eNews March 28, 2019
In the News
March 28, 2019
NACM’s March Credit Managers’ Index (CMI) was unable to maintain February’s growth but instead took a hit to the service sector, which suffered its largest decline since April 2018. Although manufacturing experienced its share of woes in March, NACM Economist Chris Kuehl, Ph.D., said it was the service sector that sent the combined score to 53.6, roughly the same score seen at the beginning of 2019.
Both combined favorable and unfavorable factors played a role in the March CMI’s 1.3-point drop. Favorables drifted back into the high-50s, while unfavorables were pushed into contraction territory (a score below 50), yet they remain on the brink of expansion at 49.9. The favorable category’s amount of credit extended was the only factor to improve month-over-month (MoM) by just more than one point and maintain a reading above 60. Sales plummeted almost 4.5 points to 58.2, followed by a 2.5-point decline in dollar collections and about a one-point decline in new credit applications. After a positive turnaround in February, only one unfavorable factor (disputes) improved in March. Accounts placed for collection (46.4) dropped to its lowest score since March 2018.
“Month after month, we seek that ever-elusive trend that has the index going further into positive territory, and each month that gets our hopes up is followed by one that dashes them again,” Kuehl said. “This was one of those unnerving months where the scores reversed again. It is not a crisis situation by any stretch as the numbers are still firmly in the expansion zone, but we all would like to see improvement.”
A minimal increase in manufacturing’s favorable factors kept the sector afloat in March, only dipping 0.2 points for an overall reading of 54.6. New credit applications and the amount of credit extended reached into the low-60s, the latter reaching the highest score (63.9) since November 2018. Sales and dollar collections fell back to readings in the high-50s, landing favorables at 60.3. In the unfavorables category, the index declined to 50.7, the same reading recorded in December 2018. Disputes and bankruptcy filings improved slightly but not enough to keep the overall unfavorables score steady. Accounts placed for collections fell deep into contraction territory to 46.8, a yearlong low after hovering around 50 for the past 12 months.
March’s service sector readings struck a low point for the past year at 52.6. Sales took a dive by 5.5 points to 58, nearly 8 points lower than the prior year. Not far behind was new credit applications, which also saw its lowest reading since March 2018. Dollar collections and amount of credit extended also worsened but did not reach record lows. Similar to manufacturing, the unfavorable category’s disputes gained a fraction of a percent. The remaining five unfavorables were less optimistic; all but bankruptcy filings were in contraction territory.
“The service sector, as a whole, has suffered some reversals in the past several months,” Kuehl said. “The consumer is spending far less on things like entertainment and restaurant meals. There have been declines in many areas, but health care has been holding steady as usual.”
—Andrew Michaels, editorial associate
There's Still Time to Register and SAVE for the Spring Online Courses
Reap the benefits of online education, including better job performance and prospects. But, to be the best, you have to learn from the best. Choose from the many upcoming educational courses we offer:
CBA, CBF & CCRA Courses:
May 6 - Aug. 23, 2019
Early bird rate ends April 12, 2019
Apr. 29 - Jul. 26, 2019
Early bird rate ends April 12, 2019
Apr. 29 - Jul. 26, 2019
Early bird rate ends April 12, 2019
International Credit & Risk Management Online Course
May 13 - Aug. 16, 2019
Early bird rate ends April 12, 2019
Visit www.nacm.org to learn more and register for classes.
When a customer suddenly stops making the usual payment, the first instinct may be to panic. Something within the customer’s company might have shifted, either making them unable to pay, unwilling to pay or a combination of those circumstances. Creditors have a variety of options to recoup debt, a topic Credit Manager D’Ann Johnson, CCE, will cover during her session, “Life After Debt,” on May 22 at NACM’s Credit Congress in Aurora, Colorado.
Johnson’s session will touch on methods creditors can take after “an account goes south.” Questions about small claims courts, NSF checks and alternatives for debtors without applications and accounts, to name a few. The session will be interactive, with audience members and even Johnson benefitting from discussion and personal experiences. Attendees will learn from one another about innovative methods of collecting after debt.
Johnson has more than 20 years of experience in the credit and collections industries, approaching credit and collections with a variety of perspectives. Currently working in construction credit for A-Core Concrete Cutting, she has experience outside of construction, rounding out her view as a construction credit manager from other industries such as health care.
“To have the opportunity to look at it from different directions really helps. Many, not all, credit professionals can become jaundiced; they see it from their perspective because that’s their job, right?” Johnson said. “But for me having different experiences, I can play that. I can see where they’re coming from because I know that aspect of different businesses.”
