October 14, 2021

Poll Question 090221

In the News



NACM’s Credit Congress Returns Live Following a Two-Year Hiatus

Annacaroline Caruso, editorial associate

Credit professionals traveled far and wide to Kansas City, Missouri, this week for NACM’s 125th annual Credit Congress & Expo. Despite the two-year lapse—fueled by the pandemic—of an in-person conference, the passion was larger than ever.

The event kicked off with the Opening General Session where Ross Bernstein, keynote speaker and author, used the world of sports to talk about leadership in the business environment. “You are not so much in the credit and risk management business,” he said to the crowd. “You are in the relationship business.” 

Newcomers and returning attendees had the chance to learn from experts during a variety of educational sessions. The smaller, more personal conference allowed time for more questions, collaboration and discussion between members and speakers.  

Some staple educational sessions covered the basics of credit, while others gave insight on how to make smart credit decisions in a post-covid world. “You have to ask yourself what you need to worry about now that you didn’t need to worry about before,” said Martin Zorn, president and chief operating officer of the Kamakura Corporation during the Credit Risk After Covid session. “There has never been a more important time for credit management to have a strategic role in your company.”

Other topics ranged from construction credit to productivity hacks, technology solutions and building a relationship with the sales department. “Instead of giving sales a negative credit decision, try explaining that we can get to a ‘yes’ but we just need additional information,” said Val Venable, CCE, ICCE, during one of the sessions.

Presenters even had tips attendees could find useful in their professional or personal lives. “Do you have the courage to schedule your priorities,” asked Kit Welchlin, of Welchlin Communication Strategies, during the Time Management: Achieving Results and Getting More Dine in Less Time session. “If you take a few hours to plan the next 12 months, you won’t let down the people who are important to you.”

However, planning and prioritizing is all about balance, he said. “Only about 70% of your time can be hard scheduled. We need to have a certain amount of slush time to be flexible in case something more important or valuable comes up.”

If you weren’t able to attend this time, don’t worry! NACM will be in Louisville, Kentucky from June 5-8, 2022 for the 126th Annual Credit Congress & Expo.

ExamDate enews 031623 right

Brainstorm Sessions Are Great, but What Comes Next Matters More

Dr. Evans Baiya, technology & innovation strategist, Price Associates

There is nothing quite as energizing as a well-run brainstorming session. When I work with clients on innovation projects, the Ideation Stage is one of my favorites. There is a distinct energy and creativity generated when a group of people have come together to work toward solving a common problem. When ideas start flowing without constraint, great things are possible.  

You can think of innovation as an economy of sorts—one that is tied to creating value. Real-world economies are driven by currency, whether that is the dollar, peso, yen or euro. In innovation, ideas are the currency. Without them, there will never be enough exchange to generate value. This is why ideas are critical for company growth and survival.

Innovative organizations have mastered the generation and growth of ideas until they are fully realized. The key is involving employees. Employees will always be more engaged in innovation and idea management when they know their ideas will actually be heard and put to use. With these seven steps, you and your team can create exponential value from ideas, grow an innovation economy and master idea management. 

Step 1: Generate Ideas

Generation of ideas—a lot of ideas—is a must. This is the most basic value in your innovation economy. It requires consistently setting aside time for yourself and your team to simply come up with ideas. You want to operate like an Idea Factory, constantly churning out ideas and encouraging others on your team to do so too. Practicing idea generation techniques such as brainstorming, data sharing, creative thinking and experimenting will help make this a habit and lead to endless ideas. 

Step 2: Capture Ideas

For every idea generated, there should be a place to record it for future reference and evaluation. Think of it as your Idea Bank. An idea doesn’t need to be perfect, and, in fact, ideas in their raw form are better. Try to stay away from prequalifying or perfecting ideas and simply work on the discipline of capturing them, no matter the format. Some ideas may be written, recorded, or sketched. Capturing ideas in different formats is encouraged as long as it can be understood and reviewed at a later time. Like my colleague Ron Price always says, “You don’t have to say every idea is a great one. You can say, ‘That’s an idea—great!’” There’s no such thing as a bad idea in this stage, only lost ideas that lead to lost value.

Step 3: Discuss Ideas

This step is the first exposure of ideas to others and where the creation of exponential value begins. In collaborating and conversing with others, you begin investing and growing your idea. They may see the situation from a different perspective that will help you broaden your view as well. During this step, ideators also have a chance to explain the thought process behind their original idea and offer clarity. It is important in this step to listen and suspend judgement on the idea’s value for now. Discussion often leads to the generation of more ideas, so remember to return to Step 2 and capture these new ideas in your bank.  

Step 4: Improve Ideas

Now is the time to judge ideas. From the collaboration that occurred during the preceding stage of discussion, there should be multiple people providing input to improve the original concept. No idea discussed remains the same—exponential value is added, and this is realized during the improvement stage. Your team can now experiment with interconnecting, combining, substituting, subtracting, adding, reversing and modifying multiple ideas or parts of ideas. The key skill here is the ability to ask questions to challenge the conventional understanding of the idea, to go beyond the initial description and make it stronger.

