December 15, 2022

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Economic Outlook for 2023: What Can We Expect?

Kendall Payton, editorial associate

2022 was a bumpy year for many businesses as they continued to navigate record high inflation, supply chain challenges and labor shortages. As we head into 2023, companies should hope for the best but prepare for the worst, said NACM Economist Amy Crews Cutts, Ph.D., CBE.

“It looks like the first quarter of 2023 is when we will see a recession from the business side,” she said. “[Credit Managers’ Index] respondents have indicated for the last eight months that conditions are deteriorating so much that now the CMI is at its worst level outside of a recession.”

Wells Fargo forecasts a “modest recession” beginning mid-2023 and Fannie Mae predicts the economy will enter a recession in early 2023. The National Bureau of Economic Research is traditionally in charge of declaring an official recession, but many are uncertain of how a financial crisis will look in 2023 because of low unemployment.

So, what can businesses expect as we head into the new year? “Each recession is new and different in its own way and the causes are new and different in their own way,” Cutts said during a recent podcast episode of Extra Credit.

Inflation is easing and is expected to continue to decline over the next year. Prices rose 7.1% year over year in November, down from 7.7% the month prior and the 9.1% peak in June, according to data released by the U.S. Bureau of Labor Statistics earlier this week. But even with the decrease, inflation remains well above the Fed’s target range of 2%.

Interest rates will likely continue to increase in 2023, though at a slower pace, as the Federal Reserve continues to battle inflation. The Fed hiked rates for the seventh time this year on Wednesday, this time by 50 basis points. The targeted policy rate now sits between 4.25%-4.50% and is expected to rise to roughly 5.25% in 2023 as the Fed hinted to more increases in the new year.

“Even if the recession were to technically start now, inflation numbers won’t come down for some time because it is a lagging indicator,” Cutts explained. “The Fed, in its quest to quell inflation, is likely to continue raising interest rates. I don’t think they will continue as aggressively as they have been though. I expect we will see more 50- and 25-basis-point hikes. The Fed may slow interest rate increases and pause, but I don’t expect a rate cut, if it happens at all, until the end of next year.”

Unemployment is still low at 3.7%, but the Fed forecasts that number to rise to 4.6% in the coming year. Businesses struggled to find and retain quality staff in 2022, so Cutts is unsure if unemployment will increase as much as would typically be seen during a recession. She expects to see more hiring freezes instead.

Cutts said layoffs currently seem to be contained to the tech industry, which has announced major job cuts in recent months. “Job postings and hirings are slowing, but we’re not seeing big changes in the labor market that are indicative of massive layoffs. Though hiring is slowing a lot faster, quits and layoffs are not accelerating.”

Supply chain pressures are an ongoing issue for businesses. When supply pressures ease in one area, bottlenecks grow in another. Cutts expects these challenges to continue in 2023 as the supply chain shifts. “We are seeing more companies think about nearshoring,” she explained. “For a long time, it was all about cost efficiency—but that does not work anymore because businesses are still struggling to import and export goods. I think in 2023 we will see companies building for a more resilient and transparent supply chain, but that takes time and comes with higher costs.”

Supply chains will continue to undergo transformation. “The general dysfunction in global supply chains over the past few years has revealed the fragility of global transportation and distribution networks,” reads a report from Wells Fargo. “Even if not completely reshored post-pandemic, the desire for shorter and more resilient supply chains is likely to support industrial demand in the longer run.”

 

 

 

Ease the Pain of Customer Payment Portals

Jamilex Gotay, editorial associate

More and more companies expect their vendors to upload invoices directly to their payment portal. In fact, a recent eNews poll showed that 33% of credit professionals say most of their customers require invoices to be uploaded to their portals. But doing so can be time consuming as each customer has their own portals with specialized rules for creditors to navigate (and some even charge a fee!). If an invoice is not uploaded to the portal correctly, it won’t be approved and payment will be delayed.

No matter the challenges that come with customer payment portals, they are likely here to stay—but credit professionals can take some steps to minimize the pain. “First, do not ignore the elephant in the room,” Heidi Lindgren-Boyce, CCE, senior credit manager at Star Rentals, Inc. (Kent, WA) said during a NACM webinar, Managing the Good, the Bad and the Ludicrous Costs of Customer Pushback Terms and Web Billing Portals. “The required use of payment portals is going to continue to grow and if you don’t create internal policies detailing how to manage [them], it’s going to get worse.”

Try taking a proactive approach by training your team as often as possible on how to use these portals, said Kimberly Tatum, credit manager at Ferguson Enterprises, LLC (La Porte, TX). “There’s a variety of issues that you come across that are causing payment delays, especially when it comes to portals in general. Ariba is growing because it’s on a System Applications and Products in Data Processing (SAP) platform and a good number of our customers are moving to SAP.”

One way to stay ahead of any changes is to consistently request for portal updates from your customers. Tatum requires that her top 25 customers provide a point of contact for Ariba questions and one for accounts payable. “I need a phone number and an email for both of those departments because one might not be able to answer all my questions, especially in heavy workload situations,” Tatum said. “I email them and ask if they have a PDF training document that they have updated within the last 12 months so I can send it to my new associates. That way they’re not giving the associates a hard time later when they’re learning to use the portals.”

When it comes to invoices not being submitted or received correctly, ask to see if the platform has features to prevent payment or submission delays. “Does their platform have a rounding or tolerance feature? Or a pricing catalogue that lists the standard materials that they’re buying?” Tatum asked. “Do they accept line-item specific credits or require full credit and rebills? A complete credit and rebill, while it can be cumbersome, is the easiest solution because your invoices are already held for payment and most systems allow some copy and paste feature.”

