January 27, 2022

	I. CMI Trend Reflects Best Credit Conditions of the Past Two Decades
	II. More DBEs Expected in Government Contract Work

	III. Your Customer’s Payment Doesn’t Match the Invoice, Now What?
	IV. How to Build a Collaborative Environment with a Multigenerational Team

Although 2021 ended with its strongest December reading for NACM’s Credit Managers’ Index since its inception, January’s combined score took a 1.8-point fall to 56.9 month on month. The drop indicates a slow start to 2022, but the score remains stronger than pre-pandemic readings, said NACM Economist Amy Crews Cutts, Ph.D., CBE. “Kicking off the new year, the combined CMI continues to reflect some of the best credit conditions of the past two decades.”

The index’s monthly volatility is most likely due to the spike in COVID cases’ effect on the labor supply, and global supply-chain and logistics issues that continue to plague commerce, Crews Cutts added. “None of these issues has easy or quick solutions, and thus 2022 is likely to be another wild ride for businesses.”

The combined index of favorable factors saw a 4-point drop to 65.2. New credit applications took the steepest hit with a 7.2-point drop to 60.2, its lowest reading since May 2020. Sales fell 3.8 points (71.3); dollar collections, 1.1 points (62.4); and amount of credit extended, 4.7 points (67.0).

The index of unfavorable factors fell just 0.2 points to 51.4: accounts placed for collection fell one point (51.1); filings for bankruptcy, 0.6 points (55.0); and rejections of credit applications, 0.2 points. Dollar amount beyond terms gained one-tenth of a point (53.0). Customer disputes and dollar amount of customer deductions both remain in contraction territory, despite gaining three-tenths of a point (48.5) and one-tenth of a point (49.5), respectively.

The last time customer disputes and dollar amount of customer deductions were in the expansion zone was September. These readings likely reflect supply-chain issues for the last four months, Crews Cutts explained. “The reason these two categories remain below a reading of 50 may be driven by delivery problems related to supply-chain and labor-supply issues driving clients to demand some concessions.”

Several CMI respondents emphasized the negative impact supply-chain backlogs are having on their sales numbers. “We are still feeling the pain of the supply chain [and] raw materials disaster, and I have been told it will last for several more months,” wrote one respondent. “Demand is there for our product; we just don't have any inventory.”

Dr. Crews Cutts has joined NACM as its new economist. She is a nationally recognized thought leader and chief economist focused on providing strategic economic analysis rooted in practical business terms. She is the president and chief economist of AC Cutts & Associates LLC and also serves as the chief economist for Bright Query LLC.

If you would like to participate in the monthly CMI, sign up to receive survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the January 2022 report. CMI archives also may be viewed on NACM’s website.

Creditors expect to do more business with disadvantaged business enterprises (DBEs), following the passage of the infrastructure legislation, which requires about $27 billion dollars go toward DBE participation on Department of Transportation (DOT) contracts.

“You have to understand that DBEs are a creation of Congress managed through the DOT,” said Emory Potter, partner at Hays Potter Martin, LLC (Peachtree Corners, GA). “They are different than certified minority contractors and several other entities in that DBEs are restricted mostly to DOT related work.”

DBEs are for-profit small businesses where socially and economically disadvantaged individuals own at least a 51% interest, and control management and daily business operations, according to the DOT. To participate in the DBE program, these businesses must receive DBE certification through the relevant state Uniform Certification Program.

DBEs will likely affect all types of suppliers and subcontractors, so understanding how the new legislation will affect operations is important, Potter said. “There is now going to be a public record kept by the DOT of all payments made to DBEs.”

Additionally, legislation requires concrete steps to determine the validity of applications received from firms to become a certified DBE, Potter said. This will require state officials to:

• Make on site visits.
• Conduct personal interviews with the firm’s personnel.
• Go through license confirmation for all licenses owned by the firm.
• Require equipment listings to determine the firm’s assets and net value, and note what sort of work it performs.
• Retain a history of the completed work done by the firm.
• Receive and review the resumes of the owners.
• Conduct a financial analysis to determine the capability of the firm to cover the type of work it will be doing.
• Conduct an analysis of the work the firm has performed and is going to perform in the future.

An important note for suppliers and subcontractors is that state officials also will analyze DBEs for their bonding capabilities. This, in addition to the requirements outlined above, should help creditors working with DBEs because it provides a lot more insight and security, Potter said.

Although these changes are expected to have a positive impact for suppliers and subcontractors, there still may be some lingering issues, Potter continued. On the state level, knowing how many tiers are protected under bond law is crucial.

“Under Georgia state law, you do not have to be a certain tier to be protected, you just can’t be a supplier to a supplier,” Potter said. “Something we will have to look at moving forward to keep our bond rights on these federal projects is the fact that the Miller Act only covers first- and second-tier entities: suppliers to subcontractors and subcontractors to subcontractors. If you have the general contractor and then insert a DBE in there, the DBE can hire a subcontractor that you end up supplying to, but then you are three-tiers out.”

