April 4, 2024

NACM’s March Credit Managers’ Index (CMI) improved to its highest reading since 2023 with a jump of 2.5 points.

Why it matters: Now sitting at 54.9, the Survey indicates some relief for the business economy. “The CMI seems to be picking up some steam, with a second month of improvement and a breakout of the tight band in which it had been for eight months,” said NACM Economist Amy Crews Cutts, Ph.D., CBE.

The index for favorable factors gained 4.1 points to 62.2.

• Amount of credit extended led the improvement with an 8.1-point jump to 64.2.
• Sales advanced by 4.5 points to 62.1.

The index for unfavorable factors ended its 8-month contraction streak with a 1.4-point jump.

• The biggest gains were in the indexes for rejection of credit applications (up 3.6 points to 51.5) and the index for dollar amount beyond terms (up 3.5 points to 54.1).
• Accounts placed for collection improved by 2.8 points to 45.7 but marked its 22nd month in contraction.

“We are certainly far from a strong business economy, given the continued problem of more accounts being placed into collections each month,” Cutts said. “But seeing improvement in the dollar amount beyond terms index is a huge step forward … I sense some optimism among CMI Survey respondents that has been missing for quite a while.”

What CMI respondents are saying:

• “Our business is coming out of the slow season and is starting to see an uptick in sales.”
• “We are experiencing mixed performance in our portfolio. As we approach spring, we see signs of stronger performance for segments including some casual dining operators, lodging and cruise. Yet some restaurant chains are really struggling due to rising costs of operations, including wages and product costs, combined with customers looking for value. We are seeing more bankruptcies and defaults in the casual dining segment.”
• “Though generally sporadic, sales activity seems to be picking up overall. Even though overall dollars beyond terms have declined (we collected on a very large account), the number of accounts slowing in payments or not paying has increased.”

Sign up to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the March 2024 report. CMI archives also may be viewed on NACM’s website.

The tragic collapse of the Francis Scott Key Bridge last week—claiming the lives of six construction workers—has residents in the Baltimore area in shock.

• A 10,000-container capacity containership lost control and crashed into the bridge during the early hours of Tuesday, March 26th.
• As the community attempts to heal through the emotional and physical impacts, the collapse has also brought attention to the Port of Baltimore, the ninth largest U.S. port by overall trade volume.

Why it matters: The Port of Baltimore moves nearly 50 million tons of goods between the U.S. and other countries each year.

• Though smaller than other ports located on the East Coast, it plays a crucial role in processing international trade traffic of automobiles, tractors, commercial vehicles, poultry-harvesting machinery, self-propelled construction machinery, industrial-use vehicles like cranes and its leading export—coal.

With a pause in shipping and an immediate halt on all vessel traffic coming in and out, the port remains open to trucks. However, potential loss of maritime traffic is expected to cost $9 million a day. Employing thousands of workers, the Port of Baltimore is a key economic player. As remnants of the bridge remain in the Patapsco River, officials have sought billions in emergency federal dollars to remove the debris and get ship traffic flowing again as quickly as possible.

Mediterranean Shipping Company (MSC), the largest ocean carrier worldwide, has terminated its clients’ container contracts once the cargo is delivered to diversion ports. This leaves the shippers solely responsible for moving their own goods or having to face delay charges.

Delays in receiving materials can lead to delayed payments and the challenges businesses face in managing cash flow amidst shipping uncertainties. “Rerouting is going to cause major delays,” said Amy Cook, CCE, credit manager at McNaughton-McKay Electric Company (Madison Heights, MI). “I think this may have more of an impact based on the industry you’re in rather than across the board. Any time there’s a disruption, there’s a cost associated with it—and it’ll most likely cause customers to hold their cash just in case. In the construction industry, everything is timed. If the materials are delayed for projects, it’ll be an obstacle.”

In the face of unprecedented situations, having a plan B is key. Many corporations learned from the pandemic to stay proactive for any kind of supply chain disruption. Some companies already deal with disruption regularly. For example, in coastal areas where hurricanes are more likely to occur, companies have had no choice but to develop a backup plan for supply chains. The bridge collapse is putting those covid-era supply chain strategies to the test.

Due to the large number of debris still in the water, it will be a long process before barge traffic reopens. After the pandemic boom in supply and demand, ocean carriers have experienced a period of financial and operational challenges including:

• Vessel overcapacity
• Declining earnings
• Labor shortages
• The Red Sea Houthi attacks
• Panama Canal drought

All of these have led to costly diversions from major global trade routes. The tugboat Crystal Coast was the first vessel on Monday to move through a temporary alternate channel in the Patapsco River following the collapse of the bridge, according to the U.S. Coast Guard.

