June 15, 2023
Voices of Credit Congress: New Tools to Solve Old Problems
Annacaroline Caruso, Jamilex Gotay, Kendall Payton, NACM National
Credit professionals have an intrinsic thirst for knowledge. Education is power. And Credit Congress is the best event for trade creditors to attend best-in-class educational sessions all in one place, especially as the role of credit management constantly evolves.
More than 800 trade credit experts from all backgrounds, industries and experience levels gathered in Grapevine, TX this week for NACM’s 127th Credit Congress and Expo. Each delegate departed the event with new skills and strategies.
Here are a few takeaways from each educational track offered this year at Credit Congress:
Data is a powerful tool that allows you to understand the truth of your business, yourself and customers, said Charles Edwards, CCE, VP of credit operations at SRS Distribution Inc. (McKinney, TX) during Dashboards, Duct Tape, Data and Beyond. “Without clean, high-quality data, nothing on the front-end part of dashboards is possible,” he said. “Modeling the right data drives the right action in credit.”
Dashboards allow credit professionals to keep track of accomplishments, identify areas for improvement and maintain a competitive advantage, Edwards explained. “Not having a dashboard is like watching sports with no scoreboard—its boring. Dashboards keep credit engaging and can positively impact company culture.”
B2B trade in the construction industry comes with an additional layer of risk, which means construction credit professionals must be at the top of their game, said Jason Torf, Esq., partner at Tucker Ellis LLP (Chicago, IL) during Enforcing Lien Rights When a Party in the Construction Supply Chain Files for Bankruptcy. “Don’t sit on your rights,” he said. “These issues can be complex, so don’t get caught in a reactive mode. Always stay proactive and look for signs of financial distress so you can stay ahead of other creditors that did not act until their customer already filed for bankruptcy.”
Mentorship switches the focus from book-learning to thought-learning where mentors share stories to teach lessons. “Through their experience, mentors can help credit professionals grow and learn skills not found in textbooks,” said Scott Chase, CCE, CICP, global director of credit at Gibson Brands, Inc. (Nashville, TN) during Mentors and Mentees: A Rewarding Relationship. “Someone who can not only guide you but someone you can bounce ideas off of.”
But mentorship is also a mutual relationship between a mentor and mentee. “It’s more than just a job, it’s love,” said Scott Michelsen, CCE, ICCE, director of credit and collections at Kenworth Sales (Salt Lake County, Utah). “A mentor of mine talked to people and built those relationships at every opportunity. In the end, mentors become advocates that remind you not to be so hard on yourself.”
Mentors also provide constructive criticism that is beneficial for career and personal growth. “You need feedback to grow without hearing what went well,” said Yazmin Yepez, CBF, CCRA, CICP, credit supervisor at Mitsubishi Electric Automation, Inc. (Vernon Hills, IL). “Don’t be discouraged by your lack of experience, use the experience you have and seek mentors. Ask for advice on soft skills that can potentially change your life on a day-to-day basis.”
Credit Management Must-Knows
Credit management is not a static profession. The role of trade creditors is constantly evolving, which underscores the importance of fresh and cutting-edge education. Rising interest rates, geopolitical risk and new technologies are just a few factors that contribute to uncertain times for credit management, said Martin Zorn, managing director of risk research and quantitative solutions at SAS Institute Inc. (Honolulu, HI) during Credit Management in Uncertain Times.
“It’s important to catch the warning signs to take action and not get burned,” Zorn said. “You should be talking about what could trigger any payment terms ahead of time. If you develop your own model, you will need to assess how that model will calibrate. Have a policy around model risk management. Are your models well-defined? If you have good documentation in the model the risk will be less.”
China has long reigned as a global trade giant, but the risk of doing business with China is increasing, said David Kinzel, vice president of structured credit and political risk at Marsh, LLC (Denver, CO) during A Look at Global Hotspots: Where Are They and What’s Next? “We’ve seen the imports from China to the U.S. drop 17% in the prior year,” he explained. “It’s happening quicker than people expected, and the impact is more downstream.”