Step 5: Organize Ideas

Now that you have a holistic view of the possibilities, it is time to organize your ideas for comparison. By clearly recording what the idea is all about, how the idea can create value for the organization or the individual, which other ideas could contribute, which team members could contribute, and the impact of the idea, you can create an Idea Portfolio to clearly see the value of one idea versus another.

Step 6: Evaluate Ideas

With your ideas organized, you can now evaluate an idea against other decision-making metrics such as return on value or return on experience. This step is all about evaluating the idea before committing to it—timing, scope, cost, and benefit ratio all should be considered. Negotiate and justify why the idea is worth pursuing (or not worth pursuing) in comparison to other ideas and priorities. In other words, this step is your decision framework for which ideas to prioritize. 

Step 7: Prioritize Ideas

This is the commitment stage for any idea. This is where you create a project charter, team, budget, timeline and roadmap to actually work on the idea. Without this stage, an idea dies or is lost in the proverbial forest. Prioritization is not just permission to move forward, it is permission with a clear plan. In this final step, you not only decide to invest in the idea but also determine that your evaluation yielded suitable results and your idea will create value.

With these seven steps, your idea is ready for action and you can master idea management—and, in turn, master successful innovation. Skip any step and you risk losing ideas and devaluing your innovation economy.

Dr. Evans Baiya is an innovation strategist, author and speaker who helps companies identify and develop new value and scale their ideas. 

Reprinted with permission by Price Associates.

ExamDate enews 031623 right

Ongoing Supply-Chain Issues to Constrain US Building Product Sales

Fitch Ratings

Supply chain challenges in the U.S. building products and materials sector are taking longer than expected to normalize, limiting companies’ ability to fully benefit from strong end-market demand and grow sales, says Fitch Ratings. The disruption is causing production delays, which have been exacerbated by ongoing port congestion, pressuring sales volumes and leading to higher raw materials and transportation costs.

We expect demand for building materials will continue to be supported by strength in new home construction and residential remodeling combined with improvements in government infrastructure and commercial construction spending. However, some building product companies, such as PPG Industries (A-/Negative) and Sherwin-Williams (BBB/Stable), recently lowered 3Q21 sales guidance. A shortage of raw materials, logistics/transportation issues, force majeure declarations and lower allocations from suppliers drove the downward revision in sales expectations.

Production capacity and supply chains were constrained earlier in the pandemic, due to employee absenteeism, manufacturing and distribution facility closures and social distancing protocols, and inconsistent component sourcing. These challenges were exacerbated by port congestion and adverse weather events. Still, forecast 2021 revenue growth for Fitch-rated issuers is still within our expectations, due largely to higher pricing, which is mitigating EBITDA and cash flow effects of constrained volumes.

The Port of Long Beach, the second busiest gateway in North America by container volume, is experiencing significant congestion due to increased cargo. Some shippers are chartering small vessels, which are more expensive, to go to other ports in order to circumvent bottlenecks in some of the larger ports. However, some Gulf and East coast ports were temporarily shut down by recent hurricanes, causing additional shipping delays.

Fitch revised downward its 2021 U.S. GDP forecast to 6.2% from 6.8% and U.S. inflation forecasts upward to 4.4% from 4.1% this week, as supply constraints are limiting the pace of recovery and resulting in higher prices. The cost of processed inputs for U.S. firms is rising at its fastest rate in 40 years, with some of the higher costs passed on to consumers.

Building products and materials companies are employing actions, including price increases, surcharges, and capacity expansion to navigate the production and inflationary pressures caused by supply chain disruption. Materials and components for construction costs increased at a double-digit year-on-year rate since March and rose 19% in August, based on U.S. Bureau of Labor Statistics data. Transportation costs, particularly for shipping, are also increasing. Inbound freight container costs nearly tripled during 2Q21 for Masco (BBB/Stable), for example.  

Gross margins for some Fitch-rated issuers, particularly coatings companies, are tracking modestly below our expectations, despite price increases, but leverage will be in line with our expectations due to higher year-on-year revenues and solid cash flow. Should supply chain issues persist and gross margins continue to underperform, there could be rating pressure for issuers such as PPG Industries, as the company’s leverage is currently above negative sensitivities.

RPM International (BBB-/Stable) announced the purchase of a chemical manufacturing facility to increase capacity. The company expects buying versus building to help quickly expand production and meet demand of high-growth products, streamline processes and create efficiencies. Mohawk Industries (BBB+/Stable) plans to deploy $650 million of capital toward capacity expansion over the next 12 to 18 months.

The protracted and, in some cases, worsening industry supply chain disruptions in the U.S. building products and materials sector is having a secondary effect on end-market customers. Homebuilders, such as PulteGroup (BBB/Stable), are working more closely with suppliers but a shortage of building products, combined with labor shortages, is affecting the pace of community openings and housing starts. The company expects its average community count for 3Q21 to be down about 15% from last year due to these supply-chain challenges.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ExamDate enews 031623 right

Five Ways to Lose Your Lien Rights

Phil Truax, Truax Law Group, LTD

One of the strongest ways to secure payment rights on a construction project is through a mechanic’s lien. Contractors and subcontractors often “finance” construction projects with their work, which is paid for later. And like the banks that finance projects with money and secure their capital with mortgage liens, contractors, subcontractors and suppliers use mechanic’s liens as security.

