eNews August 30, 2018
In the News
August 30, 2018
End of Summer Brings CMI Out of Decline
The dreary decline of NACM’s Credit Managers’ Index (CMI) ended in August as the manufacturing and service sectors emerged from the darkness with the first positive readings in two months. Although the CMI has not quite reached the potential spotted in late-2017, early 2018, NACM Economist Chris Kuehl, Ph.D., said the latest strides indicate some stability.
Over the last 12 months, the highest combined CMI score was recorded at 56.6 in May and November 2017, steadily declining in June and even more so in July. The August combined score, however, inched upward 0.3 points to 55.8 thanks to a 1.2-point boost in the favorables (64.3). On the cusp of contraction territory (a score less than 50) were the unfavorables (50.1), only two of which improved. Combined favorables, ranked from most to least improved, were dollar collections, new credit applications, sales and the amount of credit extended. Dollar amount beyond terms and dollar amount of customer deductions were the only unfavorables to climb in August, while bankruptcy filings took a 1.5-point dive.
“At the moment, it feels good to have a month without a lot of drama,” Kuehl said. “Given all the turmoil surrounding trade issues and the mercurial behavior of the president, it might have been expected that this drama would affect the overall performance of the economy. The economic drivers are mostly shrugging off these issues and have been reacting to more traditional motivators.”
However, Kuehl noted, it isn’t likely the CMI will stay calm for long due to predicted inflation and the on-again, off-again trade deals.
Manufacturing (55.9) saw the most gains, reading 64.4 in favorables. Credit managers reported increased sales and the amount of credit extended, which earned scores of 66.5 and 67.1, respectively. August also ushered in more credit applications and dollar collections; however, the unfavorables dropped to 50.2. Bankruptcy filings were hit the hardest but are still within expansion territory, unlike accounts placed for collection, which dropped to 49.6. Disputes fell further into contraction territory to 45.8—the lowest reading since August 2017. Credit application rejections rose slightly in addition to dollar amount beyond terms and dollar amount of customer deductions.
At a score of 55.7, the service sector wasn’t as promising as its counterpart, only gaining a tenth of a point. Dollar collections and new credit applications were the only favorables to improve at 62.9 and 63.5; whereas, sales were the least successful, followed by amount of credit extended.
“This was the month for stability in services, but on closer examination, it resembled water acrobatics, with calmness above water that hid the chaos underneath,” Kuehl said.
Unfavorables dropped a tenth of a point to 50, bordering on contraction territory due to dips in disputes, credit application rejections and accounts placed for collection. Dollar amount beyond terms gained the most, with minimal increases in dollar amount of customer deductions and bankruptcy filings.
August’s CMI combined score was moderately higher than the combined score this time last year and maintained an average compared to the month’s scores over the past five years. The last time the score exceeded 55 was in 2014, with the most recent reading showing a modest gain over 55.1 in 2017.
—Andrew Michaels, editorial associate
Be sure to participate in the September CMI when the survey opens on Monday, Sept. 10. The survey will close on Friday, Sept. 14, so stay up to date by visiting the NACM website for more information.
Connect and Learn with Credit Professionals in your Region
Regional conferences are a wonderful opportunity for members to network and share news, information and tips with fellow credit professionals from their respective geographic regions.
Central Region Credit Conference
September 13, 2018
Hosted by: NACM North Central
Western Region Credit Conference
October 10-12, 2018
Salt Lake City, UT
Hosted by: NACM Business Credit Services, Utah & Arizona
All-South Credit Conference
October 21-23, 2018
Clearwater Beach, FL
Hosted by: NACM Tampa
For more information and to register, contact the local Affiliate.
The Future and Potential Demise of NAFTA
Amid discussions this week, the North American Free Trade Agreement (NAFTA) will likely see a major change moving forward, possibly cutting Canada out of the agreement entirely. On Aug. 27, U.S. President Donald Trump and outgoing Mexican President Enrique Peña Nieto announced they had agreed to a set of terms, reaching a “bilateral agreement” and “resolving some of the issues that had obstructed round-after-round of negotiations,” according to Supply Chain Dive. While there still has not been a definitive announcement made on the changes, NAFTA will most likely see reconstruction, pulling it further away from its inception roughly 25 years ago.
When formed, NAFTA planned to shift global trade as the U.S. was concerned the creation of the European Union (EU) would give European countries an extra edge over the U.S. Oil was another factor that shifted the global market in the ’80s and ’90s as it was feared Canada and Mexico would withhold oil from the U.S. NAFTA offered Canada and Mexico concessions in exchange for access to their oil—a notion that has become more obsolete because the U.S. is less dependent on these nations for oil.