The economy has been sending mixed signals since the COVID-19 pandemic, creating challenges for credit professionals who need to make informed risk decisions, said NACM Economist Amy Crews Cutts, Ph.D., CBE during An Economic Update: What’s Next? “The Fed will keep raising interest rates until they break,” she said. “We are borrowing at very expensive rates for the short term. The underlying message is we are heading for recession.”
Legal Environment of Credit
Every customer has a different pressure point for what will get their attention and a response during the collections process, said Chris Jameson, Esq., attorney at Jameson & Dunagan, P.C. (Dallas, TX) during Receiverships: The Ultimate Collection Tool. “For some, that point is a demand letter from an attorney and for others, its capturing the debtor’s mail,” he said. “It’s your job as a credit manager to figure out what that threshold is, and once you do, it can make an account that looks unrecoverable on the outside recoverable all of a sudden.”
Thank you to all attendees, speakers and exhibitors who helped make NACM’s 127th Credit Congress a success. We cannot wait to see you all again next year in Las Vegas, NV.
The Growing Role of AI in the Credit Industry
Jamilex Gotay, editorial associate
Artificial intelligence (AI), a machine’s ability to perform the cognitive functions we associate with the human mind, is being used to facilitate processes and improve efficiency in business. According to a report by Gitnux, AI has the potential to increase financial services revenues by 34% and economic growth by 26%. Chatbots are also gaining popularity as “41% of financial services executives believe AI chatbots will have the largest impact on their industry by 2025,” the report reads.
The newest development, OpenAI’s ChatGPT, which interacts with individuals in a conversational manner has gained popularity in the financial sector. The dialogue format makes it possible for ChatGPT to answer follow-up questions, admit its mistakes, challenge incorrect premises and reject inappropriate requests.
As different forms of AI gain popularity in the finance sector, credit professionals must become experts on how AI can support their role and simplify workflow. “Artificial intelligence and other advanced technologies are coming, and financial officers who don’t adapt may find themselves left behind,” per The Wall Street Journal.
Joy Conrad, CICP, global credit analyst at Franklin Electric Co. Inc. (Fort Wayne, IN) believes AI would be very helpful for debt collection. Her company currently uses a robot that completes manual credit functions which she considers a small step before AI. “AI can be very helpful in the debt collection process as far as reading emails, listening to phone conversations, taking notes of a customer’s file and picking up more calls,” Conrad said. “Besides speed and accuracy, it enhances the customer experience and detects fraud quicker than humans. As for disadvantages, it is still new and people are more hesitant because of the limited data privacy and audit compliance.”
Some AI tools, such as ChatGPT, can be used for data management to help update a customer’s profile. It also can be used during the customer onboarding process as far as reviewing credit applications and assigning credit limits. “Part of my job is combining data to analyze accounts receivable, past-due, DSO and more,” Conrad explained. “We have five to six enterprise resource planning (ERP) systems to do so. But with AI, credit teams can have more time to accurately analyze and consolidate data on a reporting basis.”
AI can perform administrative tasks so that your talent can focus on critical issues such as customer visits or financial reviews, said Christopher Arrington, CCE, chief credit officer at SRS Distribution Inc. (McKinney, TX). “AI can also detect issues or risky accounts that credit professionals may miss and pinpoint trends in AR. But creditors must be mindful with ChatGPT because one mistake can be devastating, especially when it is reaching a massive number of customers.”
AI can be integrated into several order-to-cash processes such as:
- Credit hold releases and holds on accounts
- Customer collection priority queues
- Demand letters
- Scorecards in credit applications
- Invoice copy requests
- Cash applications
- Terms and conditions
- Customer identification and payment portals
Some companies are adopting AI technology in the finance function through small wins. Dev Ahuja, CFO of Novelis Inc., an industrial aluminum company, has taken a step to develop in-house machine-learning technology for cash flow forecasting on a pilot basis with deployment expected this calendar year. “Having some quick wins can be a big motivator to get on to larger projects,” Ahuja told The Wall Street Journal. “It is more about empowering the organization, really creating the right vision, and then having a team work through where the opportunities are,” he said.
