March 30, 2023

After roughly nine months of decline that led NACM’s Credit Managers’ Index (CMI) close to contraction territory, the index seems to be on an upswing. The CMI improved for the second consecutive month in March with a 1.1-point jump to 53.5—its best reading since September. However, it is uncertain how long this positive trend will last, said NACM Economist Amy Crews Cutts, Ph.D., CBE.

“Like so many other indicators in the economy, volatility and uncertainty are the current state of business, but the general trends are neither firmly toward growth nor toward recession,” Cutts said. “After the large movements we’ve been seeing in the CMI since December, it’s refreshing to have a quieter month from a credit management perspective. While there are still many concerns about the economy and questions about whether we will enter a recession earlier or later, the CMI is now indicating that the recession risk is fading for the near-term. In April we will see what, if any, effects the banking turmoil may have on the CMI and recession timing.”

The main driver for improvement came from the unfavorable factors index that rose 1.8 points to 50.4—its first improving value since October 2022. All but one unfavorable factor moved from contraction to expansion territory in March. The accounts placed for collection factor improved by 1.1 but remains in contraction territory at 46.4. All unfavorable factors except one saw gains of at least 1.2 points this month; the index for rejections of new credit applications improved by just 0.2. The dollar beyond terms factor saw the most improvement with a 3.2-point jump to 52.8.

The combined index of favorable factors rose 0.3 to 58.3, led by a 0.9-point improvement in the new credit applications factor. The sales factor index stayed steady at 56.5 points this month, its highest reading since September 2022 when it was at 63.6 points.

“Although I don’t think the CMI survey respondents were thinking about bank failures when they wrote about bankruptcies, the failure of Silicon Valley Bank (SVB) this month is notable due to its size and commercial accounts concentration,” Cutts said. “Normally, when a bank is insolvent, regulators will seize the bank assets and depositors will get made whole only up to $250,000 per account type. Had they followed this playbook with SVB holding fast to the FDIC limits, they would have caused the instant failure of thousands of firms that would have been unable to make payroll or meet other obligations. Between extending the insurance to cover all depositors and a special program that allows banks to maintain liquidity without realizing losses on their capital reserves, the crisis seems to have been quelled.”

*The CMI is centered on a value of 50, with values greater indicating expansion and values lower indicating economic contraction.

What CMI respondents are saying:

• “I have found that money is slow to come in this time of year compared to the last 30 years.”
• “Backlogs have normalized, which has helped manage credit lines.”
• “The weather has hit us very hard this year and has affected our business greatly. Many of our accounts that are strong payers are still paying on time, but those that have been affected with the snow are paying later and slow payers are even more slow now.”
• “A lot of our clients have their financing finally lined up to have funds for payments and projects.”
• “Customers have built up inventories and working capital is tied up while they work down those inventories. Demand has fallen off and payments have slowed markedly.”
• “2023 is going to be a challenging year in terms of mergers and bankruptcies.”

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

Join NACM Economist Amy Crews Cutts at Credit Congress on Monday afternoon, June 12, for a discussion of the economy and what’s next.

Credit professionals are at the heart of the global economy as they are always invested in future risk—making them perfect economic forecasters. While many are uncertain about the global economic outlook, a recent eNews poll revealed more than half of credit managers (62%) expect economic conditions to deteriorate in the next 12 months. One in four trade creditors believe the economy will remain as it is currently over the next year and 13% expect conditions to improve.

Some credit managers have seen cash-strapped customers slow to pay in recent months—a sign that economic conditions are worsening. “Many of our clients began slowing down months ago, which indicates that we have already started the recessionary cycle,” one NACM member said. “We are taking active measures to retain cash or reduce debt exposures to focus on core operations in the face of any economic headwinds.”

With inflation, interest rate hikes, the war in Ukraine and the aftermath of a global pandemic, the uncertainty is only rising. “Traditionally, the hope is that interest rates will eventually bring prices down but in the short term, it means less cash available,” said Gary Juliano, CCE, credit manager at ATI Specialty Materials (Monroe, NC). “For anyone who is on a supply-chain finance program, discount costs have increased. This is another profitability erosion factor since we are having to pay more money to get our cash quicker.”