Other potential issues involve confirming whether the DBE is performing a commercially useful function or not, Potter said. To qualify as a commercially useful function, DBEs must:

• Negotiate the price.
• Determine the quality and the quantity of materials that is being purchased.
• Order the material itself.
• Install the material.
• Pay for the material.

Despite these potential risks, suppliers and subcontractors should be in a better position when working with DBEs due to a more extensive reporting process, Potter said. “We are going to see more money flowing in from DBEs meaning some [suppliers and subcontractors] may want to look at engaging in partnerships to attract DBE customers.”

To learn more about DBEs, register for Emory Potter’s Credit Congress session, Disadvantaged Business Enterprises: A Primer for the Upcoming Infrastructure Boom on June 8 in Louisville, KY.

It’s the time you’ve been waiting for; the end of the order-to-cash cycle. You receive your customer’s payment. But wait … the amount does not match the statement. Sound familiar? Payment overages and shortages are more common than you might think, said Paulyne VanderSloot, CCE, CICP, credit manager with Mutual Materials Co. (Bellevue, WA).

“When a payment is off, it is an inconvenience for the credit department because we are the ones that get all the complaints when something goes wrong,” VanderSloot said. “It’s just one extra task we have to deal with, and it can usually be avoided.”

In a recent NACM eNews poll, more than half (53%) of respondents said the credit department is responsible for resolving payment variances. Other common ways businesses handle payment overages and shortages include tracking and resolving by reason type (23%) and having a maximum dollar write-off (7%).

Customers often give the same reasons for under paying: damaged material, lost shipment, waiting on a pricing credit from sales or read the invoice incorrectly. Sometimes the problem is just a miscommunication, and the dispute can be easily fixed; others times, it is more complicated, said Sheila Bruce, cash, capital & collections manager with The Gorilla Glue Company (Cincinnati, OH).

“Each customer is different on how it wants to go about resolving issues, whether it be through a portal or face to face or email; that all depends on how easy it ends up being to resolve the issue,” she explained.

Bruce’s credit and collections department was so bogged down with handling payment issues that the company hired a full-time employee whose primary duty is handling these disputes. This is not a common solution (only 3% of eNews respondents said they have a separate dispute resolution team), but she said doing so has paid off. “A lot of times, we end up finding there is an issue on the customers’ end and we’ll get at least 50-60% of that money back. If we never had someone who could dispute most of these issues, we wouldn’t get any money back.”

Payment overages are not as common as shortages, but they still happen. “One time we had a customer misread an invoice that was $800 and they sent us $8,000,” VanderSloot said. In this rare case, the credit team caught the mistake early enough, and the customer was able to call her bank and stop the payment before it posted.

Diversity has become a crucial element of the workplace; however, issues may arise due to various employee perspective’s clashing. While we often hear about these issues in relation to racial and gender diversity, generational diversity cannot be overlooked, said Mary Cooney, Ph.D., generational diversity consultant and founder of Creativia, during a recent NACM Thought Leadership Discussion Group.

“Generational identity is one part of our overall identity,” Cooney said. “It is part of what we use to understand who we are and who the people we interact with are.”

For generations to successfully work together, they must adapt to others’ perspectives, so they can establish context on each generation they work with, Cooney said. Cooney strives to help multigenerational teams find ways to work more efficiently.

“All generations have their strengths, but they also have their weaknesses that can be addressed by other generations,” Cooney said. Today’s working environment contains up to five generations, and each one has experienced distinct historical events that play a huge role in influencing that generation’s perspective. For example:

• Traditionalists experienced the Great Depression and World War II, resulting in more patriotic viewpoints and more emphasis on saving money.
• Baby boomers experienced the “space age,” which brought new technologies and a strong sense of optimism.
• Generation X experienced social change, resulting in a heightened sense of independence.
• Millennials experienced another technological boom with Silicon Valley and Microsoft resulting in more optimism and tech savvy workers.
• Generation Z were born in the shadow of Sept. 9, 2011, and experienced a recession shortly after, resulting in more resiliency while valuing security.

Although every generation has its own set of values, each shares common values that are universal to anyone in the workplace, Cooney said. Some of these values include respect, being heard and being valued for what they bring to the team.

The reason generations may clash with each other is the struggle for power, Cooney said. “Older generations have worked hard to get where they are, and they do not want to let go of their power. The mission for younger generations is to unseat that power so they can take over.”

To avoid this clash, people must change their mindset to understand how they can collaborate with other generations. For example, older generations bring wisdom, knowledge and patience while younger generations bring new ideas and perspectives, Cooney said. Additionally, the wisdom and knowledge of older generations must be applied to younger generations’ new ideas and perspectives to help develop those ideas into an innovative reality.

“Older generations must recognize they need younger generations to leave their legacy,” Cooney said. “Younger generations can’t treat older generations like they are ‘good for nothings’ and should thank older generations for providing that knowledge and wisdom.”

This helps others see that they are being recognized for what they bring to the table, Cooney said. Therefore, each generation can obtain the psychological safety they need to learn from and trust each other.

To find out how you can become a part of one of NACM’s Thought Leadership Discussion groups to collaborate with other credit leaders and share new ideas, email Education Director Tracey Lerminiaux at This email address is being protected from spambots. You need JavaScript enabled to view it..