When new technology is successfully implemented in a department, it can help position that team is a strategic player to gain recognition from upper management. “A lot of the analytics is helping treasury and finance teams become part of the core business,” Ahuja added.
And with the increasing use of AI and other advanced technologies in the financial sector, businesses who do not adapt may be left behind. A recent Gartner study revealed that by 2026, AI and automation will result in half of all new employees hired by top-performing corporate finance functions having backgrounds other than finance or accounting. “In today’s finance function, 18% of finance staff demonstrate digital competency, compared with just 11% of their managers.”
Executives claim that AI and other advanced technologies need to be federally regulated. Here are AI’s ethical challenges, according to Unesco:
- The lack of transparency of AI tools: AI decisions are not always intelligible to humans.
- AI is not neutral: AI-based decisions are susceptible to inaccuracies, discriminatory outcomes, embedded or inserted bias.
- Surveillance practices for data gathering and privacy of court users.
- New concerns for fairness and risk for human rights and other fundamental values.
Despite federal executive concerns, experts claim they can regulate AI themselves. In fact, Alphabet’s chief, Sundar Pichai, visited Brussels in 2020 to call for “sensible regulation” of AI, and that same year, scores of tech companies lobbied against facial-recognition rules in the U.S. “We aren’t anti-regulation, but we’d want smart regulation,” Jordan Crenshaw of the U.S. Chamber of Commerce told The Times.
Interested in learning more about technology and credit? Sign up to join NACM’s virtual Technology Thought Leaders group.
Be sure to register for our upcoming webinar, ChatGPT for Credit Professionals, on June 28 at 3pm.
Customer Visits in a Virtual World
Kendall Payton, editorial associate
Customer visits allow credit professionals to gain detailed information about their customers and most importantly—build relationships. But with a global pandemic and new tech developments such as AI, the way credit professionals and customers interact has drastically changed.
According to an eNews poll, more than half (63%) of credit professionals no longer conduct in-person customer visits as part of their credit investigation. Most credit professionals agree that in-person customer visits will continue to decline with the rise of technology, said Alicia Johnson, CCRA, credit supervisor at Cleveland-Cliffs Steel (Burns Harbor, IN). “Although they are valuable, we might see less and less of them as people are adapting to technology and getting more comfortable with putting their trust in us.”
All credit professionals must understand the guidelines of how to conduct a successful and thorough virtual visit for credit investigations.
Have a standard agenda. Like in-person customer visits, preparation is key before a virtual meeting with customers. It shows your dedication and commitment to learning more about your customer. Stay organized and make a checklist of the details you will walk through ahead of time. Creating an agenda can also give room for creativity in how the virtual visit will go. For example, will the virtual tour be seen through a slideshow or prepared video? Will someone share their screen? Will the customer give a live walkthrough during the meeting?
Test your technology before the visit. You need to ensure the IT infrastructure will support your virtual needs. Credit professionals who work with international customers should also consider time zone differences when conducting virtual visits as some staff may need to take a shift during the day or at night.
“We know the benefits of using virtual tools—such as efficiency, cost savings and convenience for both parties,” said Merry Duan, senior strategic account analyst at Bayer Corporation (Saint Louis, MO). “You need well-trained staff who know how to use the tools or tech platform for any involved functions to present them correctly to your customers.”
Digital platforms are not always reliable—whether an app malfunctions or cell service is faulty. This is why it is important to take steps such as troubleshooting your company’s Wi-Fi and servers or make sure your app is up and running efficiently. In case of any potential errors, let your customer know about any back-up options they can use. For example, if the platform glitches, have them provide a document of materials for the meeting so that the credit investigation can still begin.
Be open-minded to accept any new technologies that help facilitate virtual tours and do not stay limited to one platform you are familiar with, said Duan. “If there’s a better tool you can find to use with virtual visits, don’t hesitate to share with your company,” Duan added. “I always advocate for companies to adapt in order to improve the customer service experience.”