However, the scale of severity for a recession is large, with some thinking it will be short-lived while others expect a 2008-level financial crisis. “Eventually the system is going to break, it’s just a matter of when,” said Tracy Turner, CCE, senior credit and collections manager at EquipmentShare (Columbia, MO). “We’ve seen an increase in bankruptcies in the last 60-90 days. I think that is a sign that people are trying to determine if they can survive or not and are trying to make decisions that will impact us everywhere. The only difference between now and the 2008 financial crisis is that we are still moving.”

It is important to remember that economic conditions depend greatly on the sector. As a credit manager, try talking to others in your same industry in order to get an accurate idea. “Watch to see if you are leading the trend for a downturn or if everyone else is experiencing a downturn and it just has not hit you yet,” said Darrell Horton, ICCE, director of revenue and credit at AGS, LLC (Las Vegas, NV). For example, “strange as it seems, those in alcohol, gambling and entertainment industries do better in a worse economy. However, if you are in construction, there will be more of a struggle.”

Some trade creditors have experienced economic decline since the end of last year. They anticipate this being a shorter downward cycle with a longer-than-usual recovery as there is no expectation that interest rates will fall again any time soon. Economic uncertainty puts an emphasis on customer due-diligence.

“You are going to have to do some extra research,” Juliano said. “You’re going to have to ask for those financials when you can and dig in to do the extra work. I would also say get your commercial group and credit staff engaged. Make sure you’re increasing your communication with your customer so you can keep a beat on their financial health and what’s going on out there.”

Like previous economic downturns, several different factors are at play. The war in Ukraine threw the global economy off its axis as many companies had to find alternative trade partners to Russia due to widespread sanctions. “Being in the metals industry, Russia was one of our biggest suppliers,” Juliano added. “But due to the U.S. sanctions, there was a rise in prices for various alloys and a little bit of a delayed reaction from the domestic market. Couple that with rising interest and you see less cash available and delayed payments from some of the customers.”

The predictions of these credit professionals fall closely in line with that of other economic experts as we attempt to answer today’s burning questions. Will inflation recede? Will the labor market remain tight? Which countries will experience a recession?

“There is an old term—growth recession—that may describe what 2023 will feel like,” reads an article from Deloitte Insights. “The unemployment rate will rise slightly; job growth will moderate but won’t turn negative; and GDP growth will be below 1% through three-quarters of the year. Many parts of the economy will continue to grow, and employers will continue to face a relatively tight job market. Continued growth, even if it is painfully slow, means no recession. But the difference between that story and the story in which growth slows just a bit further—that is, the unemployment rate hits 4.5% or even 5% briefly—and an official recession is declared (perhaps in late 2023) is not much.”

According to an interim report by the International Monetary Fund (IMF), global economic growth is expected to fall to 2.9% in 2023 but rise to 3.1% in 2024. “Rising interest rates and the war in Ukraine continue to weigh on economic activity,” the report reads. “China’s recent reopening has paved the way for a faster-than-expected recovery. Global inflation is expected to fall to 6.6% in 2023 and 4.3% in 2024, still above pre-pandemic levels.”

NACM research found that only a quarter or less of processes are automated in 70% of credit departments. Yet, implementing more automation is a top priority for most credit professionals. NACM recognizes the challenges trade creditors face when keeping up with new technologies, so we are starting a series with various automation experts to address this gap.

NACM spoke with Alex Armitage, CEO and founder of Nectarine Credit.

Q: What is the story behind the company name, Nectarine Credit?

Alex: We want something that people can remember, that is approachable and something that evoked a positive feeling … and here we are talking about it. I’m an entrepreneur and in previous companies we always struggled with extending credit and receiving credit. We felt there was an opportunity for improvement and to bring new technology to the trade credit market.

Ultimately Nectarine Credit is about automating the credit process with better data and more credit intelligence—all at your fingertips.

Q: What technology does your company have to offer trade credit professionals?

