eNews May 31, 2018

Manufacturing, Service Sectors Bounce Back in NACM’s May CMI

Credit managers can breathe a sigh of relief thanks to the redemption of NACM’s Credit Managers’ Index (CMI) in May when the manufacturing and service sectors broadly bounced back to the monthly survey’s highest year-over-year readings. The latest results stripped away the doom and gloom seen in April’s steep decline, with soaring dollar collections among other favorable factors.

May’s combined CMI score registered at 56.6—a reading last recorded in November 2017 and narrowly reached in February 2018. In April, the CMI baffled credit industry professionals, including NACM Economist Chris Kuehl, Ph.D., after the combined score plummeted to one of its lowest year-over-year readings to 53.7. The May 2018 CMI not only marks the first increase since February, but also a substantial month-over-month increase of nearly three points.

The month of May is somewhat unpredictable for CMI readings, at least over the past five years when readings fluctuated or remained the same. Within this timeframe, May 2018 had the largest leap forward month-over-month in more than a decade.

“It seems that April was an anomaly when it came to how creditors were choosing to handle their obligations,” Kuehl said. “The drop was drastic in April’s dollar collections, but there has been up-and-down movement in that category for over a year—just not usually to this extreme.”

Dollar collections were back on top at 62.5, leaving behind the 46.7 that left the favorable factor in contraction territory (a score below 50) in April. Sales saw the second-best improvement followed by bumps in new credit applications and amount of credit extended, bringing favorable factors to 65.7. Unfavorable factors also increased slightly (50.6), most notably in dollar amount beyond terms, bankruptcy filings and dollar amount of customer deductions.

Unlike the past few months, the manufacturing and service sectors had positive readings in May with CMI scores of 57 and 56.3, respectively. The dollar collections in each sector’s favorables left the mid-40s and entered the low-60s.

“The best theory on April’s dramatic drop in dollar collections is that many companies suddenly began to protect their cash flow and stalled their creditors for a while,” Kuehl said. “These were the weeks of maximum unease over the impact of the tariff and trade war threats.”

The service sector progressed more so in favorable than unfavorable factors at 65.8 and 49.9. Once again, dollar collections returned to its hopeful place in the low-60s, with additional growth in sales and new credit applications. Although the unfavorables are on the cusp of expansion at 49.9, four out of the six unfavorable factors improved, including disputes, dollar amount beyond terms and dollar amount of customer deductions. Unfortunately, more credit application rejections and accounts placed for collections were reported.

—Andrew Michaels, editorial associate

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Potential Hurricane Harvey Funding Will Assist Several Construction Projects, With Ambiguity

With the approach of the one-year mark since Hurricane Harvey devastated the gulf area, Texas lawmakers seek to alleviate the damages through construction relief. Two action plans are pending: one that will see a special election in August and another still moving through the legislature. These plans will fund a diverse range of projects, from bayous to affordable housing—projects for several suppliers in the construction industry.

Earlier this month, Texas Governor Greg Abbott approved the proposal for a special election to be held Aug. 25—the first anniversary of Hurricane Harvey—on bond referendum, allowing citizens to approve the finances that will potentially be allocated to construction relief in the Houston area. Another opportunity for construction funds comes in the form of a state action plan, which Texas Land Commissioner George P. Bush delivered to the Department of Housing and Urban Development recently for final approval.

Houston and Harris counties, where most of the damage from Harvey occurred, are in the spotlight for funding. In the midst of the election and the state action plan, the federal government plans to fund relief as well. The government has not yet released how it will distribute funds—a caveat that is holding back the beginning of projects.

“Something that’s going on in the background is that everyone needs to wait and see where the federal government is going to spend their money,” said Kenton Andrews, construction lawyer and employment attorney for Andrews Myers Attorneys at Law. “That money from the federal government is out there, but no one knows exactly where it’s going to go and what it’s going to go to.”

According to Bush’s state action plan, the 2017 hurricane season proved to be “the most expensive in United States history,” with Harvey costing $120 billion in damages. And just a few weeks following the natural disaster, activity increase for steel buildings, doors, concrete, etc., rose as high as 1,700%.

For now, Harris and Houston counties will have to wait until the money is handed off and the election completed. The timeline for where money will be sent is still unclear, leaving those affected shuffling through ambiguity.

One shred of certainty comes in the form of projects as many officials claim the money will reach several types of projects. The state action plan, for instance, seeks to allocate $250 million to rebuilding affordable housing, about 9.3% of the total budget. Many other specifics are still pending.

“The money is going to touch a lot of things, it’s not going to be just one or two items,” Andrews said. “As far as suppliers are concerned, it should be a diverse range of needs.”

—Christie Citranglo, editorial associate

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Indian Exports Expected to Grow

Despite the recent depreciation of the Indian rupee, exports are expected to increase during the fiscal year. Ganesh Kumar Gupta, Federation of Indian Export Organisations (FIEO) president, predicted in a release this month exports will grow 15% to 20% to $350 billion in 2018-2019. The climb in exports will be helped by increases in petroleum and commodity prices.

FIEO called the rupee “the worst performing currency in Asia … [and] many exporters who have hedged their risk or who have taken pre-shipment credit in foreign currency (PCFC) have not benefited due to depreciation of [the] rupee.”

Gupta mentioned increasing protectionism as a setback to India’s export growth, yet “FIEO feels that government will pro-actively engage with our trading partners particularly with [the United States] so that the trade interest of the country is safeguarded.” Liquidity is also a concern of the FIEO for micro, small and medium enterprises as is bank support of exports.

