April 6, 2023

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Artificial Intelligence Is Transforming the Credit Profession

Kendall Payton, editorial associate

Artificial intelligence (AI) has grabbed a lot of headlines in recent weeks with the creation of ChatGPT, followed by calls from Elon Musk, Steve Wozniak, Andrew Yang and more than 1,000 other technology leaders to pause AI development.

But AI is nothing new. The beginnings of AI can be traced back to the mid-50s, and it has made its way into the business space in a variety of ways. “People talk about AI as a way to identify regime shift change where old tools no longer work,” said Martin Zorn, managing director of risk research and quantitative solutions at SAS Institute Inc. (Honolulu, HI). “The credit environment today is different than pre-COVID and it is more difficult to predict early warning signs because the market is more volatile. AI is simply one of the new tools available to help.”

Here we break down some of the most popular questions about AI so you can decide if it is the right fit for your credit department.

What Is AI?

A number of definitions have been thrown around lately to describe AI, but to put it simply, it is a computer system that can perform functions that would traditionally require human intelligence. For example, learning, problem solving and decision making (three key aspects of the credit profession). AI can help humans solve complex problems, reduce mundane tasks and improve efficiency in the workplace.

What Is It NOT?

Some companies throw the term AI around as a buzzword, but do not actually offer AI products. That is why it is crucial to understand how AI differs from other technology. For example, AI is not the same as robotic process automation (RPA). RPA is used in conjunction with humans to automate repetitive process, while AI is meant to replace some tasks traditionally completed by humans. RPA uses structured inputs, while AI develops its own logic.

AI is not a replacement for living, breathing credit professionals. Instead, it frees up time for credit professionals to focus more on the exciting aspects of the job. Credit professionals add emotion and humanize the job while building relationships, which AI cannot do.

How Does AI Work?

AI takes old data to learn and identify future trends, patterns and relationships. The first step of AI is to input the data needed for it to perform properly. Then AI interoperates the data and decides what to do with it. Once AI processes the data, it predicts an outcome. If it produces a failure, AI technology can learn from the mistake.

How Can AI Support Credit?

As the role of credit expands, technology can help fill the gaps and takeover routine tasks so credit professionals can spend more time on value-added tasks. It also can help credit professionals make better-informed risk decisions. “Digital credit application forms were just the beginning,” said Chaz Narwicz, business development manager at Esker. “Using AI to automate the customer onboarding process not only frees up staff time that would typically be spent processing paperwork, but it also makes doing business easier with your customers—making it more likely for them to do more business with you in the future.”

Customer onboarding, predictive analytics, centralized data, scorecards and cash forecasting are just a few ways AI can be used in the credit department. The customer onboarding, for example, can go from a five-hour manual process to five minutes with the help of AI. The anticipation of customer behavior through predictive analysis and making the right decisions when it comes to collections can be used through an AI-powered solution. “AI uses historical data to assess and monitor payment patterns, provide estimated payment dates, determine risk levels and prioritize calls accordingly,” said Narwicz.

Another way to use AI tools is from a labor perspective. Many seasoned credit professionals are expected to retire in the next few years—meaning more jobs need to be filled. AI can help with the administrative work such as pulling credit reports, application processing and more. “If you think about your A/R portfolio today in credit along with data points you have connected to it, when you make a decision, that’s where the auto approval comes,” said Chris Arrington, CCE, chief credit officer at SRS Distribution (McKinney, TX). “All those data variables also change day by day, either a customer may be filing bankruptcy or not paying your competitors and we as credit professionals who can’t get to all of that can use AI to monitor those changes and alert us.”

Yazmin Yepez, CBF, CCRA, CICP, credit supervisor at Mitsubishi Electric Automation (Vernon Hills, IL) found that customer outreach is one of the most efficient uses of AI. “A couple of years ago, we started using a collection portal through Esker,” Yepez said. “The software and logic we put behind the scenes involving the whole process allowed us to be able to reach out to more customers and to be more effective. It doesn’t mean we’ll replace people, but it means we’ll escalate the things that we need to look into deeper instead.”

