February 10, 2022

	I. Are You Getting the Documents You Need to Assess Risk?
	II. Create a Strategy to Attract, Hire and Retain Optimal Candidates

	III. A Change in Risk Means a Change in Trade Credit Insurance Trends
	IV. Initiative Targets California Publicly Funded Construction Projects

We wouldn’t normally ask someone how much money they make or to see their tax information. But those documents are crucial if you plan to build a strong foundation with your customers, said Brett Hanft, CBA, credit manager with American International Forest Products LLC (Beaverton, OR) and representative elected by CFDD to the NACM National Board of Directors.

“It sets a tone and precedent for how willing our new customer is to be communicative and to respond to our request for documents at the onset of our relationship,” Hanft said. “I find that if we ship product to a customer before we receive credit documentation, we lose leverage.”

Each document serves a special purpose and offers a different snapshot into the financial health of your customer, he added. For example, a W9 helps verify the legal business entity name and federal tax ID number. “So many businesses, especially in last five years, have merged or been acquired. It has become very difficult to track the ownership of a business and who ultimately is financially responsible for paying invoices.”

Financial statements help determine whether or not a company has enough liquid cash to pay what it owes. But a recent eNews poll indicates that financials are getting more difficult to obtain. Nearly all of the respondents (97%) ask new customers to provide financials but less than half (38%) actually receive the information.

However, when asked, the customer almost always provides trade references, tax documents, resale tax certificates and bank references, the poll shows. So, what is the hold up with financials? Hanft said many companies are hesitant because they worry about stolen information.

“Many businesses won’t provide financials anymore because fraud is so prevalent,” he explained. “There are so many businesses that just don’t want their financial information outside of the four walls of their building. Customers don’t want to provide more information than they have to.”

If you are selling a small amount of product, sparse financial information might not be a huge deal. But as you start selling more, thorough financials become an important layer of protection, Hanft said.

Customers that buy product at the level where “we need to obtain financials likely is also selling to customers at that same level where they would likely be requesting the same thing,” he explained. “Businesses might be more willing to provide financials if they know beforehand the information is used strictly for the purpose of justifying their purchasing volume with us.”

That is why you need to establish trust with your customer as soon as possible, said Ruth Storms, CCP, a credit professional located in Vancouver, Canada. “If a customer trusts and respects you, they’ll give you most any information you need,” she explained. “You can’t have other people requesting confidential information from your customer. You need to be the one directly dealing with them in order to build a connection.”

Another way to make new customers feel more comfortable about handing over financials is by offering to sign a nondisclosure agreement, which means the information they share will only be visible to you. “Often, I don’t actually have to sign anything; but just by making the offer, it usually gives them enough reassurance,” Hanft said.

Be sure to register for NACM’s webinar, Making Credit Decisions with Limited Financial Information on Monday, Feb. 14 to learn more.

Labor shortages have created a war for talent, making it critical for credit departments to identify ways to retain their high performing team members, while attracting new staff.

“Companies are truly in a competition with other firms for the limited talent that is available,” said Alex Chausovsky, director of analytics and consulting for Miller Resource Group (Lombard, IL). “Yet, most businesses go into this war alone and unarmed.”

Even before the pandemic hit, many companies struggled to stand out when searching for high-quality candidates, Chausovsky said. “Each candidate will have a different set of priorities.” However, when most interviewers speak with a prospective employee, the discussion does not resemble a conversation about what motivates the candidate, he added. Companies must take a proactive marketing and advertising approach that demonstrates why they are an attractive business to join.

To remain competitive, Chausovsky promotes a three-prong strategy that focuses on attracting talent; best-in-class hiring practices; and talent retention. They strategy should focus on four key elements:

• Why the market or industry is exciting or interesting
• Why your company is special
• Why candidates would want to associate themselves with your team
• What your company does besides make money

Some companies conduct four to six interviews per candidate. However, many candidates have said they lose interest after three or more, Chausovsky said. They also lose interest if communication throughout the process is poor.

Metrics can help identify whether the hiring process was successful to make improvements along the way, he said. These metrics can track factors such as how much additional profit your company brings in from each employee that is hired, how long the job stays open before it is filled and what your offer to acceptance ratio is.

“Metrics are key,” Chausovsky said. “You have to keep track of your employee’s tenure, how often you lose people and what the reasons are for those losses, and you have to make sure there are actions in place that will hopefully prevent a similar loss in the future.”