“Throughout the negotiations over NAFTA, there have been several sticking points and areas of intense disagreement,” said NACM Economist Chris Kuehl, Ph.D. “These have not always been issues for both Mexico and Canada. The new plan seeks to separate these issues and address them bilaterally, although that also defeats the original purpose of the NAFTA pact in the first place.”
At this point, the U.S. plans to cut Canada out of NAFTA, according to a recent Supply Chain Dive article; however, Canada is set to join negotiation talks in the near future. Trump announced plans to rebrand NAFTA as the “United States-Mexico Trade Agreement,” which he calls “an elegant name,” especially considering he believes NAFTA was “a rip-off.” Like many of Trump’s plans and actions, new trade deals focus on simplicity, and cutting out one country entirely from a deal will certainly keep trading more simple.
The new trade agreement may also see a shift in the sunset clause—perhaps one of the more controversial amendments to the future NAFTA. Trump and Nieto agreed to renegotiate NAFTA every six years, signing into a 16-year deal. Once the countries sign off on a deal for 16 years, then every six years, the countries will renegotiate to modernize the terms for another 16 years. Currently, NAFTA is negotiated every five years, and if negotiations don’t take place, NAFTA is terminated.
“There will always be issues that need resolution. Much of the pact was devoted to how this would be done,” Kuehl said. “The Canadians are balking at the current deal as they do not want to reduce their ability to challenge trade penalties imposed by the U.S. Mexico agreed to it, but Canada knows it has battles ahead that would challenge its subsidies in dairy production as well as lumbering.”
According to Supply Chain Dive, official announcements about the new trade plan will likely be released Aug. 31. Congress must be notified of any trade deals at least 90 days before they can be put into effect.
“The plan was to essentially create a single North American economy ready to take on the world. It was assumed that Europe would be more united than ever,” Kuehl said. “In time, the three nations would even see their borders open up and their cultures merge. The rise of nationalism has stymied this plan. Today, there is outright hostility between these nations. The pact that Trump has proposed will face some major hurdles as he has done a deal with the outgoing president of Mexico.”
—Christie Citranglo, editorial associate
The "New and Improved" Credit Learning Center
NACM is proud to announce the launch of our new Credit Learning Center, featuring an upgraded platform with improved capabilities and security, including:
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As always, choose the modules and courses you need to improve job performance and complete them at your convenience … anytime, anywhere!
New Jersey Expands P3 Opportunities
New Jersey has enacted legislation that greatly expands the pool of public agencies authorized to enter into public-private partnerships (P3s) for capital projects in the state, in order to address growing infrastructure needs. Only public colleges and universities were authorized to use P3s in New Jersey prior to Gov. Phil Murphy signing Senate Bill No. 865 (SB 865) on Aug. 14.
SB 865 authorizes local governments, school districts, public authorities and state and county colleges to enter into P3s for capital projects. The new law also allows for statewide road or highway P3 projects, as long as a project includes an expenditure of at least $10 million in public funds or any expenditure of solely private funds.
Projects proposed under SB 865 must be submitted to the New Jersey Economic Development Authority (NJEDA) for review and approval, and are also subject to review and approval by the state treasurer. NJEDA and the state treasurer's office will oversee New Jersey P3 projects. In accordance with the new law, NJEDA will post the status of each P3 project on its website.
SB 865 requires local public input and finance controls for any project proposed under the legislation as well as land use and financial approvals. The process begins when a public agency issues a Request for Proposals (RFP).
Solicitation, Procurement and Criteria
Under SB 865, a public entity, which may include a local government unit, school district, state government entity and state or county college, will issue an RFP with no more than a 45-day response period. The public entity must have qualifying proposals from at least at least two private entities in order to select one.
NJEDA will review all completed project applications and request additional information as needed. The application must include, among other things, a long-range maintenance plan and a long-range maintenance bond, and must specify the expenditures that qualify as an appropriate investment in maintenance.
The criteria for assessing the projects described in the application include: feasibility and design of the project; experience and qualifications of the private entity; soundness of the financial plan; adequacy of the required exhibits; adequacy of the long-range maintenance plan; evidence of a clear public benefit; and a resolution by the applicable public entity of its intent to enter into P3 agreement for the project.
The procurement process cannot begin until NJEDA approves the application.
After the proposals have been received, and any public notification period has expired, the applicable public entity will rank the proposals in order of preference. The public entity will consider professional qualifications, innovative engineering, architectural services, cost-reduction terms, finance plans and the need for public funds to deliver the project.
Following the procurement process, but before the public entity enters into a P3 agreement, the project and the resultant short list of private entities is submitted to NJEDA for final approval. NJEDA shall retain the right to revoke approval if it determines that the project has “substantially deviated” from the plan submitted, and retains the right to cancel a procurement after a short list of private entities is developed if deemed in the public interest to do so.
