November 30, 2023

As the next generation of credit professionals accepts jobs in the industry, they are using a different strategy to build customer relationships by leveraging new communication styles. However, the goals remain the same—create a strong sense of trust, improve customer service and mitigate risk.

Credit professionals are considered customer interface units because they talk to customers directly without having any middleman, explained Merry Duan, senior strategic account analyst at Bayer Corporation (Saint Louis, MO). “Because I manage large corporation customers, creating a strong relationship is very critical for us. I always encourage my team to communicate with the customer by any means,” Duan said. “We must play the bad cop and good cop at the same time. But the number one priority is to maintain a great relationship with the customers while also addressing any credit-related issues such as accounts receivables, bad debts or delayed payments.”

Technology and the pandemic are two factors that played in the role of shifting to virtual means of communication with customers, but communication also differs naturally across generations. Unlike the traditional reliance on in-person interactions or phone calls, younger credit managers harness the power of texting and social media to engage with customers. An eNews poll revealed earlier this year that more than half (63%) of credit professionals no longer conduct customer visits as part of their credit investigation. This time last year, only 2% of credit managers said that texting was their preferred form of contact with customers. Now, 6% say texting is a primary form of customer contact.

Some credit professionals think customer relationships can be harder to build without a face-to-face connection with customers who are in proximity to their business, but others have seen a positive impact. “We’re starting to see less and less personal, in-person visits and even less phone calls as a means of communication,” said Jason Mott, CCE, corporate credit manager at MFA Incorporated (Columbia, MO). As a credit professional in the agricultural industry, Mott thinks it’ll take a bit longer for the industry to adopt new communication strategies. “I recently spent a few hours trying to get an issue resolved with a customer through text. It seems like we’re using both email and text messages now as a main way to get a hold of people.”

Customers in the consumer credit arena have long received text messages for missed payment reminders. But B2B relationships are often more complicated than B2C relationships, so it is unclear if text reminders would work the same way in trade credit. “Text can be invading for customers in terms of payment or collecting purposes, crossing the private line,” said Yazmin Yepez, CBF, CCRA, CICP, corporate credit manager at Feralloy (Algonquin, IL). “Regardless of the age of the recipient, business is business. All communication must be respectful and professional.”

B2B customers are getting younger too, which presents an opportunity for younger credit managers to make a stronger connection because they can relate. The new generation of credit professionals may not have a long-standing history with some customers—but that might not be a bad thing. For example, after several years of working with a customer, the business and personal lines become blurred, and you may view your customer as a friend instead of a business partner. This will make you more inclined to allow consistent late payments if you have a personal relationship with them because you have built a strong sense of trust.

Brendon Misik, CCE, CICP, senior credit manager for agriculture credit at PCS Admin USA Inc. (Nutrien) (Hoffman Estates, IL) said his team rotates territories and customers around occasionally to prevent these scenarios from happening. If a customer gets too comfortable, rotating them out with another credit manager can ensure the account will get back on track. “Credit managers in the younger generations are a bit more straightforward,” Misik added. “They still build that relationship, but everything is a bit quicker. An hour-long meeting can be condensed to 10 minutes while still getting the same amount of work done. Younger generations with that mentality are also finding that they’re cutting down on payment past dues. I think that helps.”

NACM’s Credit Managers’ Index (CMI) remains in a narrow range around non-recession lows as it gained 1.1 points to 52.3 in November. However, credit managers are growing increasingly concerned about the state of the economy, citing more delinquent accounts, poor application quality and more bankruptcy filings.

“While the impacts of the Fed’s aggressive effort to stamp out inflation have been slowly making their way into the economy, we have not yet seen much indication that a recession is immediately around the corner,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. “However, in a marked change from recent prior months of the CMI survey, credit managers are sounding the alarm on account performance, ranging from more accounts delinquent, poor application quality, and more bankruptcies.”

The index of favorable factors gained 2.5 points to 58.0, led by a 3.5-point improvement in dollar collections to 59.4, a 3.4-point jump in sales to 58.7 and a 2.0-point increase in new credit applications to 55.9. The amount of credit extended factor index marked its second month of deterioration.

The index of unfavorable factors also improved—but just slightly by 0.4 to 48.5, remaining in the contraction zone. Three of the factors deteriorated in November; filings for bankruptcies led the decline with 2.6 points to 47.8—its lowest reading since June 2020. “The U.S. Courts reports filings of bankruptcies and year-to-date through September their data show a 39% increase in business bankruptcies over 2022,” Cutts said. “While the level is not yet fully back to pre-pandemic, it won’t be long before business failure surpasses that mark at this rate.”

Accounts placed for collection deteriorated by 1.0 point to 44.6, its 18th month below 50 points, the lowest level recorded for this factor index. Rejections of credit applications declined 1.0 point in the November CMI survey to a level of 48.7, the third consecutive month of decline for this index.

“It’s almost like a switch was flipped in the comments provided by survey respondents,” said Cutts. “We went from a gradual subsiding of comments regarding supply chains and then this month they all aligned on worry about account performance.”

