February 2, 2023

NACM’s Credit Managers’ Index (CMI) fell 0.3 to 51.3 in January, continuing its downward trend over the last nine months. But more concerning is that the sales factor has seen the most significant decline in the last 12 months and is now in contraction territory for the first time since May 2020 at 49.8—a drop of 21.3 points year-over-year.

“We have rising demand for credit and more credit approvals at a time when sales are declining,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. “The increase in the amount of credit extended has been cited by respondents as a concern rather than a positive. Inflation is driving prices higher, which means customers are asking for more credit to cover regular purchases rather than because business is booming. Sales are actually declining now, so the demand for more credit is perhaps out of sync with the business activity it supports.”

The combined index of favorable factors fell 0.8 of a point to 55.1, a level that is 9.9 points lower than one year ago. Half of the categories in the favorable factors list declined and the other half improved. Sales led the declining factors with a 5.0-point drop and dollar collections fell 0.5 to 57.3. Amount of credit extended gained 1.4 points to 56.8 and new credit applications saw a 0.8-point jump to 56.3.

The index of unfavorable factors remained unchanged in January at 48.7, a level that is 2.9 points lower than one year ago. Accounts placed for collection saw the steepest decline with a 1.2-point drop to 45.0. Filings for bankruptcies fell for the third month in a row, losing 0.4 of a point to 50.5. The index for dollar amount beyond terms improved with a 1.7-point jump to 47.4, nearly erasing the decline recorded in the December survey. The index for the dollar amount of customer deductions is up 0.9 from last month, crossing back to expansion territory with a value of 50.2.

“The only bright side is that credit professionals are still having success at collecting on those past-due accounts, but they are having to work hard to get those in,” Cutts said. “Regardless of whether an actual recession is declared soon, U.S. businesses are experiencing an economic contraction now.”

What CMI respondents are saying:

• “I have noticed an increase in delinquent accounts due to the turnover rate in AP departments.”
• “I’ve seen an increase in the number lien and bond claim filings to secure payment. Some customers who paid faithfully through October 2022 didn't pay in November or December.”
• “I’ve noticed an increase in corporate locations selling off units to franchisees more last month than usual.”
• “We have a new contract from India but haven't received a deposit since October. It was today that I overheard getting money out of India has been difficult. We wrote our new customer off as a loss.”
• “Weather was a factor that affected sales for our company.”
• “It is hard to say if the end of the year is impacting delinquencies or if customers are experiencing cashflow issues.”

Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the January 2023 report. CMI archives also may be viewed on NACM’s website.

What credit professionals once knew about their primary role in their department has taken on a new meaning in recent years. Outside of traditional credit tasks, professionals spend the most time preparing reports for other departments (38%) and working on cross-functional teams for process improvement (33%), according to an eNews poll.

With growing complexities in the current economic climate, collaboration is key for companies to succeed. “There’s a lot of nontraditional tasks going on right now in the credit industry,” said Niki Van Dyck, CBA, senior credit manager at Molekule, Inc. (Seattle, WA). “I’m seeing a lot of stepping away from traditional credit and stepping into a data-driven credit model, which forces you to have those integration conversations with other teams internally.”

The ability to multitask is an important trait to adopt as the credit profession continues to evolve. For example, if an invoice needs to be submitted into a portal, instead of leaving the task to a different department, the credit department will likely take ownership as evidenced when a recent eNews poll showed that 22% of credit professionals are involved with EDI/portal ownership.

“I am working with more cross-functional teams to adjust collection schedules, or ensure payment is received in the method the customer would like to pay,” Van Dyck added. “Externally, customers are moving to automated accounts payable processes including a lot of portals and B2B technology. EDI is still apparent for a lot of the other hard consumer goods industries.”

Only 7% of credit managers spend the most time vendor vetting outside of their traditional credit functions. “I’ve vetted only one vendor in the past couple of years because we haven’t had a huge vendor turnover,” said Ginny Overbeck, director of financial services at William M. Bird Co., Inc. (North Charleston, SC). Overbeck said her company’s finance department is structured separately from the rest of accounting who handles most of the reports. The department focuses on credit and collections.

The traditional mission of credit and collections is not lost, it has just changed. Credit professionals now balance many other tasks in addition to quantifying the eligibility of customers for credit, making collection calls, invoicing and customer care. “We sit at the intersection of sales, inventory, transportation, etc. so we see everything because all of those things affect A/R,” Overbeck said. “In order to do our jobs effectively, we have to understand how all of the pieces look together and take a more collaborative approach to solving discrepancies.”