SB 865 establishes specific requirements for P3 agreements, including provisions that building construction projects contain a project labor agreement and affirming that the agreement and any work performed under it is subject to the provisions of the Construction Industry Independent Contractor Act. Each worker employed for the construction, rehabilitation, or building maintenance service of facilities by a private entity under a P3 agreement must be paid not less than the prevailing wage rate for such worker's craft or service in accordance with the New Jersey Prevailing Wage Act.
If the agreement includes the lease of a new project in exchange for upfront or structured financing by the private entity, the term of the lease may not be for a period greater than 30 years.
Reprinted with permission from Ballard Spahr LLP. To view the article in its entirety, go to JD Supra.
* (3) The general contractor, construction manager, or design-build team shall be required to post a performance bond to ensure completion of the project and a payment bond guaranteeing prompt payment of moneys due in accordance with and conforming to the requirements of N.J.S.2A:44-143 et seq.
Steve T. Park, Esq., is the practice leader of Ballard Spahr's P3/Infrastructure Group. Steve advises issuers, underwriters, borrowers and purchasers in connection with the structuring, issuance, offering, placement, remarketing and restructuring of tax-exempt and taxable municipal securities and other debt instruments and derivatives. He serves as bond, borrower's and underwriter's counsel to various clients, including investment banking firms, higher education institutions, health care institutions, school districts and municipalities. Steve also advises clients in all phases of transportation, infrastructure and public-private partnership (P3) projects.
Jayne Mariotti Hebron, Esq., is a member of the Public Finance Department at Ballard Spahr. She represents clients in public-private partnership (P3) transactions involving transportation facilities, infrastructure and student housing. Her experience also includes representing issuers, investors, developers and trustees in Low Income Housing Tax Credit housing financing transactions. In addition, Jayne serves as bond, borrower’s and underwriter’s counsel to various clients, including higher education institutions, health care institutions, school districts and municipalities.
It's a Big World Out There! Are You Prepared?
Here are the essential tools you'll need for doing business abroad:
FCIB Worldwide Credit Reports
FCIB Credit Reports go beyond the numbers, providing in-depth, personal and operational information about your customers and prospects that is vetted, validated and verified. FCIB adds value by using multiple providers—in fact, the best provider, on-the-ground in a region. FCIB checks to see that the subject is who they say they are. The more you know, the better your credit decision will be.
PRS Country Reports
PRS Country Reports help you manage the risk from global market uncertainty by digging beyond the headlines to give you a comprehensive, fact-based view of the economic and political risk of doing business in a particular country. Each report provides 18-month and five-year forecasts for turmoil, investment, transfer and export risk in 100 countries, plus in-depth coverage of relevant political and country risk events, country conditions and independently back-tested methodology sourced by the IMF.
Political Risk Newsletter
The “best in class” monthly Political Risk Newsletter, written by the PRS Group and available to members through FCIB, provides concise, easy-to-digest briefs on up to 10 countries, with additional recaps updating prior month’s reports. Each month’s Political and Economic Forecasts Table covers 100 countries, with 18-month and five-year forecasts for KPIs, such as turmoil, financial transfer and export market risk. You’ll also find rating changes, providing an excellent method of tracking ratings and risk, for the countries you’re exporting to.
FCIB and NACM members receive a 10% discount on PRS Country Reports and the Political Risk Newsletter.
To learn more, visit www.fcibglobal.com.
Irish SMEs Feeling Payment Squeeze
Late payments are harming businesses left and right, from the United States to China and many countries in between. Those often hurt the most by payment delays are the small- and medium-sized enterprises (SMEs). In some regions, buyers are taking longer to pay creditors as seen recently in Ireland.
According to the latest quarterly Credit Watch Survey from The Irish SME Association (ISME), payment delays are lengthening in many sectors in the nation. The second-quarter survey released earlier this month showed the average payment period for SMEs went from a four-year low of 52 days in the first quarter to 55 days, which was also seen in the fourth quarter of 2017.
“The report showing an increase in payment delays is disappointing,” said the association’s CEO Neil McDonnell in the release. “Failure by businesses to pay each other on time has a knock-off effect on productivity, development and growth.”
The increased average is only part of the issue, with two-thirds of those surveyed reporting payments take two months or more, a slight increase from first-quarter results. This is one reason why more than 70% of members said they would favor a 30-day payment “statutory regime.”
What may come as a surprise is more than four-fifths of respondents said they do not charge interest for late payments. Over 10% feel doing so would harm the relationship they have with their customer, which is similar to how construction creditors feel about serving notices and filing liens on projects.
“There needs to be a change in our attitude when it comes to paying creditors. … [These] results paint a negative image for big business when paying SMEs,” said McDonnell. “Few small businesses have the same working capital buffers that big businesses enjoy, and can’t wait to get paid.” Roughly two-fifths of ISME members said multinational/big businesses are taking the longest to pay them.