What CMI respondents are saying

• “The prevailing consumer attitude of wait and see along with the instability of the U.S. government to effectively manage the budget process and rate hikes are creating some dark clouds on the economic horizon. As the cost of money increases, past dues and beyond terms will inevitably grow as companies stretch payables to conserve cash.”
• “I think the economy is going into a recession and I'm concerned it will be a deep one.”
• “We have been greatly affected by automobile strikes and production is scheduled for shutdowns in December.”
• “We are seeing bankruptcies and business closures on the rise.”
• “Although sales went up, the increase was a bit disappointing for our organization in that October is typically one of our largest months of the year. Delinquencies and accounts turned over to collections continues to rise.”
• “Our over 90-days past due increased.”
• “As is the usual this time of year, companies that have maxed out their normal credit lines are searching for someone to carry them through the winter months. That is why the credit application denials are up.”
• “We are a cyclical business. Commercial and retail sales are strong because we depend on a strong housing market and low interest rate for home buyers to have discretionary spending. Also, high inventory is still an issue from the pandemic together with a late season, slower sales creating cash flow issues for our customers.”

Why should you participate in the CMI?

Complete the CMI every month for the next 12 months and automatically be entered into a drawing to win a gift card worth between $100-$250 in 2024. Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the November 2023 report. CMI archives also may be viewed on NACM’s website.

In an era defined by the rapid evolution of artificial intelligence (AI), the profound impact of AI has become increasingly evident. Transformative AI technologies such as OpenAI’s ChatGPT have reshaped the business landscape by boosting productivity at the workplace. The use of generative AI in finance is expected to increase global GDP by 7%—nearly $7 trillion—and boost productivity growth by 1.5%, according to Goldman Sachs Research. AI has the potential to increase financial services revenues by 34% and economic growth by 26%, according to a report from Gitnux. 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 majority of productivity gains come from places you don’t expect. “It doesn’t come from doing existing tasks a little bit better, it comes from entirely new things,” Kevin Hebner, Ph.D., global investment strategist at Epoch Investment Partners, Inc. (New York, NY) said during FCIB’s Global Expert Briefing, who estimates that AI will increase productivity by 10-15% by 2040. “At least for mid-level writing, AI can increase productivity by 40%. If you’re coding, it increases productivity by 55%. Call center workers overall receive immediate improvement by about 44%. For new workers, AI increases productivity by about 40%.”

AI won't necessarily replace people as there is still a need for people to analyze the data AI generates. But AI will replace people who don't learn to use AI strategically. Workers with AI skills are particularly valuable and command salaries 21% higher than average, but potentially up to 40% higher—in part because these skills can be combined with other valuable skills, according to a study from researchers at the Oxford Internet Institute, and the Center for Social Data Science, University of Copenhagen.

Indeed's data showed that searches for generative AI jobs jumped to 147 per million total jobs searched in May from virtually zero a year earlier and by the end of October, there were 20 times as many job postings mentioning generative AI-related keywords than when the year began. Its U.S. website showed generative AI job listings from companies such as Meta Platforms (META.O), Apple (AAPL.O), Tiktok, Pinterest (PINS.N) and Amazon.com (AMZN.O), according to a Reuters article.

Sherri Kratz, CCE, credit supervisor at Green Bay Packaging, Inc. (Green Bay, WI) says her team uses AI at a minimum as it is already built into some of the department’s existing software but is currently investigating and developing the skills for when they do get on board with more AI. “With the entire team involved, we can develop novel ideas or best practices that fit our needs and we can find ways to evaluate more data than we did before,” she said. “AI overall is something we're exploring and excited to use more of.”

AI Risk Factors

The risks factors associated with AI have made some industries hesitant in implementing more AI at the workplace, including B2B credit management. An eNews poll in June revealed that over half of credit professionals are not likely to implement AI in their credit and collections process as opposed to the 6% already leveraging AI—and 19% said that they’re very likely to implement AI in 1-2 years, while 13% are still unclear on how AI would help the credit and collections process.

One major concern is the security risk as AI tools often use, hold and interact with significant volumes of sensitive information. This data could be exposed to unauthorized access and result in a costly data breach, according to JD Supra. “I’d love to experiment with ChatGPT to write a credit application but I’m worried about putting confidential information into it,” said Krystal Daugherty, CCE, order-to-cash manager at Acuren Inspection Inc. (La Porte, TX) who does not currently use ChatGPT in her credit department but plans to in the near future. “I’ve gotten positive feedback from friends who frequently use it and I agree with them that this is the next tool in business that can easily be expanded into department policies. My concerns are what does the terms of service say? How will this information be stored and used for other people?”

The shortcomings of AI associated with discriminatory, biased or inaccurate outcomes and decisions are another concern for credit professionals. “While AI is a helpful tool, we're mindful of its limitations,” said Joshua Nolan, CCE, senior director of financial operations at PrePass (Phoenix, AZ) whose department uses ChatGPT for drafting, reading and analyzing emails as well as creating templates—making communication more efficient. “Sometimes, it might miss the context of certain details, so we ensure that human judgment is always in the loop. Regular checks are in place to review and adjust its output, ensuring accuracy. To maintain privacy, we follow protocols to ensure we are not placing sensitive data into the AI models.”