Many hesitate using or enforcing their lien rights because they’re taboo in a lot of circles in construction—no one wants their contractor, sub or supplier to file a lien, and they’re basically shamed when they do. But every person or company that furnishes work or material to a project is given lien rights the moment they start improving someone else’s site—and believe it or not, mechanic’s liens are as American as apple pie.

It’s true, they have no history under English law (outside of personal property) and appear to have been created—or at the very least, promoted in their infancy—by Thomas Jefferson of all people, with the Mechanic’s Lien Act that he first introduced to the Maryland Legislature in 1791 to encourage construction of Washington D.C. How ‘bout that?

OK, so mechanic’s liens are an American creation and are important to protect payment rights for those folks that physically do the work on any given project—private or public. And yet, many contractors, subcontractors and suppliers routinely lose their lien rights on projects. When payment delays or issues develop, they’ve lost a tremendous amount of leverage and can find themselves in a very difficult spot and in some cases leaving the project without a nickel in their pocket. So how do folks lose lien rights?

Waiving Lien Rights by Contract. Sometimes prime contracts or subcontracts are written to have the contractor waive their lien rights before beginning work. This is completely legal. Ohio law, for example, says that as long as a contractual lien waiver is supported by valuable consideration per the contract that contractor will be found to have lost lien rights to the point where that contractor’s lien filed later will be a breach of the contract, and they will be liable for the owner’s damages from the lien, including the costs and expenses to remove the lien. So, reading or having your lawyer read, your contract before signing is critical. Sometimes a contractor can take the position that they will not waive their lien rights (without payment), but sometimes the owner or general contractor won’t budge because they can’t (due to lender requirements, etc.). But at least then you’ll know and you can decide whether you want to accept that risk or not.

Failing to Serve Notice of Furnishing. Once you start work, there may be pre-lien filing requirements to preserve lien rights. As a subcontractor or supplier in Ohio, that means serving the owner (or on public projects, the prime contractor) with a Notice of Furnishingwhich is basically a simple letter via certified mail advising these folks that you were hired to work on their project. In Ohio, in order to preserve lien rights over all your work (assuming there is a Notice of Commencement for the project involved), you must serve this Notice of Furnishing either before starting work or within 21 days after your first day of work. Without it, you cannot file a lien against the project.

Failing to Track Dates. Many times, a contractor or subcontractor signs a contract that doesn’t waive lien rights, and they knew to serve a Notice of Furnishing on the project owner but they finish their work, invoice for their work and/or retainage when they can, and a month or two later they realize they’re still unpaid and getting nervous. Too often that realization will come, say, more than 75 days after their last day of work on a private commercial job (or 60 days on a residential project, or 120 days after a public project). In Ohio, a contractor or supplier must file an affidavit of claim within those time periods in order to properly assert their lien rights. Failure to do that means they can’t file a lien.

Executing improper lien waivers. Above I mentioned contractual lien waivers, where you may be waiving lien rights before setting foot on the job. But almost always you are asked to waive lien rights after you’ve begun work in exchange for receiving payment. Conditional lien waivers, conditional final lien waivers, unconditional waivers, trailing waivers—there are several different types of lien waivers, and almost all of them have different triggering mechanisms from when lien rights are waived. So, by signing a lien waiver as part of a payment application, you might be waiving lien rights before you’re paid, or you waiving lien rights effective only after your payment application is paid, but you’ve waived lien rights on extra work you performed at the owner’s direction but for which no change order is issued yet. Understanding those lien waivers is crucial.

Badadvice. Contractors and subcontractors often use “mechanic’s lien self-help” remedies, such as using someone else’s lien affidavit form and getting sideline advice from another contractor or a lawyer friend. And I understand that lawyers aren’t cheap, and without a lawyer you trust who’s knowledgeable about lien issues, scrambling to find one after you’re not being paid can be intimidating. Or you’ve actually retained a lawyer but he’s not skilled and experienced in lien law. (Spoiler: This happens all the time). And then, they send their Notice of Furnishing too late or to the wrong person, or their lien affidavit refers to the wrong party as owner or doesn’t include the right legal description of the project, or they don’t properly serve the owner with the lien affidavit within 30 days of filing the lien—the screw-ups go on and on. In either case, the contractor is left with a big unpaid balance, and no security or leverage to force prompt and full payment.

There are many other ways that contractors, subcontractors, and suppliers lose their lien rights, including lack of timing billing. But if you’re not getting your bills in on time, you’ve got bigger problems than losing lien rights. The takeaway here is that a bit of knowledge, organization, and a construction-specific trusted advisor go a long way to protecting payment rights on private projects, public jobs or residential projects. After all, it’s what Thomas Jefferson would’ve wanted you to do!

ExamDate enews 031623 right


Designation enews nov23