Regionally, Ulster businesses are waiting the longest for payment at 64 days. Businesses in Connaught are paid quickest at 52 days. On average, Dublin businesses wait 54 days to be paid. Of the six sectors surveyed, half saw an increase from the first quarter to the second quarter this year. Construction industry payments slowed by nine days to 69 days in the second quarter. Manufacturing and services each went from 58 to 63 days. Meanwhile, wholesale, retail and hospitality all saw improvement.
More than half of members surveyed reported other SMEs took the longest to pay, despite dropping from two-thirds a quarter ago. All other SME customers, including state agencies and big businesses, had increased payment lengths.
ISME laid forth several actions to be taken. They included state agencies adhering to the 15-day rule and requiring the office of government procurement to publicize their creditor days.
—Michael Miller, managing editor
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South Carolina Publishes Remote Seller Sales Tax Guidance
The Policy Division of the South Carolina Department of Revenue (DOR) has issued a draft revenue ruling addressing retailers without a physical presence in South Carolina. Comments on the draft ruling are due by Aug. 27, 2018, and a conference, if requested, will be held on Aug. 29, 2018 at 10:00 am*. Under the draft revenue ruling, South Carolina will require “remote sellers” who have “economic nexus” to collect and remit South Carolina sales and use tax on a prospective basis beginning Oct. 1, 2018.
A remote seller is a retailer with no physical presence in South Carolina (e.g., online, catalog or mail order retailer). In addition, a remote seller includes any related entity assisting the remote seller in sales, storage, distribution, payment collection, or in any other manner with respect to the remote seller.
A remote seller has economic nexus with South Carolina if its gross proceeds of sales of tangible personal property into South Carolina exceeds $250,000 in the previous calendar year or the current calendar year.
The gross proceeds of sales of tangible personal property includes sales of taxable and exempt property, but does not include the gross proceeds of sales of tangible personal property owned by a remote seller, but sold by another person (i.e., sales made on an online marketplace).
Going forward, remote sellers who establish economic nexus with South Carolina on or after Sept. 1, 2018, are responsible for remitting the sales and use tax for all taxable sales made into South Carolina beginning the first day of the second calendar month after economic nexus is established.
Example: A remote seller establishes economic nexus in South Carolina on Sept. 10, 2018 (i.e., it exceeds $250,000 in gross proceeds of sales in South Carolina). The remote seller must obtain a retail license by Nov. 1, 2018 and collect and remit the sales and use tax for all taxable sales made into South Carolina on and after Nov. 1, 2018.
Remote sellers should now determine whether they have economic nexus with South Carolina. This will require remote sellers to look at sales of tangible personal property made in 2017, and also sales from Jan. 1, 2018 through Aug. 31, 2018, to determine if sales exceed $250,000. If economic nexus is present, the remote seller must register for a retail license before Oct. 1, 2018 and begin collecting and paying sales tax beginning Oct. 1, 2018 (monthly returns are due the 20th day of the month following the month of the sales). A remote seller who presently does not have economic nexus must monitor current year sales to determine if (and when) they exceed $250,000, and register and begin collecting sales tax by the first day of the second calendar month after sales exceed $250,000.
Under the draft revenue ruling, remote sellers who are required to register with South Carolina must continue to file collect sales tax returns until the seller notifies Department of Revenue that its retail license is being closed. The current draft of the revenue ruling does not address trailing nexus. Remote sellers who are required to register, but then have sales which drop below the $250,000 threshold should consider closing their retail license if they wish to stop collecting sales tax.
The draft revenue ruling does not address the collection and remittance of local sales and use taxes. Remote sellers should anticipate being required to collect local sales and use taxes as well.
Remote sellers who make sales through an online marketplace should be aware that DOR is in litigation with Amazon and has issued separate draft guidance which suggests DOR may pursue the remote sellers for sales tax in the event Amazon prevails in the litigation. Thus, the exclusion of online marketplace sales from the $250,000 threshold appears to be contingent on the outcome of the Amazon litigation. DOR advises that remote sellers should consider registering and collecting sales tax now to minimize their exposure in the event Amazon prevails in the litigation and DOR then decides to pursue the remote sellers for unpaid sales tax.
Reprinted with permission from McNair Law Firm, PA.
*Conference was cancelled
Jeffrey T. Allen, Esq., of McNair Law Firm, PA, focuses his practice on business and tax matters. He provides advice to clients on a variety of transactional matters and represents clients in tax controversy matters before the South Carolina Department of Revenue, Internal Revenue Service, South Carolina Administrative Law Court, United States Tax Court and United States District Court.
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