It has been three years now since virtual meetings became the primary form of communication in the workplace over in-person meetings. They allow you to communicate more efficiently, work on projects and stay connected with co-workers while working remotely. However, it is important to remember that the same rules of professionalism apply to both in-person and virtual conferences.

1. Be Punctual

Just like attending an in-person meeting, it’s better to be the first one there than to arrive late and miss any important information. As a general rule, join all calls roughly five minutes early. Also make sure to RSVP right away and set reminders for upcoming meetings so that you don’t forget to attend.

You wouldn’t just get up and walk out of an in-person meeting full of coworkers, right? If you need to leave a virtual meeting, don’t just logoff without saying something first. All it takes is a quick message saying “sorry for the inconvenience, but I need to leave unexpectedly.”

2. Prepare

If a meeting doesn’t have an agenda, ask for one. This will prevent confusion and save you time to discuss more topics during the meeting. Other than preparing for topics, you will also want to prepare your equipment. Make sure everything is working efficiently by testing microphones, computer screens and cameras before the meeting starts. Check that your web cam is at eye-level. This way, there are no technical problems that could potentially waste time during the call.

3. Dress Up, Not Down

You might have been able to get away with wearing pajama pants or joggers during your Zoom meetings at the start of the pandemic, but that’s all over now as web meetings have become a must in the workplace. This is tied to its psychological effect—the more professional you dress, the more professional you’ll act.

4. Rid Yourself of Distractions

Distractions not only hinder your ability to engage in web meetings, but they also distract others on the call. To prevent distractions, start limiting side conversations and removing background noises, clutter or personal items around you. You do this by using a blurring background filter and muting yourself when you’re not speaking. To prevent further distractions during the call, turn off notifications by using the “Do Not Disturb” feature on your phone. This can also be applied to emails and chat notifications as well.

5. Be Mindful of Others

Make sure to listen intently, don’t talk over others and be ready to let the other person speak ahead of you. “If you need to complete a statement, say something like, ‘Ramon, I just want to finish this thought, and then I want to hear what you have to say,'" reads an article from The Digital Workplace.

Depending on your company policy, it may be best to stay away from eating and drinking while on camera as well. Consider turning off your camera if needed. If it is a more casual meeting, eating and drinking may be completely fine. You will want to use your best judgement. For example, if you’re on an internal meeting with colleagues, eating a snack is likely not a big deal. But you probably wouldn't want to be eating on camera during a client meeting.

Infrastructure projects can be complex for a number of reasons; among them are the absence of a physical address of where the job will take place, funds from Public-private partnerships (P3) and overall higher chance for something to go awry.

Scope of Work

Roads and bridges are in built in open spaces with no exact road or street name to locate them. “It is very important to understand the scope of work to make sure all the information you’re gathering is correct,” said Chris Ring of NACM’s Secured Transaction Services. Payment bonds are extremely important because they are a type of surety bond issued to contractors which guarantee that all entities involved with the project will be paid. “The vast majority of these infrastructure bills will be public construction projects, so how to verify and obtain a copy of the bond is needed.”

Another point of focus is on who will be gathering information for the job sheet. Percentages in a poll from Construction Dive showed 77% of information is collected from sales, 8% said credit and 15% said it is a combined effort with all hands on deck.

Public-Private Partnerships

Public-private partnerships (P3s) allow the public entity to be the owner, but there is a private investment on a lender to fund the project. P3s were mentioned 42 times in the infrastructure bill meaning most projects are likely to fall under that category.

However, there is a catch. Certain states have passed legislation that says if the job is public with private investment money, general contractors are still required to post the payment bond. In states that don't have P3 legislation, the general contractor is not required to post a payment bond and do due diligence to figure out if the bond was completed. Payment bonds are not required on Federal P3 projects.

Potential Risk

If a job information sheet is filled out incorrectly when working for a subcontractor, many issues can arise. For example, if you do not know who the general contractor is, it makes it more difficult to obtain a copy of a payment bond. If customers say they can’t pay you because they haven’t been paid, there is no way to verify if that information is correct without knowing who is the general contractor.

“I always like to compare a job information sheet to a credit application,” Ring added. “They’re two distinct documents but the job information sheet acts a lot like a credit application because by gathering the information needed to complete a job information sheet, you’re doing your due diligence to correctly identify the parties who will help you get paid.” A job information sheet serves a similar function to a credit application in that if you can’t verify the information for the job information sheet, you will be unable to verify who is ultimately responsible for payment.

To learn more about this topic, be sure to register for our upcoming webinar in February.