September 2, 2021
In the News
|I. Commercial Trade Should Brace for Economic Downfall from Hurricane Ida|
|II. August CMI Reflects Slight Cooling of the Economy|
Commercial Trade Should Brace for Economic Downfall from Hurricane Ida
Annacaroline Caruso, editorial associate
Hurricane Ida, one of the strongest storms to ever hit Louisiana, ripped through the state with damaging winds and rain over the weekend. But the ripple effects from Ida have the potential to hurt commercial buyers more so than past hurricanes, according to several news reports.
Ida could cause an insurance industry loss of $15 billion to $25 billion, likely to surpass winter storm Uri ($15 billion) as the largest industry event in 2021 and Hurricane Laura ($10 billion), which was the costliest insured catastrophe event of 2020, says Fitch Ratings.
“Some of the strongest winds from the storm occurred near New Orleans, creating widespread power loss in the city and increasing the potential for elevated economic and insured losses,” Fitch says.
The ongoing pandemic added to the existing challenges of assessing property damage following a catastrophic event, like Hurricane Ida, possibly increasing levels of loss adjustment expenses. “The severity of insured property claims may face adverse impact from supply chain shortages of building materials and higher contract labor costs,” Fitch says. “Company-specific insured loss estimates remain uncertain, and information will be more forthcoming as 3Q21 financial results are announced.”
According to a special report from A.M. Best Company, the storm could pressure reinsurers as they must budget for potentially high claims during the rest of this year’s hurricane season. A.M. Best also says a “surge in demand for materials and goods could increase the cost of (re)insured losses from Hurricane Ida.”
The Gulf Coast is a major hub for natural gas, chemical and shipping companies, says the LATimes. Louisiana’s oil refineries create nearly one-fifth of the nation’s refining capacity and can process about 3.4 million barrels of crude a day, according to the Energy Information Administration. The agency said Ida could squeeze energy supplies, especially transportation, fuel and electricity. According to the U.S. Bureau of Safety and Environmental Enforcement, roughly 94% of gulf oil and gas production was halted due to the storm.
“Sixty percent of the gasoline used on the East Coast is shipped from the Gulf Coast, much of it through the Colonial Pipeline, which is in the storm's path,” the LA Times reported. S&P Global Platts said the storm could halt production of 765,000 barrels a day in gulf oil output.
However, the entire impact of Ida is yet to be seen. The flooding will likely slow the efforts in assessing how much damage has been done to oil production and refineries, said Brian Swan, global commodity analyst at Schneider Electric, in a market update. “Almost the entire state of Louisiana lost power on Monday, keeping significant refining capacity offline until it can be restored.”
“Current prices are healthy enough for oil producers to be profitable and healthy enough to sustain demand,” Manish Raj, the company’s chief financial officer told MarketWatch. “The markets are currently balanced with both supply and demand gradually increasing; therefore, we expect prices to remain generally stable.”
August CMI Reflects Slight
Cooling of the Economy
Annacaroline Caruso, editorial associate
Over the past 12 months, NACM’s Credit Managers’ Index (CMI) has continued to ebb and flow month after month—with a high of 60.6 in April, a low of 56 in last September and an average of 58.4. Overall, eight of the months did slightly better than the 57.7 noted in August 2021, which is 1.2 points above August 2020.
“This year, there has been quite a bit of variability,” said NACM Economist Chris Kuehl, Ph.D. "The Credit Managers' Index has been both stable and volatile. Over the last several months, the numbers have varied considerably, but they have not fallen or risen drastically. The CMI reflects an economy still wrestling with the pandemic and all the chaos that has accompanied it: broken supply chains, varying restrictions and consumer demand shifting away from services and then back again. The end of 2020 was miserable, but 2021 started with a rush, only to be followed by confusion and trepidation as the summer ended. All along this rollercoaster ride, the CMI has reflected these shifts and changes."
The CMI’s index of favorable factors dropped one point. Although new credit applications took the biggest hit (5.4 points) after reaching an all-time high in July, the amount of credit extended jumped 7.3 points. “The explanation for some of this has been the surge in ‘hoarding’ by many companies that have worried about the breakdown in the supply chain and the potential for higher inflation,” Kuehl said. “They are buying far more than one would think they needed. The fact that the dollar collections reading did not change much is encouraging because it points to the desire to continue staying current on debt.”
With a .7 slip, unfavorable factors remained fairly stable. While rejections of credit applications held, three of the six categories ebbed down and one up (disputes) less than a point. Dollar amount of customer deductions saw the most movement with a 2.1-point drop.
For a complete breakdown of the manufacturing and service sector data and graphics, view the August 2021 report at https://nacm.org/pdfs/cmi/CMI_August2021.pdf. CMI archives may also be viewed on NACM’s website at http://www.nacm.org/cmi/cmi-archive.
Key Performance Indicators: What They Are and How They Differ from Other Metrics
Bryan Mason, editorial associate
Today’s business world is buried in data. Finding what is useful, meaningful and actionable takes time and skill. With so many data points available, credit professionals can easily find themselves in a whirlwind of information with little guidance on how to organize it around team objectives.
A key performance indicator (KPI) is a measurable value which demonstrates how effective a company or department is at achieving its business objectives. Developing several targeted KPIs can help credit professionals organize and define how their team is performing and serve as a guide for staying focused on what’s important.
Members of NACM’s Thought Leadership Group on metrics weighed on the importance of KPIs and how they approach and use them.
“KPIs [that you develop] are useful because they are specific to what you and your department do, what you want to monitor and how you want to monitor it without much outside influence,” said Darrell Horton, ICCE, director of credit for Litigation Services, LLC (Las Vegas).
JoAnn Malz, CCE, ICCE, credit and collections manager for Danfoss Power Solutions II, LLC (Eden Prairie, MN), finds that KPIs help keep priorities focused and help drive her team to keep their accounts receivables and customer accounts up to date. Additionally, they help her team members understand their strategic purpose, promote proactive collaboration with others and identify process gaps to drive internal process movement.
KPIs can help credit managers tailor strategies to boost productivity or performance. For example: if the objective is to increase customer accounts by X% in 2021, the KPI should measure the activities which are proven to drive that result, such as number of completed sales calls, website hits or referrals per month. “A metric helps feed your strategy outcome, but it’s not a clearly defined KPI related to an outcome. It’s just a valuable metric,” according to OnStrategy, business management consultant. OnStrategy breaks down KPIs in the following ways:
- A Measure—Every KPI must have a measure. The best KPIs have more expressive measures.
- A Target—Every KPI needs to have a target that matches your measure and the time period of your goal. These are generally a numeric value you’re seeking to achieve.
- A Data Source—Every KPI needs to have a clearly defined data source so there is no gray area in how each is being measured and tracked.
- Reporting Frequency—Different KPIs may have different reporting needs, but a good rule to follow is to report on them at least monthly.
Metrics support data that helps meet her team’s KPI targets, Malz said. “KPIs are critical, focused objectives that have financial impact to company cash flow. In my opinion, they go above and beyond metrics because they influence continuous process improvements and employee development.”
Other departments can influence certain metrics such as days sales outstanding, which are out of your control, Horton said. “So, while these metrics can be a good judge of the overall company health, such as DSO, they can be a poor indicator of you or your department’s efforts.” KPIs that Horton tracks involve:
- Percentage of contacts making promises to pay.
- Ratio of broken promises to promises made.
- Frequency of account contact.
- Number of contacts to receive a commitment to pay.
When it comes to KPIs, there is no one-size-fits all. KPIs can vary depending on industry, software or personal preference. “Find [KPIs] that work for you,” Horton said. “Once you find them, monitor them and push to improve the numbers. If you pick the right KPIs, you should see an improvement in your ultimate objective, or you will know where your problem lies.”
In addition to calculated metrics, Malz employs a KPI strategy that involves creating individualized plans, including process improvement projects for each team member and professional growth and development plan items.
As you implement KPIs to improve your team’s performance, it is important to note how you would like to structure your KPIs and what you would like to achieve or change in the process. According to Malz, here are five ways credit managers can maximize their use of KPIs:
- Maintain fluidity and flexibility—KPIs may need to be shifted if a serious financial impact occurs (i.e., COVID-19). Team members must be willing to adapt as well, based on the changing economy and marketplace.
- Hold KPI meetings with team members—conducting discussions on a regular basis can help maintain positive momentum, or help team members change course to get back on track.
- Identify obstacles impacting performance—using KPIs in this sense allows creditors to initiate a process or personal improvement discussions for projects. Managers may find that additional training may be needed as a result of KPI monitoring.
- Promote consistency and fairness in team management through KPIs.
- Ensure KPIs are individualized to fit the needs of each team member.
“All [KPIs] should contribute to your end goal, which in most collection manager’s cases means getting accounts to pay as close to on time as possible,” Horton said.
Leaders vs. Managers: What Makes Them Different? What Makes Them the Same?
Bryan Mason, editorial associate
There’s a fine line between being a leader and being a manager. In fact, there may be times where you have had to manage more than lead, or vice versa. Understanding the difference between the two roles and knowing when and how to use each role in the workplace can build trust with your team that can translate into a healthier, more effective working environment.
During a recent NACM Thought Leadership Group discussion, associate professor of communication and director, Leah Omilion-Hodges, Ph.D., of the Center for Communication Research at Western Michigan University, led a discussion outlining the similarities and differences between leaders and managers based on the work of retired Harvard Business School professor, John Kotter.
“Management is about coping with complexity and achieving a plan by organizing, staffing, controlling and problem-solving,” Omilion-Hodges said. “Leadership is about coping with change, setting a direction, aligning people, motivating and inspiring.”
DeAnna Leahy, CCE, corporate credit manager at Sunroc Corp. (Orem, UT), shared her experiences as a leader and a manager, as well as how she deciphers these two roles. “An organization needs a good manager to ensure that things are getting done,” Leahy said. “You could say that managers are about the ‘how’ and the ‘when.’ For example, a manager pays close attention to ‘how’ things get done.
“An organization needs a good leader to lead and achieve its mission and vision,” she added. “You could say that leaders are about the ‘what’ and the ‘why.’ For example, a leader pays attention to ‘what’ should be done for the organization to be successful in the long run.”
As with any role, both managers and leaders are often required to display certain characteristics to fit these motives. Here are some examples of specific attributes linked to these roles, according to Leahy:
Regardless of whether an individual takes on a more managerial role or a leadership role, both positions can build trust in the workplace. However, leaders can “help create an environment where employees feel empowered and safe to share their ideas,” Leahy said.
Shawna Arneson, senior global credit manager at Precor Inc. (Woodinville, WA), states that managing and leading are two vastly different strategies. “In my experience, managers build trust through the ‘do as I say’ style and leaders build trust by showing a path, setting examples and stepping back to let them go for it,” she said.
Despite their differences, Leahy states there are similarities between these roles as well. “I believe the shared characteristics of both a leader and a manager are open communication, honesty, integrity and respect,” she said. “These are essential qualities of both a leader and a manager. You must have those characteristics to earn the trust of your team.”
In addition to cultivating these qualities, Leahy lists four more ways for leaders and managers to build trust:
- Trust your team first
- Be flexible and patient
- Be dependable and consistent
- Keep your word/follow through
Omilion-Hodges also stresses the importance of mindful communication, stating without it, “organizations will experience heightened levels of turnover and decreased employee satisfaction.”
In any work environment, be mindful of when to switch roles. That could depend on where your team members are skill wise, Arneson said. “Usually, the greener team members need the manager style as they learn how to navigate the workplace, but this can be turned into a leader-style once you observe their skills and they gain experience.”
Arneson prefers leading over managing and wants her team to feel empowered, take action, take risks, and thrive under her leadership. “I’ve found in the past that managing them doesn’t accomplish this kind of culture, but leading by example fosters an environment where they do excel.”
Not everyone aspires to be a leader, Leahy said. “Some people may be happy focusing on the here and now, short-term tasks, getting the job done and getting it done well. Others thrive when they can lead people. They focus on mentoring people, looking for new ideas and are more future-oriented.”
Omilion-Hodges agreed. “If an organization seeks to be successful, it would do well to hire intentionally for candidates who exhibit exemplary managerial skills and others who have a track record of innovation.” She advises credit managers to evaluate whether they are leading or managing by considering how most of their professional time is spent.
Louisiana: It’s Not So ‘Easy’ in the Big Easy to Secure Lien Rights
Speaker: Chris Ring, NACM’s Secured Transaction Services
Duration: 30 minutes │ Complimentary
Security and IT: What Does This Mean to Me?
Speaker: Trisha Dixon, Atlantic Data Forensics
Duration: 60 minutes