Given Johnson’s professional experience, she said any creditor can learn from the session, including those outside of construction. While construction credit has different regulations than other forms of credit, Johnson will touch upon generic skills such as how to find the right lawyer, how to approach small claims courts—skills valuable to any type of creditor.
While dealing with a customer overwhelmed by debt presents its challenges, Johnson still encourages creditors to pursue action—even if all seems hopeless on the surface. Taking a few small steps can make for a more efficient credit manager.
“At the end of the day, anything that you can recoup is better than nothing,” Johnson said. “In my opinion, the more you can do to be proactive and deal with your customers in an upfront, honest manner, and get some resolution, is better than them not going through with it.”
—Christie Citranglo, editorial associate
Credit Congress: Session Highlight
28094. Advanced Collection Techniques in the Construction Industry
Speaker: Christopher Ng, Esq., Gibbs Giden Locher Turner Senet & Wittbrodt, LLP
This session addresses the more complex collection techniques applicable to the construction industry, such as evaluating available statutory remedies (mechanics lien rights, bond claims, and stop payment notices / claims on construction funds) on private and public projects. Mr. Ng will also discuss the Piloting Miller Act bond claims for federal projects, how to avoid getting caught in fraudulent schemes when selling MBEs/WBEs/DVBEs and enforcing claims against contractors’ license bonds. He will further present how to enhance pre-law suit collection efforts (including strategies for impactful demand letters and exploring claims against third parties), how to navigate Bankruptcy Court when your customer, the general contractor, or the owner files bankruptcy as well as handling the contractor’s purchase order and avoiding the “Battle of the Forms.”
Please visit creditcongress.nacm.org for more information and to register.
Team discounts (5 or more) are also available for larger member companies.
Protection should be on the minds of all creditors at all times. For construction credit professionals, it might be as simple as protecting themselves by becoming a secured creditor by filing a mechanic’s lien, but this is only one type or meaning of being protected in the credit industry. Another is filings under the Uniform Commercial Code. Businesses need to be on the lookout for how to become better protected whether it is in the form of becoming secured or during other payment processes.
According to research released earlier this month, invoice fraud detection is the big wave of protection that should be taken into consideration. Nearly 93 million pounds were lost in the business world to this scam during 2018, states the report Fraud the Facts 2019 from UK Finance. “Invoice fraud could happen to businesses of all sizes,” said Katy Worobec, managing director of economic crime with UK Finance, in a release. “It’s vital that all employees are trained to identify potentially fraudulent transactions.”
Of the 92.7 million pounds, almost 30 million pounds were returned to customers—an average loss per invoice scam was nearly 21,000 pounds. This scam was the third-most popular authorized push payment (APP) fraud, but it resulted in the largest losses.
Fraud from payment cards, remote banking and checks totaled roughly 850 million pounds in 2018—a 16% increase—but more than 1.6 billion pounds were prevented by banks and card companies. A total of more than 354 million pounds (roughly 228 million pounds for personal and 126 million for nonpersonal/business) were lost via over 84,000 APP scams last year.
One of the biggest reasons for invoice fraud is because 43% of businesses are not aware of it, states a separate UK Finance report from earlier this month, Business Payments Survey. As the size of the business increases so does the awareness of invoice fraud. The advancement in technology has contributed to the increase of fraud, allowing scammers the ability to copy invoices and gain other details about the payment process.
More than a third of business payments in the U.K. are through Bacs Direct Credit—check usage dropped from 21% of outgoing payments made by businesses in 2012 to 6% in 2018. More than three-fourths of business-to-business payments were accepted directly into business bank accounts.
There are several ways to be on top of invoice fraud, or any fraud for that matter: Confirm banking details with the customer before making payments and transfer smaller sums for first-time clients to make sure everything checks out. However, if it is too late to prevent the fraud, it is important to contact the bank and alert authorities.
—Michael Miller, managing editor
Your Customers' Financial Statements Are Trying to Tell You Something
Make sure you understand them well enough to know what it is.
A company’s financial condition is of primary concern to creditors. Credit professionals use financial statements to gauge conditions for both the safety and profitability of their investments.
A new Financial Statement Analysis 1 course is now available in the Credit Learning Center. Improve your ability to assess creditworthiness through analysis of financial statements.