Downsides of AI

As with any technology, AI does not come without flaws. It has limitations. The room for error with automated machines is possible and can pose risks if not validated by humans. “You need guardrails in place to make sure you don’t have a situation where you are making irrational and immoral decisions,” Zorn said. “You must continue to manage risk appetite and any AI systems must be consistent with the company culture.”

AI is not so great when it comes to predicting anomalies, such as a pandemic, natural disasters, labor strikes, bank holidays or any event out of the ordinary. If AI has not experienced a situation before, it will take a few days to update predictions. Instead, AI can be used to confirm what you already think is true. “Validate the models to understand what it is doing and why,” Zorn said. “Take data that comes out and use it to apply judgment.”

Most of AI is used as a prediction tool. The information it looks for is programmed by a human and eventually the algorithm is picked up so it can complete that specific function. It has been used in many scoring models picked up from historical patterns but not future problems.

“What we have found so far is that it does not substitute for a thorough review,” said Steve Winn, corporate credit manager at Marek Brothers Systems (Houston, TX). “And AI can’t negotiate a contract with a customer … yet. Other applications could provide a more robust review of a customer’s credit worthiness, providing initial credit approvals and limits, track down a debtor’s assets and researching current industry conditions, for example.”

Addressing the Stigma Behind AI

Many are hesitant to embrace AI because of the fear that it will replace jobs. Even top technology leaders, like Elon Musk, have the same fear. But at the same time, many agree that AI will simply change the way we work and alleviate the burden of routine tasks.

“We fear what we don’t understand so, predictably, the concept of AI in business makes some leery,” said Narwicz. “Despite AI’s ability to drive efficiencies, 52% of automation systems bought in just the last three years are already scheduled to be replaced. It is not the system’s fault that the results have been unimpressive … it’s the inconsistent approach to process management that deserves much of the blame.”

Change in management and poor implementation of AI can also hinder the use of the tool into credit departments. “It can result in staff feeling more frustrated and with less control over AR processes,” Narwicz added.

If you are considering adding an AI system to your credit department, it is crucial to address any concerns head on for a smooth implementation. Calm the fears of staff by reminding them that their jobs are not in danger. “The human element is what makes baseball exciting,” Winn said. “We fill the air with energy. Business is no different.”

Interested in learning more about technology and credit? Sign up to join NACM Technology Thought Leaders group. The first meeting is scheduled for April 11.

You can meet Esker representatives and other technology vendors on the Expo Floor at Credit Congress in Grapevine, TX from June 11-14.

Keep an eye out for the May issue of Business Credit magazine to read more on how technology can elevate the credit profession.

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10 Reasons to NOT Miss Credit Congress This Year

Jamilex Gotay, editorial associate

NACM’s Credit Congress is turning 127 this year and has a track record for innovation, promoting career advancement, relevant educational sessions and unmatched networking opportunities. Here’s why credit professionals of all different backgrounds say not to miss Credit Congress this year. 

1. In-Person Networking

Trade creditors rely heavily on each other to discuss best practices, quickly changing economic conditions and day-to-day challenges in the credit industry. That is why networking is crucial for credit professionals to perfect their craft. But in the aftermath of COVID-19, most networking opportunities are virtual.

Credit Congress is one of the few remaining options credit professionals have available to connect in-person, which can be beneficial in unexpected ways. “I couldn’t reach a customer who owed us money but noticed that they worked for the same company my friend from Credit Congress worked for,” said Sheila Willis, CBA, accounting manager at Georgia Tech Research Corporation (Atlanta, GA) who is attending her 21st Credit Congress this year. “They were able to provide me their email for which we used to send the invoice and got paid.”

2. Maintain Certifications

If you want that big promotion, a raise or more respect in the credit industry, you need a way to show how serious you are about your profession. NACM’s Professional Certification Program is a way for credit managers to elevate their careers and showcase their expertise. Credit Congress is one way for credential holders to maintain their certifications. “My company is supportive of me attending Credit Congress mostly because I have the certification,” said Philip McCraw, CCE, senior credit risk specialist at Southwest Power Pool, Inc. (Little Rock, AR), who is attending Credit Congress for the 21st time. “In order to maintain it, I need to take a course offered at Credit Congress so it takes no effort to convince senior management to let me attend.”

3. Something New Every Year

For seasoned Credit Congress attendees, new additions keep the conference exciting. For example, this year we’ve added the Strategic Leadership Track designed to help credit professionals gain recognition from the C-suite. Elizabeth Quickel, CCE, director, credit & collections at STG Logistics (North Bergen, NJ), has not been to Credit Congress in several years, but is returning this year because of the new track. “I’m hoping this class will provide me with cutting-edge leadership concepts and networking opportunities,” she said. “Classes like these take me away from the daily grind, pull the lens back and shape my work into caring about the future of my company.”

4. Expand Skillset with Relevant Educational Sessions

Cutting-edge education is what the credit profession is all about. Stale information and outdated credit practices can lead to poor credit decisions, so it is critical that you are constantly learning. The educational sessions at Credit Congress are led by brilliant subject matter experts. Classes cover every topic from leadership, technology, international credit, construction credit and economics. “Credit Congress absolutely exceeded my expectations,” said Josh Gorman, contracts manager at EFCO Corp. (Des Moines, IA) who attended his first Credit Congress last year. “I found there were a variety of break-out sessions that applied to my experience level. I got something out of every session I went to.”

5. Learn About New Products on the Expo Floor

The Credit Congress Expo showcases service providers representing diverse companies from the U. S. and abroad. These companies demonstrate how their products and services can assist credit professionals in their daily responsibilities. This year, we are offering a new Exhibitor Solutions Hub for exhibitors to demonstrate their products to members. Learn about the latest products, newest technologies and services that will take your credit department to the next level.

6. Get Closer with Existing Team

After attending, professionals can share their experience and help their entire company improve with the lessons they take back home. “My company is going through a bit of an organizational change,” said Michelle Achondo, CBA, CICP, director of credit at American Fast Freight, Inc. (Fife, WA). “So, when I told them about the Strategic Leadership Track, they were thrilled. Not only will I be an asset for my company and department, but outside of that as well.”

Come as a group and spend more time with your credit team and build unbreakable bonds. “After such a great experience, I convinced our credit manager who’s never attended to go this year,” said Patricia Crisman, accounting associate at Steelscape (Kalama, WA) who attended her first Credit Congress last year. “I’m really excited because we’ll gain two credit manager perspectives.”

First-timers can attend Credit Congress at a discounted rate of $249 when accompanied by a full-paying delegate. Teams of three or more also can attend at a discounted rate of $979 per person. Learn more about prices here.  

7. Learn a Lot in a Short Period of Time

The business world moves fast and time is of the essence. Pack a ton of quality education into a short amount of time at Credit Congress. “You might be able to pick up an educational session through your local CFDD chapter but it’s nice to pack it all in a three-day period,” Achondo said. “You meet new people and have different classes available that you normally wouldn’t.”

8. A Chance to Give Back

We offer an NACM Scholarship Foundation Silent Auction where proceeds provide financial assistance to credit professionals for educational programs and therefore strengthen the profession and business community. If you are not able to give an item donation, you can join the Beer & Browse event in the Expo Hall to bid on the diverse and fun assortment of items. While you are at Credit Congress, take the chance to meet newer credit professionals and offer advice for the next generation. There are countless opportunities to act as a mentor and help guide other credit professionals.

9. Change in Scenery

One of the most exciting parts is being able to escape the office and enjoy the refreshing change of scenery for a few days. “I got to travel to places I’ve never been before with people who belong to my local NACM association,” Achondo said. “That way I knew people but also got to meet other people in the credit industry.”

Use the opportunity to take in some of the local scenery wherever the location might be, Gorman said. “I had never been to Louisville before the last Credit Congress and used the opportunity to take in some of the local culture.”