According to Axios, the most obvious risk from AI in financial markets is the AI-powered ‘black box’ trading algorithms run amok, and all end up selling the same thing at the same time, causing a market crash. "There simply are not that many people trained to build and manage these models, and they tend to have fairly similar backgrounds," Gary Gensler, SEC chair said in an SSRN paper. "In addition, there are strong affinities among people who trained together: the so-called apprentice effect."

Model homogeneity risk could also be created by regulations themselves. “If regulators exert control over what AIs can and can't do, that increases the risk that they'll all end up doing the same thing at the same time, and also increases the likelihood that firms will all choose to use AI-as-a-Service offerings from a small number of beyond-reproach large providers,” reads the Axios article.

In the intricate world of construction and property development, the mechanic’s lien serves as an essential legal tool, safeguarding the interests of those who contribute labor or materials to a project. The absence of such a tool is a loss of legal protection for contractors, subcontractors and suppliers ultimately leading to larger losses for all involved. Cleveland Brothers Equipment Company is facing that fate in a mechanic’s lien case that has been appealed to the Pennsylvania Superior Court, and the issue to be decided is whether equipment rental companies will continue to have rights under the Pennsylvania Mechanic’s Lien Statute. 

“The Pennsylvania Supreme Court is considering washing away mechanic’s lien rights for construction rental equipment for Cleveland Brothers although the lower courts already said the mechanic’s lien rights are going to be intact,” said Chris Ring of NACM’s Secured Transaction Services (STS). “So the question is why did they get there?”

Pennsylvania courts have routinely enforced mechanic’s liens rights for equipment rental companies like Cleveland Brothers Equipment Company for private construction projects, which allows them to bring claims against property owners who benefited from the equipment but haven't paid for it. The property owner may say they've paid their general contractor (GC) or the GC paid the subcontractor but one way or another that money has not made it downstream to the equipment rental company.

Cleveland Brothers Equipment Company, that rents Caterpillar equipment in Pennsylvania, West Virginia and Ohio, rented out heavy equipment to a subcontractor on a commercial construction project on an industrial park. The equipment was used extensively for almost a year for necessary excavation and grading to build the industrial park and Cleveland Brothers Equipment Company was never paid for that work.

“Recently, property owners have started to argue that there's a loophole for mechanic’s lien laws saying that rental equipment companies don't have protection under that law because the equipment isn't physically incorporated into the improvement of the property, meaning that if your equipment was returned to the equipment rental company at the end of the project, they own that equipment,” a legal correspondent said. “There is some precedent saying if you just have removable equipment like a refrigerator or shelving units, that can't be the basis for a mechanic's lien. But foundations or sewer lines for example, that equipment is incorporated into the property within the meaning of the statute. That's how it's been interpreted up until now and that's the basis of this appeal.”

At the lower-level court case, the general contractor appealed it saying they have a contractual duty in an agreement with the owner that it will defend and indemnify the owner against these sorts of claims. Now, it’s up to the Pennsylvania Supreme Court to change the way the law has been applied in Pennsylvania.

“What complicates this appeal further is that just last month, under a very different set of facts, the Pennsylvania Supreme Court ruled that an equipment rental company did not have a valid lien under the lien statute where that equipment had already been returned,” the legal correspondent said. “So, for 19 months, they continued to charge rental fees after the equipment was already returned and filed a lien on those rental charges since it's not incorporated into the building that was already sitting at the property.”

What Happens if Rental Equipment Companies Lose Their Rights?

Many equipment rental customers are small to medium-sized contractors and subcontractors that haven't made large enough capital investments to get the equipment needed to do these private construction projects. And equipment rental companies feel comfortable running to those customers because they know there's a specific project in the works that will create the income stream necessary to pay those rental fees.

In a worst-case scenario, rental equipment companies have that recourse against the property owner. But if the protection were taken away, the initial credit application stage would have to be much more closely scrutinized because you no longer have a right against the property owners and your full recourse is only against that customer. You would likely seek other ways to protect the construction rental equipment company, like requiring bonds or personal guarantees or other collaterals before they can let the equipment go off site.

The best practice for credit professionals is to make it a habit to send out notices of non-payment or the required notices to trap or to secure any bond or lien rights. “Even if you feel like you're not protected or your notice was not sent timely, it's wise to reach out to your attorney to have them review and go over statutes with you to see if there is a way to still protect your bond and lien rights,” said Roxanne Price, CCE, CCRA, NACM board director and corporate credit manager at H&E Equipment Services (Baton Rouge, LA).

Credit professionals can find other ways to secure the debt like filing a Uniform Commercial Code lien, or UCC filing, a legal document that serves as a public notice of a secured transaction, providing information about a creditor’s interest in the debtor’s personal property collateral. Or they can file suit against any personal guarantees that were signed on the credit application.

“Don't assume that you've lost your lien rights because you may be able to determine that your equipment or your material is actually still on the job site,” Price said. “It also allows you a few more days to get your required notices and to file the necessary liens.”