Get in-depth feedback about your customer. In order to gain the full scope of a customer in a credit investigation, credit professionals should pay close attention to their customer’s environment—even the smaller details such as their office background, the types of headsets they use or what their workspace is like. You can gain a lot of information about a customer through attention to these small but important pieces.
On the other hand, after a tour is conducted, give your customers a chance to voice their feedback as well. Any malfunctions can leave a bad impression on customers, said Duan. “Be sure to collect feedback on how to improve in the future.”
Even after following these best practices, sometimes in-person customer visits may still be needed and may not be able to be replaced. “Virtual meetings are fine but people get burned out or people talk over each other,” said Anne Scarcella, CCE, CCRA, credit manager at Crawford Electric Supply, Inc. (Spring, TX). “The technology is great for when you can't travel, but it's impossible to replace one-on-one connections.”
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Friendly Fraud on the Rise in B2B Payments
Jamilex Gotay, editorial associate
Credit card payments are becoming more common in B2B trade, which means credit professionals must understand the risk that accompanies different payment methods. A recent eNews poll revealed that 59% of credit professionals have experienced a customer fraudulently dispute a credit card charge.
This is also known as friendly fraud or a chargeback fraud, when a cardholder identifies a purchase on their transaction statement as fraudulent and disputes it sparking the chargeback process. After surveying more than 300 retailers—from small businesses to enterprise merchants—one of the most alarming statistics revealed in the 2023 Chargeback Field Report “was the spike in increased chargeback fraud; nearly three quarters of surveyed respondents reported a 19% average increase in friendly fraud,” according to Crowdfund Insider. According to a report from Expert Market, friendly fraud is increasing by 41% every couple of years with 86% of chargebacks as probable cases of friendly fraud.
With consumer behavior changing due to the pandemic, digital transactions have increased dramatically resulting in more frequent friendly fraud cases, said Sudipto Chakravorti, VP and head of merchant fraud products at Fiserv, Inc. (Berkeley Heights, NJ). The risk of credit card fraud typically falls on the credit card company. However, “for e-comm (card not present) transactions, the majority of the risk is on the merchant unless the transaction is authenticated by the issuer using 3D secure technology,” Chakravorti added.
For in-person transactions, ensure that the information matches to avoid fraud like identity theft or faulty credit cards. “We require that the customer’s driver’s license matches the name on the credit card presented,” said Anne Scarcella, CCE, CCRA, credit manager at Crawford Electric Supply Company, Inc. (Spring, TX) who does not accept credit cards over the phone for any orders at her branches. “If the customer gives us any pushback or the ID number, name or credit card does not align, we will only process the sale on cash terms.”
The same verification process applies to online orders. Scarcella has a digital team with a standard operating procedure (SOP) that processes online orders. “We have turned down many orders of suspected fraud,” she added. “But even then, we have our fair share of chargebacks under the ‘fraud’ category.”
Other tips for mitigating risk with credit card payments include:
- Prioritize security for online and in-person payments.
- Have clear return and refund policies.
- Manage shipping expectations.
- Make sure the real company name shows up on credit card statements.
- If a customer's dispute of the charge seems obviously incorrect, gather and provide credible evidence to the issuer to defend against the dispute or chargeback (CB).
Companies end up losing money as they dispute larger amounts over smaller amounts. Large dollar amounts are more often disputed by the customer or issuer. “As for small dollar amounts, the issuer credits back the amount to the customer without a chargeback to the merchant since the operational cost of the dispute or chargeback process exceeds the amount being disputed,” Chakravorti said.
Artificial Intelligence (AI) is transforming nearly all industries, and ecommerce is no exception. Online businesses are using AI to streamline operations in fraud detection. “AI can balance out denying fraudulent transactions, which can be extremely expensive, and allowing legitimate transactions, which maintains their reputation,” said Chakravorti. “Where merchants once employed legions of employees dedicated to reviewing transactions, algorithms analyze millions of data points to flag irregularities and fraudulent behavior.”
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