10. Catching Up with Friends

Credit managers have the chance to catch up with friends in the industry that they haven’t seen in a while, especially those you haven’t seen since the pandemic started. Credit professionals can re-connect in educational sessions, the Expo Hall and receptions at Credit Congress year after year.

Don’t miss out! Register for Credit Congress now.

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Motivate Your Collections Team with Incentives

Kendall Payton, editorial associate

Is burnout draining your collections team? A typical day in the life of a collector is usually fast-paced, high pressure and booked with calls—and several negative customer interactions can take its toll after a long period of time. The very nature of the job can lead to stress and burnout, but companies rely heavily on collectors to stay motivated so invoices continue getting paid.

One way to keep collections staff on track is by creating an effective incentive program, whether that be rewarding collectors with a financial bonus, more work-from-home time or other meaningful rewards. When employees have a motivator or reason to get something done, they are more likely to perform their tasks at a high level. “We’ve always been a believer in some kind of commission basis in addition to salary as an incentive and it’s worked very well,” said Jon Flora, president of NACM Business Credit Services (Burien, WA).

For example, one commission structure incentive could be setting a base collection goal of $50,000. If your team collects that amount by a set date, they can all receive a 5% bonus, said Flora. “It’s going to mean more money in the pay envelope and also more calls will likely be made in order to collect,” he added. “It’s really a we’re all in this together kind of mindset. I am optimistic that this system will pay dividends moving forward and I am a big believer in the bonus commission incentive.”

Rotating the goal for commission is a best practice to keep the collections team engaged and ensure small invoices do not go untouched. The last thing you want is for any incentives to hurt collection efforts by causing some aspects of the job to go untouched, and in turn, create more stress. If the collections team is successfully getting large dollar amounts in the door, try offering a reward when the team resolves X number of disputes instead.

Another way to incentivize the collections team is through a competitive structure based on volume of calls, for example. “Sometimes we’ll run internal competitions and that provides an in-house incentive so that our collectors are recognized as high achievers,” said Jennifer Walsh, CCE, CGA, CEO of NACM Commercial Services (Spokane Valley, WA). “In-house celebrations of our successes are another way we motivate our team. I think everyone likes to be recognized so we do that whenever possible.”

Staying motivated can be hard. We all spend a lot of time and devotion to working every day, so incentives can make our job a bit easier—especially with jobs that require client-facing roles that can place us in stressful situations. Flora put himself in the shoes of his collectors recently working with accounts and making phone calls. “Doing collections work is not easy” he said. “Our team is here for eight hours or more sometimes and work ought to be enjoyable, not just a job. We do our best to create a positive work environment and reinforce it with the benefits of the commission structure and pay.”

The motivation must start within, as incentives are an extra. “I believe a collector is built to be a collector because they have a lot of their own incentives built in themselves in their everyday routines and based on the type of person they are,” Walsh said. “Our company does a base plus incentive, so the more they collect, the better their take home is and that helps them a lot to stay motivated throughout the month.”

When creating an incentive program, it is important to remember that the situation can get complicated if you decide to lessen those incentives or take them away entirely. “Our collections are financially incentivized, so I think if they are taken away, earning less pay is less motivating,” Walsh explained. “Collectors like to celebrate successes and I think they’re very compliant driven so the task would still be performed but they might not be quite so motivated to get to the recovery.”

Incentives can be a great tool to drive your collections team in the right direction and push them to new limits. “If we went to a straight salary, they wouldn’t make as many calls and we wouldn’t do as well,” Flora said. “Commission is baked into what we do—it was here before I came but I’ve dialed it up more because I’ve seen first-hand how successful it can be.”

Not all employees are motivated by the same rewards, so it might take some trial and error to find out what drives your collectors, Walsh said. “If I did see someone underperforming, I would have a conversation first and try to figure out what does motivate them,” she added. “If the team as a whole is not performing to their greatest ability, you have to look down into the individuals and decide if you have someone who isn’t pulling their weight.”

