed for bankruptcy, setoff needs court approval before it can be used. "Once a debtor files for bankruptcy, setoff rights are restricted," said Nathan. "The automatic stay arising under Section 362 of the Bankruptcy Code would prevent a creditor from unilaterally exercising setoff rights." Nathan also noted several other legal hoops that creditors have to jump through prior to successfully reducing their claim using setoff, whether before or after a bankruptcy filing.

Recoupment, said Nathan, is very similar to setoff but with one important difference. "All that is required for recoupment to take place is that it arises from a single claim or transaction," he said. "Recoupment is essentially a defense to a debtor's claim against a creditor." Nathan also noted that recoupment is a slight improvement over setoff, because it is not governed by the automatic stay rule and does not require a creditor to get the permission of the court to exercise the right.

Jacob Barron, NACM staff writer

New Bankruptcy Amendments Effective December 1st

An amendment to bankruptcy Rule 3007, which went into effect on December 1st along with several other new amendments, takes away some of the frustration and anxiety for creditors seeking to collect on debts, especially those involved in large bankruptcy proceedings.

Historically, in massive Chapter 11 cases, Omnibus Objections to Claims, allowed under Rule 3007, are standard practice for debtors. The rule was criticized for allowing huge inclusive objections that were so weighty and difficult to traverse that it ultimately resulted in failures of appropriate notice to creditors because it was arduous for claimants and their counsel to determine if their claim was even being objected to. There was no cap on the number of claims a debtor could clump together. A claimant was often required to wade through a number of omnibus objections, which were bogged down with layer upon layer of exhibits stacked with hundreds of claims leading to an unwieldy number of pages of documents to peruse. These omnibus objections could wipe out hundreds of claims in a single stroke and the missing of response deadlines by creditors was all too common.

Last September, the Committee on Rules of Practice and Procedure of the Judicial Conference decided to level the playing field for claimants.

The amended rule does not allow omnibus objections to claims for the most part, unless a court orders otherwise. It strictly prevents debtors from combining objections to more than one claim into a single objection. Furthermore, under the new amendment, an omnibus objection is allowed only if all the claims included within the objection were filed by the same entity, or duplicated other claims; have been amended by subsequently filed proofs of claim; are interests not claims; were not filed on time; the claims have been satisfied; the validity of the claims cannot be determined because of noncompliance with applicable rules or assert priority in an amount that exceeds the maximum amount under Section 507 of the Bankruptcy Code.

The amended rule also helps creditors in case an omnibus objection is permitted by having claimants listed alphabetically. Previously, claimants were only listed by number, with a cross-reference to the claim number. And, if possible, the claimants are to be listed by category of claims. Amended Rule 3007 also puts a cap that a debtor can only include 100 claims at a time in a single omnibus objection.

The new amendments also provide a new Form B10 for filing proofs of claim, which claimants can obtain from the bankruptcy court or online at http://www.uscourts.gov/rules/BK_Forms_08_Official/Form_10_1207.pdf.
Matthew Carr, NACM staff writer

First Contraction in Credit Manager's Index Adds to Recession Fears

Columbia, Maryland: December 3, 2007—The seasonally adjusted Credit Manager’s Index (CMI) fell for the third consecutive month in November, losing 0.7% as both service and manufacturing sector indexes declined. Although the drop was relatively small, all six unfavorable factors components fell, leaving five below the 50 level, indicating economic contraction. “This is the first time that there has ever been more than four components indicating contraction since the inception of the CMI in 2002, and it could well be a harbinger of things to come,” said Daniel North, chief economist with credit insurer Euler Hermes ACI.

North listed current conditions: gasoline prices are high, housing prices are low, the dollar is crumbling, consumer confidence is plummeting, holiday sales have been mixed at best, credit is drying up, bankruptcies and foreclosures are on the rise, the employment situation is decaying and conditions in the housing industry are getting worse. “It is a potent combination which could lead the economy into a recession in the first half of next year, yet both the economy and the CMI have remained resilient so far,” he said. “However, cracks are starting to show and the Fed will almost certainly cut the Fed Funds rate again at its December 11th meeting in an effort to forestall a recession. In all likelihood, the Fed will have to continue to cut the Fed Funds rate well into 2008, perhaps as low as 3.5%. Credit managers are facing tougher times ahead.”

The manufacturing sector fell 0.3% in November to a seasonally adjusted 52.7. Five of the 10 components fell, with bankruptcies plummeting 7.9%, the second largest drop on record. “As has been the case for months now, comments from the survey participants were mostly about the terrible conditions in the housing market, but this month there are some unhappy comments from other industries as well indicating more widespread weakness,” said North. Of note, a manufacturer of nuts, bolts, screws, etc. responded that manufacturing is cutting back to a four-day week. A petroleum refiner said, “We are seeing stress across industries due to rising energy and raw material costs.” And a manufacturer of cookies and crackers commented how the housing crisis is now directly affecting even the food industry: “We're affected by the trauma of home builders, mortgage banks and title companies.” North commented that the bright spot of the report was that the sales component erased all of last month’s 5.2% fall.

The service sector index fell 1.1% on a seasonally adjusted basis in November. The decline was widespread as six of the 10 components fell. “Like in the manufacturing sector, bankruptcies led the way down, falling 5.9%,” North said. “Also like the manufacturing sector, most comments were negative ones about the housing industry, but downbeat comments from other industries are now ringing in.” North summarized the responses, saying, “One participant from the photocopying industry replied, ‘Even our best customers are paying beyond 100 days past due.’ Another from the plastics industry, referring to the impact of higher oil prices, said, ‘We have had several customers close their doors as a result.’ Finally, another from the tire industry described the state of the economy perfectly: ‘There appears to be no question that the economy is turning negative. With the housing industry in a slump and the price of gas over $3.00 a gallon, individuals simply do not have the money they once had to make retail purchases.’”

The Credit Manager’s Index over the past 12 months has fallen 2.2%. North said, “Although there were no dramatic year-over-year movements in any of the components, the decline was widespread as all 10 components fell. Manufacturing fell 2.4% and service fell 1.9%. In both indexes, eight of the 10 components fell, supporting the notion of a pervasive but slow decline.”

The CMI, a monthly survey of the business economy from the standpoint of commercial credit and collections, was launched in January 2003 to provide financial analysts with another strong economic indicator.

The CMI survey asks credit managers to rate favorable and unfavorable factors in their monthly business cycle. Favorable factors include sales, new credit applications, dollar collections and amount of credit extended. Unfavorable factors include rejections of credit applications, accounts placed for collections, dollar amounts of receivables beyond terms and filings for bankruptcies. A complete index including results from the manufacturing and service sectors, along with the methodology, is attached or can be viewed online at http://www.nacm.org/resource/press_release/CMI_current.shtml .

The National Association of Credit Management (NACM), headquartered in Columbia, Maryland supports more than 22,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of Affiliated Associations are the leading resource for credit and financial management information and education, delivering products and services which improve the management of business credit and accounts receivable. NACM's collective voice has influenced legislative results concerning commercial business and trade credit to our nation's policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy.