September 30, 2021

Poll Question 090221

In the News

 

 

September CMI Continues Ebb and Flow with Slight Gain

Annacaroline Caruso, editorial associate

NACM’s Credit Managers’ Index (CMI) continued its pattern of fluctuating up and down over the past year. September’s combined index score increased 0.4 points to 58.1 following the 0.7-point loss seen in August. Compared with September 2020, however, the score improved by 2.1 points.

“While these shifts are not dramatic, the trend is once again positive and in some notable areas,” said NACM Economist Chris Kuehl, Ph.D. “The rapid growth at the start of the year was unexpected and so was the decline that occurred at the end of the summer. Now there seems to be a recovery of sorts, and that was not altogether expected either.” 

The combined index of favorable factors held at 66.0 compared with August. Of the four categories comprising the index, sales numbers improved the most (1.8 points) as it returned to the 70s for the eighth time in the last 13 months. New credit applications also improved—albeit 0.6 points. Dollar collections took the biggest hit (1.7 points) to 61.1. 

“Companies seem to be ordering more than is normal and requiring additional credit,” Kuehl said. “Although an increase in demand could be the reason, businesses are likely stockpiling materials due to concerns about the stability of supply chains.”

The combined score for unfavorable factors nudged upward with a 0.7-point gain to 52.8. Rejections of credit applications and filings for bankruptcies held fairly stable with only 0.1-point losses, 52.1 and 57.3, respectively. Accounts placed for collection held at 51.7, while the amount of customer deductions gained 2.2 points (52.3) and dollar amount beyond terms, 0.3 points (51.9). Following two months of numbers in the high 40s, disputes left the contraction zone with a 1.8-point jump to 51.3. 

For a complete breakdown of the manufacturing and service sector data and graphics, view the September 2021 report at https://nacm.org/pdfs/cmi/CMI_September2021.pdf. CMI archives may also be viewed on NACM’s website at http://www.nacm.org/cmi/cmi-archive.

CMI Chart 093021

Get Ready for Changes to Texas’ Lien Law

Bryan Mason, editorial associate

Changes to Texas’ mechanic’s lien statute take effect January 1. Becoming familiar with the amendments to the law before they take effect will help ensure that subcontractors and material suppliers maintain their rights. 

Highlights of the new legislation include:

  • A claimant other than the general contractor filing a lien from a residential construction project must file no later than the 15th day of the third month after:
    • The last month the claimant provided labor or materials
    • The month where the claimant would normally provide the last delivery of materials but have not actually been delivered
  • A claimant other than the general contractor that is filing a lien on retainage must file no later than the 15th day of the third month after the original contract was completed, terminated or abandoned.
  • For unpaid materials or labor provided, the claimant must send a notice to the owner and the general contractor. This notice must be sent for projects other than residential construction no later than the 15th day of the third month after:
    • The last month the claimant provided labor or materials
    • The month where the claimant would normally provide materials
  • For unpaid materials or labor provided on residential projects, the notice must be sent no later than the 15th day of the second month after: 
    • The last month the claimant provided labor or materials
    • The month where the claimant would normally provide materials
  • The template for lien waivers remains the same; however, they will no longer need to be notarized.

In April, NACM members helped shape the changes to the law by attending a hearing on Texas House Bill 2237. “The efforts of NACM Southwest members were successful in obtaining a compromised revision,” said Randy Lindley, partner at Bell Nunnally & Martin LLP (Dallas), shortly after the bill was passed. Their testimony helped persuade Committee members and the bill’s author amend the bill and allow subcontractors and material suppliers to send a second-month notice of nonpayment to the general contractor.

The removal of the second-month notice in the lien filing process was a point of contention. “If this notice requirement was removed, it would increase DSO for suppliers,” said Connie Baker, director of operations for NACM Secured Transaction Services (STS). “Subcontractors would have no reason to pay sooner because the general contractor wouldn’t receive notification of nonpayment until the third-month 15th-day notice.”

Although the second-month notice will no longer be required, material suppliers and subcontractors can still send the notice without penalty, Lindley said. 

Lien waivers also will no longer require notarization, said Katy Baird, senior associate at Andrews Myers PC (Houston, TX). Baird, however, suggests that suppliers and subs continue to notarize their waivers so that their authenticity remains intact. 

Any contracts signed prior to January 1 will continue to abide by current law. “For the time being, credit professionals should continue the same practices,” Baird said. After the first of the year, if a dispute arises, the parties involved will need to pay close attention to the date of the contract.

Baird will present for NACM STS on October 27 the webinarTexas Lien Statutes: Preparing for the Changes in 2022, which will highlight the upcoming changes.

Getting the Most Out of Automated Credit Tasks

Annacaroline Caruso, editorial associate

Technology can help improve the efficiencyaccuracy and standardization of credit risk assessment, especially in today’s world when the workload for credit professionals continues to snowball.

“It is extremely important for today’s risk managers to be able to automate some decisions so that they can assess the risk of companies quickly and make more informed decisions,” said Asha Rani, assistant director of research and strategy at Moody’s Analytics (NY) during FCIB’s Automation Workshop: Automated Scoring Models Part 2.

However, deciding what functions make the most sense to automate can be challenging. The answer will be different for each credit department, but scoring models and credit limit requests are a safe place to start, Rani said. 

According to one of the workshop polls, the majority of respondents (53%) said their department is already running solutions for an automated scoring model but they need more information about using them. To create an automated scorecard template that can be personalized later, Rani suggests the following steps:

  1. Determine the scope for your model, e.g., single company, entire portfolio.
  2. Identify which data points are important, e.g., financials, firmographics, internal or external data.
  3. Set your acceptable risk thresholds.
  4. Personalize the scorecard setup with different colors and labels, and ranged for your selected data points.
  5. Create a formula for setting the credit limit.
  6. View final risk score.

Once you have some of these steps in place, you can develop the automation further by tailoring the scoring model in a way that suits your company, and credit and collections department.

Risk models are just the start, however. Automating the order-to-cash process may help credit professionals manage payments and disputes, said Stephan Glismann-Bringmann, CICP, director of digital transformation at HighRadius (Germany). “Automation is key and always has been key for efficiency, quality and transparency,” he added.

Artificial intelligence (AI) would be most useful for this process because it can predict the insufficient credit limits and prevent automatic blocked orders, ultimately improving customer satisfaction. “The beauty of AI is that you don’t need to think of a lot of possible changes because AI is an ongoing process,” Glismann-Bringmann, said. “AI can take the information and continue improving, making better decisions as time goes on.”

Staying Agile and Cutting Costs

Bryan Mason, editorial associate

Keeping credit departments agile means being able to respond to change and create new practices. The days where credit professionals are trained and responsible for one-specific task are gone, said Pamela Krank, president of The Credit Department, Inc., during a recent NACM webinar, Understand the Seismic Shift in Credit Management Skills.

“When I was credit manager, and when I started out as a consultant, we had one main manager who was in charge of explaining to everybody what they needed to do in order to reach the goals and increase performance, and everyone just kind of went with what the manager was saying,” Krank said.

This type of strategy often isolates team members into being responsible for one-specific task and can cause additional problems including:

  • Work revolving around the credit manager.
  • A higher cost per AR dollar.
  • Weaker reporting structures.
  • Employee turnover.
  • Old processes handed down from one manager to the next.
  • Automation as an afterthought, not a focus.

The needs and demands of the C-Suite often dictate how credit managers structure their team focus. Based on her work with CFOs, Krank outlined four critical business priorities for 2021:

  1. Cost reduction
  2. Digitization initiatives
  3. Improved effectiveness
  4. Advanced data analytics

The methods for achieving cost reductions constantly change, Krank said. Credit managers can begin by matching resources to the assets they manage, comparing cost per account against peer companies and communicating cost reduction strategies with their company’s finance leaders.

“One of the big errors I see is that credit managers—leaders of the receivables management asset—don’t really look at that asset and figure out what they need,” Krank said. Other strategies Krank shared for cutting costs include using: 

  • An application programming interface (API) to extract or import certain elements vs. an entire credit report.
  • Cloud-based collection software to automate emails, letters and statements.
  • Credit analysis scorecard templates that use data populated from credit reports, financials or banks to create consistent, accurate reporting and line recommendations.
  • A customer portal management platform through robotic process automation (RPA) to eliminate manual work by up to 90% with the investment of bots.

These strategies can “cut costs dramatically,” while saving time due to the bots automatically computing much of the work, she said. Krank advises credit managers to embrace the ability of technology to collect data, establish trends and make better business decisions through digitalization. By doing so, credit managers can track trends at the click of a button while being able to show C-Suite members a visual representation of the data collected through charts, diagrams and so forth, she added.

 

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