During his upcoming NACM webinar, Building an Effective Talent Strategy: Proven Tactics to Attract, Hire and Retain Your Most Valuable Asset, on March 9, Chausovsky will provide more insight on how to build an effective talent strategy. Register to learn more.

Unforeseen risks have popped up in all aspects of B2B trade since the onset of the pandemic in 2020. And it won’t be the last time the risk landscape changes, said Aaron Rutstein, vice president and regional director of Risk Services at Atradius, Americas.

"The outlook for 2022 boils down to two big things: the Fed and the virus,” said Rutstein, during an FCIB webinar, Trade Credit Insurance: Market Update & Latest Innovations. “They both will dominate how things turn out … but the wild card is the virus. I’ve stopped trying to predict what the virus is going to do because at each turn it throws us through a bit of a loop.”

In response, trade credit insurance also is changing to meet client needs in a post-pandemic world, said Mark Regenhardt, managing director of the Global Clients Group at Marsh USA. “We’ve seen a change in the U.S. trade insurance markets,” he said. “The trend we are seeing is more focused on durability of coverage, and the trend has really been solidified by the pandemic.”

What Regenhardt means by “durability” is a style of credit insurance policy. One style that was more popular before the pandemic is a limit-based policy, which reserves insurers the right to withdraw coverage and make credit decisions. But now there has been a shift toward excess of loss styled policies. “In this style, limits are more durable and non-cancelable; but in exchange, the insured has to accept a lot more risk sharing, which usually comes in the form of larger deductibles,” he explained.

Excess of loss styled insurance protection did well during the pandemic and has become more popular as creditors prepare for unforeseen risks such as inflation, political tensions and high commodity prices, said Dan Bakle with Marsh Specialty Insurance. “Now that the economy is picking back up all the companies that are buying and selling commodities need more and more liquidity to do pre-covid levels of business,” he said. “Insurance can allow all entities to lever how much they can do for their clients—whether that means being able to extend double the amount of credit or fill gaps.”

Supply-chain snags also will add a level of risk for companies this year, Rutstein said. Credit professionals may need to be more involved in their supply-chain team than ever before. “We’ve spent the last few decades building out a global supply chain that is optimized for low prices and just-in-time delivery,” he explained. “It is not capable of adjusting so rapidly to such a sharp shift in supply and demand power.”

As virus restrictions ease around the globe, spending and risks could change once again just as businesses get comfortable with the current economy, Rutstein warned. “I think we have some changes coming throughout the year, depending on how the virus goes, where a lot of safety restrictions are lessened,” he said. “That creates more spending freedom, and purchasing patterns could change again.”

To watch Trade Credit Insurance: Market Update & Latest Innovations in its entirety, register for the on-demand version.

Publicly funded construction sites in California must comply with workers’ compensation requirements and labor laws, according to a California Department of Industrial Relations (DIR) Labor Enforcement Task Force (LETF) announcement.

This initiative targets the proliferation of California’s “’underground economy’ as it pertains to public construction,” said Colin McCarthy, principal attorney for Lanak & Hanna (Orange, CA).

An underground economy is any business that operates without the necessary licensing and does not pay taxes or carry the required insurance or worker's compensation coverage, according to DIR. It also may force its employees to work in unsafe conditions.

General contractors, subcontractors and suppliers will not be immune from increased investigations, McCarthy said. Subcontractors and material suppliers will [not] have more hoops to jump through; they just need to understand that if they are present at a project site being investigated by the LETF, it is critical that the entirety of their operation be in full compliance with California law.

“This program provides a good reminder that [subcontractors and suppliers] must comply with a litany of safety and regulatory rules and regulations, including jobsite safety requirements, proper licensure and insurance, payments and taxes,” he added. The LETF will consider payment of prevailing wages and the project site in general to ensure rules and regulations are being followed.

Subcontractors and suppliers should have proper documentation available for the LETF investigation team if they participate in public construction projects in California, McCarthy advised. In addition, they must understand the breadth of LETF investigations and remain current in all of their paperwork.

“Most subcontractors and material suppliers may simply think of labor compliance and prevailing wages when they think of the DIR,” McCarthy said. “They are not necessarily thinking about jobsite safety, licensure, or tax and insurance issues. This program should serve as an important reminder that subcontractors and material suppliers need to be current in all of these areas—not just payment.”