You also can check to see if the portal platform has a remittance feature. It will reveal a tab on the portal that allows you to see scheduled payment dates, if the payments have been made and the total amount that’s been paid. “That’s something that a lot of people don’t ask,” she said. “We need to know these details so we know if the customer is going to pay us or not.”

Make sure you and your team have a strong understanding of what your process is when it comes to correcting errors. It helps to partner with your IT team to ensure your system is transmitting all the data, which some companies may overlook. “Do you have to make manual changes to your invoices?” Tatum asked. “You can ask the people in purchasing because they know these items. If they’re not sure, then you’re going to obviously manually bill that.”

Tracking the total cost of the customer billing portals will help if you need to refer to that information down the road, Lindgren-Boyce said. She creates a customized spreadsheet for each customer that includes credit card fees, swiped versus offline, billing portal membership fees, billing portal transaction fees, OTP token fees, add-on fees and precalculated chargebacks. Not to mention, the extra staff hours it requires to manage all the customer payment portals.

“We’ve gotten pretty good at documenting if a customer is on a billing portal or if they’ve been authorized to pay by credit card so that if we change and put them into tier-level pricing, we can go right back and ask, ‘Have you guys talked about taking them off the credit card payment?’,” Lindgren-Boyce said. It helps to have the customers know ahead of time if you’re increasing their rate or no longer accepting credit card payments.

Don’t miss the opportunity to hear Tatum and Lindgren-Boyce speak further about payment portals at NACM’s 127th Credit Congress in Grapevine, Texas this June. Register today!

You may also enjoy reading our previous eNews article about the challenges of customer payment portals.

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What’s Behind Every Successful Leader? The Team. The Team. The Team.

John Baldoni, keynote speaker and author

“All leadership writing depends on the dubious premise that an entity was successful because a person was in charge, rather than while they were in charge. The ‘halo effect’ is the name given to the tendency for a positive impression in one area to lead to a positive impression in another.”

That observation is from a recent column by Bartleby in The Economist about what lessons we can learn from the manager of the team that wins this year’s World Cup. Bartleby notes the standard concepts— “team spirit, data, purpose and stars”—contribute to the goal of winning the golden trophy. As Bartleby points out, only one manager, Vittorio Pozzo of Italy, has ever won back-to-back Cup titles. So, what role does the manager play?

Help the team believe in themselves

Whether they are called managers or coaches depending upon their sport, those who succeed are leaders first and foremost. Yes, they manage the details, but more importantly, they get players to believe in themselves. Such cohesion is essential in international competitions where players come from different pro teams. What we can learn from winning managers in sports—as well as in for-profit and nonprofit enterprises—is that confidence matters.

Good leaders get the players to believe in themselves as individuals and teammates. When that occurs, people pull together—not because the boss says so, but because they want to. It may be hard to keep them from work. What unites them is team purpose, a belief in the mission and confidence in their ability to perform as a unit.

Leaders in cohesion

The benefits of such cohesion are not simply results but positive behavior change. Work is hard and can be dreary, but when employees are engaged (to use an old buzzword), they want to come to work. Why? Because they want to participate with their colleagues in something greater than themselves.

Mistakes will occur. But when people pull together as a unit, there is a collective disposition that addresses problems not in a “gotcha” manner but in a “teach me” manner. 

As Patrick Lencioni writes in The Five Dysfunctions of a Team, “Great teams do not hold back with one another. They are unafraid to air their dirty laundry. They admit their mistakes, their weaknesses and their concerns without fear of reprisal.” Such a sentiment is the core concept of psychological safety, an idea pioneered by Amy Edmondson that dictates that people can contribute when they feel valued.

Yes, the leader matters, of course, but as Bartley argues—and common sense dictates—it is the team’s performance that matters more. This approach may be why well-liked managers do not always succeed. What matters more is respect. That emotion comes from the feeling that what we do matters and that we can achieve our intended results as individuals and as a team. 

Leaders enkindle a spirit within their followers that pushes them to want to achieve, not simply for themselves but for the team’s good. When that occurs, the organization achieves its mission. 

Note: The phrase, “the team, the team, the team,” was a favorite of Bo Schembechler who coached Michigan football from 1969 to 1989.

Reprinted with permission; SmartBrief

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Construction Material Prices Up 40% Since February 2020

Associated Builders and Contractors

Construction input prices declined 0.9% in November compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data. Nonresidential construction input prices fell 0.8% for the month.

Construction input prices are up 11.9% from a year ago, while nonresidential construction input prices are 11.5% higher. Input prices were up in only four of the 11 subcategories on a monthly basis. Natural gas experienced the largest decrease in prices, falling 15.8% in November. Unprocessed energy prices declined 7.8%, while crude petroleum prices were down 2.3%.

“The decline in wholesale prices for many construction inputs is generally positive news,” said ABC Chief Economist Anirban Basu. “Increasingly, we are receiving news that construction input inflation has peaked as supply chains continue to normalize despite a range of geopolitical stressors. In November, much of the relief emerged from lower energy prices. According to ABC’s Construction Confidence Index, contractors are already expecting growth in sales and employment levels over the next six months; this report will do little to curb that optimism.

“As always, there is more to this report than meets the eye,” said Basu. “Prices for various economic services grew faster than expected, a reflection of a still very strong labor market associated with substantial compensation growth. Therefore, while supply chains may be improving, helping to moderate the price of physical inputs, contractors will continue to face elevated and rising human capital costs. This may explain why just as many contractors expect profit margins to decline over the next six months as expect them to expand.”

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