Alex: Speed, efficiency, cost savings and transparency in the entire customer credit application process. Our platform allows credit professionals to receive and process applications quickly. We took an outdated and manual process and digitized it. With Nectarine Credit, you can ensure that credit applications are more accurate because with a regular pdf, customers can skip over fields and easily enter incorrect information. But with a digital credit application, certain fields are required, and it is easier to read.

Nectarine Credit automates almost the entire credit application process, so we hand deliver data to our clients.    

From a data collection standpoint, our platform shines when it comes to fraud protection. Fraud is very prevalent in trade credit and we have more than two dozen fraud protection features that help us catch attempted fraud all the time. We stop applicants from getting away with filling out fraudulent credit applications and vendor reference forms.

We have caught credit applicants trying to be their own vendor reference. And we have caught outright fraud attempts on our platform. In some cases, fraudsters have impersonated large companies with the intent to order products on credit terms and then later disappear.

Credit applications are that first step to onboarding customers, then we set up credit professionals with a customized dashboard, automatic vendor reference checks and we are connected to more than 10,000 banks for instant bank verification. We also conduct credit reviews to keep tabs on customers even after the credit application and allow credit professionals to customize their terms of sale and approve or deny credit terms. Not only do we verify that a bank account exists, but in many cases, we create a cash flow statement with cash inflows, outflows and average transaction amounts.

Integration with ERP and CRMs are key elements to reviewing credit. Nectarine Credit supports all the major ERP and CRM platforms including systems from SAP, Oracle, Microsoft as well as Salesforce and Hubspot.

Q: What makes Nectarine Credit different from other companies?

Alex: We are a fast-moving team that custom builds features for our clients every day. Our team is adaptable and we are always looking to add new features and products. We are a technology company at our core. So not only do we bring data but we bring intelligence to credit teams.

Q: How does Nectarine Credit fit into the modern B2B credit industry?

Alex: Nectarine Credit is the most relevant software platform for credit teams today. We are a technology company and we are constantly improving. I really mean that. We make specialized and customized features for credit teams. We know that many credit teams are dispersed across the world, so we can bring them together on one transparent, easy-to-use dashboard. We have dozens of third-party data providers and integrate with ERP and CRM systems so we are not isolated.

Q: Where do you see the future of credit management?

Alex: Data on its own is not the end all, be all until you add intelligence. We want our clients to make better, stronger and faster credit decisions so by bringing this data together, we offer the intelligence. We take the data and help put meaning behind the data.

Join us at Credit Congress in Grapevine, Texas from June 11-14 to meet representatives from Nectarine Credit and other automation vendors during the Expo Hall. Leverage the knowledge and expertise of NACM’s service provider community during the new Solutions Hub sessions, offered during Expo Hours.

Government construction contracts can provide an opportunity for contractors to gain a great deal of profit—but contractors must be able to distinguish the placement of federal money in both federal and state projects.

In the state of California, most federal funds come through FEMA to help repair roads, bridges and more. Most federally funded projects can include grants or tax incentives, however, being federally funded does not equate to a federal project. “Due to recent weather events in California, the vast majority of projects where federal money is going into are under the California Department of Transportation (Caltrans),” said Chris Ring of NACM’s Secured Transaction Services. Public works in construction such as alterations or repairs done under contract can be paid through state funds, according to the State of California’s Department of Industrial Relations. “So, the state of California is the property owner for these jobs. State statutes are different from the federal statute.”

Contractors also should note that federal funds do not automatically change who the property owner is. The Miller Act ensures subcontractors and material suppliers who work on federal projects get paid. “A contractor or material supplier may think federal dollars mean federal projects, falling under the Miller Act,” said Ring. “Material suppliers and subcontractors would not have to serve any preliminary notices under the act to maintain their claim against the general contractor’s payment bond. But state projects such as Caltrans projects, a preliminary notice is required.”

In California, when supplying materials, services or labor to both subcontractors or general contractors, a 20-day notification is required to be sent out in order to retain the right to file a mechanic’s lien or bond claim. In conclusion, just because it’s federal funds, doesn’t mean it’s a federal project.