The new course includes:
- Six modules of in-depth instruction with Professor of Finance, Fred Scherr
- FSA1 textbook included
- Preparation for the CBA and/or CCRA designations
- Watch modules as many times as you like and take quizzes to test your knowledge
- Review quiz questions after passing each quiz
Drive your results through expanded knowledge and expertise.
Without a solid explanation of how a lien might actually be considered “frivolous” under the statute, the court focused its examination on whether the lien claim in Woodley v. Style Corp. d/b/a Servpro of Shoreline/Woodinville, No. 77352-6-I (Wash. Ct. App. Feb. 11, 2019) was “clearly excessive.” For this analysis, the court considered the dictionary definition of the operative terms of the statute, ruling that a “clearly excessive” lien “must be unquestionably characterized by being far above the usual or agreed amount.” Id. at 14. This definition comports with RCW 60.04.021, which authorizes a lien only “for the contract price”—defined as “‘the amount agreed upon by the contracting parties, or if no amount is agreed upon, then the customary and reasonable charge therefor.’” Id. (quoting RCW 60.04.011(2)).
Based on this construction of the statute, the court then turned its attention to Servpro’s lien claim against the condominium. In Woodley, the lien encumbered 20 specific units and a common storage area of the condominium complex. “This approach,” ruled the court, “failed to properly account for how lien statutes and condominium statutes interact.” Id. at 15.
The court distinguished between a condominium’s common elements (all parts of a condominium other than the units) and the individual units (subject to individual ownership and separately owned, taxed and financed) and the approaches available to an unpaid contractor for improvements furnished to a condominium complex.
On the one hand, a contractor may file a lien claim against the entire complex, just as it could against an individual property, by naming an owner’s association as the indebted person (since it has authority to maintain and repair, but not typically own, the condominium property) and listing the whole condominium as the property subject to the lien. In that instance, any judgment enforcing the lien extends to all units in the condominium and each owner’s interest in the common elements. The collective lien is released if the association pays the total balance due or an individual unit is released if that unit owner pays the lien claimant his or her proportionate share of the total amount owed by the association. This proportionate share, the court noted, “is not based on the value of the benefit to a unit but on the ‘fractional and proportionate amounts attributable to each of the [units] affected,’” which are based on “the unit owner’s ownership percentage of the entire condominium ‘appearing on the declaration.’” Id. at 18 (brackets in original) (quoting RCW 64.32.070(2)).
On the other hand, a contractor can also file a lien against an individual unit to the extent the unit owner authorized or “‘expressly consented’” to the services. Id. (quoting RCW 64.32.070(1)).
The court found that Servpro in this case improperly conflated these two approaches. Servpro’s lien listed the individual units where it performed services, named the individual owners of the 20 units, and provided a value of work benefitting the individual units and the common elements. Id. The face value of the lien was $183,945.09, but Servpro conceded that the maximum value of the services provided to Ms. Woodley’s unit was only $6,001.90 and the lien claim was unclear regarding the amount owed by each individual owner or by the association. Accordingly, the court ruled that the lien was clearly excessive, awarded attorneys’ fees to the movant as mandated by statute (RCW 60.04.081(4)), and remanded the case for further proceedings on the factual issues and reduction of the lien amount.
The Woodley case informs—and cautions—practitioners on the scope of Washington’s frivolous lien statute and the nuances associated with preparing and filing lien claims against condominiums. Incorrect lien claims—including those characterized as “clearly excessive” under the statute—may result in harsh consequences, like those that befell the lien claimant in the Woodley case (i.e., a reduction in the lien claim and liability for attorneys’ fees).
Reprinted with permission. Part II of this article was published in last week’s eNews, Thursday, March 21.
Bart W. Reed is a partner in the Seattle office of Stoel Rives LLP. Bart focuses his practice on construction and design issues and disputes, representing public agencies, private owners/developers, contractors, design professionals and sureties in diverse matters on both public and private projects.
Credit Education Roadshow
Spend time with STS’s Chris Ring as he presents during the Credit Education Roadshow, a one-day event held at multiple locations, designed to provide educational and networking opportunities for the Credit Team. Bring your colleagues and join Chris for a fun filled day of education and networking!
Locations & Dates:
- Southern California - April 15, Anaheim Marriott Suites 12015, Harbor Blvd., Garden Grove, CA 92840
- Northern California - April 16, Courtyard Sacramento Cal Expo, 1782 Tribute Rd., Sacramento, CA 95815
- Las Vegas - April 17, Sierra Gold, 6515 S Jones Blvd., Las Vegas, NV 89118
To learn more, call Chris Ring at 410-302-0767 or visit nacmsts.com.