What they’re saying: “The biggest issue I see is the pressure on outside ports,” said Ty Knox, ICCE, director of credit and risk at EFCO Corp. (Des Moines, IA). “Since we bring in raw material and turn it into finished goods, we are heavily reliant on the seaports to bring in the raw material and keep our industry going. The other big exports are plywood and lumber, and I think that’ll be an issue as we enter our busy season. Any time there’s a hiccup in the supply chain, a lot of people will also take advantage of prices. As the supply goes down, the demand is up, so we’re going to see higher prices.”

In addition to supply chains being impacted, the bridge’s collapse will also impact construction. The District of Columbia owns the Francis Scott Key bridge, so reconstructing the bridge will be a public project.

Any work to be done through a public job means the process will go pretty fast, explained Chris Ring of NACM’s Secured Transaction Services (STS). “When things move fast, there is a higher probability of errors to be made,” he explained. “There should be payment bonds in place for protection for people who are working on the bridge. There’s a large crane in the water to cut the debris up and get the remaining parts of the bridge out of the river, so there needs to be protection for that. When people are working on that job, they need to be mindful that they can’t file a mechanic’s lien on that project, so they’ll have to ask for bonds.”

The bottom line: The tragic collapse of the Francis Scott Key Bridge has resulted in significant disruptions to maritime traffic and international trade at the Port of Baltimore, potentially causing substantial economic impacts and delays in supply chains across various industries. Credit professionals should be prepared for any shipping delays or hesitancy from customers paying.

In construction, the mechanic’s lien is an important legal instrument protecting laborers and suppliers. Without it, contractors and subcontractors lose legal protection, resulting in significant losses.

From the labyrinth of statutory requirements to the pitfalls of strict deadlines, we'll explore why Texas stands out as one of the most challenging states in the nation for lien filings.

Why it matters: It is important to understand that asserting claims in Texas on construction projects is more complicated than most states.

Before agreeing to provide labor or materials for any construction project in Texas, the credit department should have the customer fill out a job information sheet, said Matthew Jameson, Esq., attorney at Jameson and Dunagan, P.C. (Dallas, TX).

“The job information sheet will provide basic information about the project and identify the parties involved in the construction chain, such as the owner, the general contractor (GC), the subcontractor and the surety if there is a bond involved,” he said. “Having this information on the front end is crucial to putting yourself in a position to comply with the Texas mechanic’s liens and bond claims laws in Texas. You need this information because it will dictate who you need to provide notice to of your claim.”

If a client doesn't pay, contractors can lodge a Notice of Lien at the local county clerk's office, enabling potential property foreclosure to ensure payment. However, the process isn't as straightforward as completing a form.

“Both the type of notice and the timing of the notice depend on two factors: the type of project (private or public) and the position in the construction chain (first tier, second tier or lower),” said Randall Lindley, Esq., partner at Bell Nunnally & Martin LLP (Dallas, TX). “On a private project, subcontractors or suppliers must typically give notice to the GC and the owner on or before the fifteenth day of the third month following the month of delivery or the performance of work (labor).”

A mechanic’s lien should be filed within four months of when the job was finished or when work stopped. If filed any later, the lien could become unenforceable.

In Texas, Property Code Chapter 53 allows for three different types of parties to file mechanic’s liens. These include:

1. Any party who furnishes labor or materials
2. Parties who fabricate specialty materials
3. Design professionals

Once a lien is filed, its payment priority depends on its status and filing date. Typically, contract holders with the non-paying party get higher priority. Hence, prompt and correct action will optimize debt collection.

“If this claim continues to be unpaid, then the subcontractor or supplier must also file an affidavit claiming lien no later than the fifteenth day of the fourth month following the month of the last delivery or the performance of labor,” Lindley said. “Actually, this rather complicated statutory notice scheme is a tremendous benefit to creditors because, upon receipt of notice, both owners and GCs must hold funds until the lower-tier parties are paid. This makes the Texas lien laws an extremely effective tool for creditors in the construction industry.”

Failure to follow the smallest procedure can leave contractors and others without the legal might of a lien to obtain rightful payment. “Because of this, it is incredibly important that anyone seeking to file a mechanic’s lien do so with the help of an experienced construction lawyer,” reads a Feldman & Feldman article. “General contractors are not subject to this pre-lien notice requirement but should still speak with a legal professional.”