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In Case You Missed Our Blog Posts …

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“Now, I feel like I can be successful in my current position and confident to grow within the industry,” said Lisa Ridosh, CBA, lead credit analyst at Superior Plus Propane (Rochester, NY).
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Legislative Roundup: What Will Impact Trade Credit?

Annacaroline Caruso, editor in chief

California Senate Bill No. 1235 (SB 1235) Does Not Directly Impact Trade Credit

The California Department of Business Oversight recently released regulations pertaining to the content and enforcement of SB 1235, which amends California’s Financing Law (CFL) and sets forth disclosure requirements for “Commercial Financing Transactions.”

SB 1235 was codified as California Finance Code Sections 22800–22805. Cal. Fin. Code § 22800 defines the types of transactions that are considered “Commercial Financing,” and therefore subject to the consumer disclosures, said Jeffrey Love, Esq., partner at Gibbs Giden Locher Turner Senet & Wittbrodt LLP. The real crux of this issue addressing whether this law pertains to trade credit is the technical definition of ‘Commercial Financing.’ Per § 22800, ‘Commercial Financing’ is (1) closed-end transactions (e.g., standard commercial loans); (2) open-end credit plans; (3) general factoring; (4) sales-based financing (e.g., merchant cash advances); (5) lease financing; and (6) asset-based lending transactions. The definitions of all of the specific transaction types are set forth in § 22800.  

“It is plainly apparent, based on these definitions, that typical trade credit transactions would not be considered ‘closed-end transactions,’ ‘general factoring’ or ‘lease financing,’” Love said. “The definitions of the remaining three transaction types may seem potentially applicable under a very loose interpretation (e.g., definition of ‘sales-based financing’ uses the term ‘advances’ without specifying whether such ‘advances’ can be cash or goods).”

However, the required disclosures set forth in the regulations are instructive. For example, “the disclosure requirements for ‘open-ended credit plans’ necessitate the identification of the ‘draw of [the] full Approved Credit Limit,’ ‘funding provided,’ etc,” Love explained. “These terms all indicate cash loans, rather than typical trade credit transactions. The same applies for ‘sales-based financing’ and ‘asset-based lending.’ Accordingly, SB 1235 does not appear to subject typical trade credit transactions to mandatory consumer disclosures.”

Other states are considering similar legislation, including Connecticut, Maryland, Mississippi, Missouri, New Jersey and North Carolina. Similar legislation has already been passed in New York, Virginia and Utah.

Washington State House Bill (HB) 1534

If passed, this bill would raise the required bond amounts for contractor registration starting on July 1, 2024 from $12,000 to $30,000 for general contractors and from $6,000 to $15,000 for specialty contractors. It requires the Department of Labor and Industries to deny an application for registration when the applicant is a successor to a business entity with an unsatisfied final judgment against it.

“I think this is something that NACM members have been wanting for a long time and it looks like it is finally happening,” said Jon Flora, president of NACM Business Credit Services (Burien, WA). “This is a big deal because the bond amount has now more than doubled.”

According to the bill, the Contractor Registration Act requires general and specialty contractors to register with the Department of Labor and Industries (L&I). A general contractor works in more than one building trade or craft in a single job, project, or building permit, while a specialty contractor works in one trade or craft. To register as a general or specialty contractor, an applicant must submit an application, file a bond and proof of insurance, and pay a fee.

In 2019, as part of SB 5795, the Legislature required L&I to convene a work group to consider additional safeguards for consumers who engage contractors. It also required the work group to submit a report to the Legislature addressing whether bond amounts are sufficient and appropriate to protect consumers, workers and suppliers and meet tax obligations and the following:

  • additional criteria for contractors would provide a greater level of protection; strategies to discourage the transfer of business to a different entity for the purpose of evading penalties or judgments should be implemented;
  • any other registration requirements or options for consumer recovery should be changed to increase protections for consumers; and
  • incentives to adopt industry best practices would increase consumer protections.

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