The flow of credit has been affected by bank actions, said FIEO. “Withdrawal of letter of offer and letter of comfort has added to the cost of the exporters raising it by 1% to 3%.”

FCIB members with customers in India have also noticed issues. According to the latest International Credit & Collections Survey for India (May 2018), respondents said they are not extending as much credit as in previous surveys (October 2017 and August 2016). Only three-fourths of respondents extend credit in India compared to nearly nine in 10 and five out of six, respectively.

Members also reported an increase in payment terms and a decreased use of letters of credit for payment. Wire transfers and credit cards saw an increase in May’s survey. Payment terms are extending toward 31–60 days and 61–90 days rather than 0–30 days as seen in previous surveys. Average days beyond terms are nearly one-and-a-half times higher this time around compared to just seven months ago (38.2 days vs. 25.5 days).

According to members who took the surveys, waiting for payment is nothing new. “Be very cautious and prepare to wait for your money,” said one respondent during the October 2017 survey. “India can be a challenging place to trade,” said another respondent. “The importation process can be complicated and take time. Working via [letter of credit] is somewhat common,” the second respondent added.

Others said a local contact and representative are a great benefit for those selling into India, as are understanding the customer and country risk.

—Michael Miller, managing editor

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Financial Sector ‘Most Targeted’ by Cyberthreats

Digital threats to corporates lurk behind every corner and pose risks to internal and external operations. A global epidemic, cyberattacks on the financial sector are rising with the adoption of new technology, tasking business to evolve, while simultaneously fending off threats and developing preventive measures to ensure a future. According to globally operated NTT Security (NTT), one of the most effective ways to battle cyberthreats is to understand “security is everyone’s responsibility.”

A yearlong, global analysis of cyberthreats was revealed in the NTT Security 2018 Global Threat Intelligence Report, where the security specialist reviewed its clients’ log, event, attack, incident and vulnerability data in various sectors across Europe, the Middle East and Africa (EMEA), the Americas, Asia-Pacific (APAC) and Australia. Dimension Data, an NTT Group company that helps clients grow in the digital age, released the report May 21.

Among the most nerve-wracking findings was the ranking of cyberthreats to the financial sector. Finance was listed as “the most-targeted sector” in part due to its quick adoption of new technology. The study stated cybercriminals strike when companies are in the midst of technological advancements—a time when infrastructure and application are vulnerable. Findings concluded roughly a quarter of all global cyberattacks happened in finance, followed by technology (19%) and business and professional services (10%).

Manufacturing and retail were the remaining sectors in the top five at 9% and 8%, respectively, and attacks against the government sector dropped from 9% to 5% since 2017. On a global scale, spyware was the most common attack. Norton internet security defined spyware as a form of malware that collects, monitors and shares user information without their consent. Spyware was most detrimental to companies in the Americas, affecting more than a third of respondents.

In the Americas, 43% of attacks happened to the financial sector, with a quarter of attacks in the technology sector. A top priority to prevent such occurrences? Encourage employee reports.

“The board and executives must demonstrate accountability and support for security across the organization,” the study stated. “Recognize and empower employee vigilance and engagement as an extension of the cybersecurity program with the power to drive culture change. It’s far more cost-effective to investigate suspicious or fraudulent activity observed by an employee early on in the attack cycle than to respond after it has occurred.”

Earlier this month, the U.S. House of Representatives passed legislation to protect small businesses from digital threats, The Hill reported. Under the law, which passed May 8, small businesses receiving federal grants can provide cybersecurity training to their employees through the Small Business Administration’s (SBA) cybercounseling certification program. The legislation comes after growing concerns that small businesses “lack the resources” to invest in cybersecurity and calls for the SBA to reimburse these companies up to $350,000 for cyber training.

—Andrew Michaels, editorial associate

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NACM, FCIB Offering New Dual Recertification

The National Association of Credit Management (NACM) and the Finance, Credit & International Business Association (FCIB) have joined education resources to help promote a dual recertification process for the Certified Credit Executive (CCE) and International Certified Credit Executive (ICCE) professional designations. Each recertification program will continue to be offered individually—the CCE by NACM and the ICCE by FCIB—however, members will now have the choice to renew both concurrently with the combined maintenance recertification.

A dual form makes it easier and saves time for credit professionals who have earned both designations. “Once you’ve been certified, your focus should no longer be on how to stay certified,” said past NACM-National Board of Directors Chairman Jay Snyder, CCE, ICCE, vice president of credit–Americas, Tech Data Corporation. “Instead, I think there should be a mind shift to maintaining the knowledge needed to keep the certification. Of course, this is done via remaining an active NACM and FCIB member.”

The dual recertification is a more streamlined process for those who have both designations. Rather than recertifying every three years to maintain the CCE and every two years for the ICCE, those with both can follow the dual recertification roadmap every three years.

“There is a fair amount of effort that goes into completing the recertification document,” said past NACM-National Board of Directors Chairman Gary Gaudette, CCE, ICCE, senior treasury analyst, Hypertherm, Inc. “It takes time to gather all the information, so doing this just once every three years for both certifications is going to be a time saver.”

The dual credential recertification form still requires education and participation segments to fulfill the requirements of maintaining the designation; 30 total hours (15 education/15 participation) are needed to maintain both designations. These hours can be completed through formal education; NACM and FCIB continuing education webinars and meetings; the Graduate School of Credit and Financial Management; publishing articles in Business Credit magazine; speaking at Credit Congress; earning awards and achievements; and contributing to the FCIB discussion board, to name a few.

“Anytime things are easier, there is likely a positive response to it,” said Gaudette, adding that one recertification form for both designations could inspire others to pursue a certification that they don’t currently have.

—Michael Miller, managing editor

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