Lien waivers are standardized in the Texas Property Code in Chapter 53 Section 284. “That being said, waivers which do not follow the verbiage set out in the Property Code are still accepted so signor, be wary,” said Andrew Estes, CBF, district credit manager at Hajoca Corporation (Overland Park, KS). “Notaries are no longer required. Per HB 2237, lien waivers no longer need to be notarized in Texas as long as the original contract between the owner and GC was signed after January 1, 2022.”

What credit professionals are saying: “Texas lien laws are among the strictest in the nation,” said Estes. “Assume materials are billed January through June on a project and they are never paid,” he said. “In Utah, we would send one notice out in January as it only requires one notice (which is sent within 20 days of first furnishing material). But in Texas, we would have to send notices out in March, April, May, June, July and August.”

“In my opinion, Texas is the most difficult state to deal with from the standpoint of a material supplier or a subcontractor because you have to know each and every month that you've supplied material services or labor,” said Chris Ring of NACM’s Secured Transaction Services (STS). “Texas law is highly equitable as it significantly requires material suppliers and subcontractors to comprehend and comply with nonpayment notice regulations. The good news is, if you follow the rules in Texas, the property owner has little recourse to challenge the validity of the lien.”

The potential saving grace: There is a little known and underutilized statute in Texas called The Texas Trust Fund Statute. If you fail to serve notices timely or at all and fail to file the mechanic’s lien timely or at all, all may not be lost. A material supplier or subcontractor can sue the property owner under the Texas Trust Fund Statute claiming they were in privity of having lien rights and are due monies. Like any other suit action, the amount of monies owed are going to drive whether or not you proceed.

The bottom line: The mechanic’s lien in Texas is critical for safeguarding payments and mitigating financial risk. It requires accurate filing under professional legal guidance.

Education is an asset that continues throughout your life. It doesn't end after high school or college. Even in the workplace, your ability to learn is highly valuable.

Why it matters: Pursuing education fuels career progression, enhances skills and elevates productivity, all leading to a surge in confidence, morale, customer satisfaction and overall growth. The job market has recently pivoted its focus from bachelor's or associate degrees towards credentials and certifications.

• A mere one third of entry-level jobs mandate a college degree, and a quarter of employers are willing to accept credentials in lieu of a degree, according to a report from Ellucian.

By the numbers: Educational opportunities are also a great way to engage different teams, which can lead to overall employee retention. Seven in 10 people say learning improves their sense of connection to their job, and eight in 10 people say learning adds purpose to their work, according to the Workplace Learning Report.

With ever-changing norms in the current job market, acquiring the right kinds of skills is essential. For example, emotional intelligence and knowledge of advanced technologies are two important skills to sharpen throughout your career.

What they’re saying: “Continued education is valuable not just for how effectively it can make you do your job, but also in giving you credentials that empower those above you to promote you,” said Derrick Swaney, credit specialist at MiTek, Inc. (Chesterfield, MO). “Without the appropriate credentials, even if someone may think you’re a good fit or qualified, they may pass over you because they want to make a safe pick with someone who checks all boxes.”

An efficient way to maximize skills gained from sought-out education is to apply that knowledge to your everyday duties. In addition to helping with understanding financial statements or management practices, your knowledge can also help you effectively run a department and manage risk.

As someone who has worked in the construction industry for more than 30 years, Carl Williams, VP of credit at Lonestar Electric Supply (Houston, TX), said education is extremely valuable and is an ongoing process. “Our upper management encourages us to take educational opportunities whenever we can to learn more about the construction credit field,” Williams said. “Rules are always changing and staying up to date on the latest technology is highly valuable right now. It’s important to make sure the new technologies and processes are learned correctly, and anyone can get that information through continued education. It should especially be ongoing to stay abreast of not just lien statutes but contract rules as well.”

Getting upper management on board with educational opportunities might seem daunting, but preparing to present a case for why continuing education is valuable will help.

“Those in power typically want their team members certified in several areas so that they can explain to their boss or board of directors that they’ve made an intelligent decision,” said Swaney. “But if you don’t have all the certifications, it may be a good sell to upper management that if you were to receive this education, it would help ensure the stability of the department and reflect well on the company.”

Some credit professionals who attend in-person conferences feel that they gain more educational value in those few days than they would in a week through reading a book on how to do something. Gaining information organically from personal experience has a human element on how to go about certain processes.

“Getting out to a conference like Credit Congress is a great way to put yourself in the position to network with people you’ve never spoken to before and gain different perspectives,” said Williams. “But webinars are important as well because they give opportunities for those who can’t make it to in-person conferences a few minutes to an hour at lunch to sit in and learn something that would be important to them.”

The bottom line: Continued education not only enhances your skills but also empowers you with credentials that can open doors for career advancement and promotions, benefiting both you and your organization in the long run.