In the News

May 16, 2019

eNews will take a break next week for NACM's 123^rd Credit Congress in Aurora, CO. The next issue of eNews will be published on May 30, 2019. For the latest credit news, visit NACM's blog.

 

Paper Fraud a Risk to Creditors, Digital May Be a Solution

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Amendments Made to Washington State Contractor Bonding Requirements

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NACM Commercial Services, San Diego Wholesale Credit Association Merge

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Third-Party Vendors Can Threaten Data Security Without Proper Precautions

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Paper Fraud a Risk to Creditors, Digital May Be a Solution

Trade finance across international payments continues to see more cases of fraud, prompting financial leaders to rethink the use of paper trails and hard copies, according to a recent article by The Straits Times. Ng Chuey Peng, managing director and head of global commodities and finance at Singapore’s OCBC bank, said criminals continue to learn how to forge documentation in smarter ways, so much so that switching to digital may become a necessity for trade and credit agreements.

“Trade finance is due for a transformation. Going paperless has to happen,” Ng said during an interview in Singapore. “… [Fake documentation] is so good you can’t tell the difference. The color, the watermark is exactly like the original.”

Nearly $9 trillion is accounted for in the business of financing and global trade, according to the article. Credit managers mostly continue to use paper checks and paper applications and invoices. Roughly two-thirds of all business-to-business (B2B) payments are still made with paper checks, according to a 2018 FinTech Market Landscape study, despite the shift to technological communication and payment methods more present in the consumer market.

While making the switch to digital on the surface may seem like an invitation for fraud by means of hacking servers and B2B web accounts, the risk for fraud actually drops. In a 2018 survey conducted by the Association for Financial Professionals, fraudulent payments affected 78% of organizations surveyed—the highest number of organizations to date—with paper checks coming in at 74% of fraudulent claims.

Risks of fraud fall under the responsibilities of the credit department. According to a survey by the International Chamber of Commerce, as much as 80% of global flows of merchandise is financed on credit, guarantee or insurance.

The challenge then becomes working with customers—international or otherwise—on making the switch to digital from paper payments.

“I’ve had the resistance of many customers not trusting of not wanting to move in that direction [to digital],” said Gary Mulherin, CCE. “Businesses are a little bit slower, although it’s starting to catch up. ... Depending on the entities, business owners feel they have better control when they write checks, from that standpoint.”

If a payment process by a large company has been done a certain way for decades, switching to digital may be difficult. Easing a company into digital methods—beginning with e-invoices, digital payment reminders, etc.—can be a good start, but the switch may be more gradual than anticipated. Any change is a small step toward greater security.

—Christie Citranglo, editorial associate

Amendment Made to Washington State Contractor Bonding Requirements

It’s always important to stay up-to-date on the law, whether it directly or indirectly has an effect on those involved in a specific industry. Washington state recently passed into law an amended version of Section 18.27.040 of the Revised Code of Washington (Senate Bill 5795), which was signed into law last month and will go into effect July 28.

“This legislation will make a difference for homeowners across the state,” said State Senator Hans Zeiger in a release. “This law will protect homeowners from contractors who perform substandard work or damage a customer’s property. It is also launching an important conversation about further homeowner protections,” added Zeiger, who co-sponsored the bill.

While designed to initially and ultimately protect homeowners, the new law is also there to safeguard consumers, workers and suppliers as it relates to bond amounts, increasing contractor bonding requirements. The law requires general contractors to file a surety bond for $12,000 and for specialty contractors to file bonds in the sum of $6,000. However, new to the legislation, the director of the Department of Labor and Industries can increase this required amount threefold if there has been a total of one—not the previous allotment of three—judgments in the past five years on a residential single-family dwelling, no longer specifying “on two or more different structures.”

“The bond shall be conditioned that the applicant will pay all persons performing labor, including employee benefits, for the contractor; will pay all taxes and contributions due to the state of Washington; will pay all persons furnishing material or renting or supplying equipment to the contractor; and will pay all amounts that may be adjudged against the contactor and by reason of breach of contract including improper work in the conduct of the contracting business,” the law states.

“When a general contractor is licensed, they have to post a bond, which is really meant to protect against fraud more than anything else,” said Chris Ring of NACM’s Secured Transaction Services. “The primary purpose is to protect property owners in event of fraud by GCs and subs. [The new law is] written primarily to protect parties who are hiring contractors. The good news is that if the owner gets paid, they have the ability to pay in the event someone has to file a mechanic’s lien—the saving grace for material suppliers.”

For nonresidential homeowners pursuing action against the bond or deposit, it must be commenced within one year from last labor performed or when the contract was substantially completed or abandoned, whichever happens first.

“The law is a protection mechanism for those getting into bed with unscrupulous contractors or a contractor who fell on bad times and can’t pay,” Ring said. “There’s nothing to gain by suing them, so the backup can be to also sue the bond. You can tell by the small dollar amount this was not meant for large commercial projects. Hopefully, one of the two mechanisms—suing the bond or the GC—can make you whole.”

—Michael Miller, managing editor

NACM Commercial Services, San Diego Wholesale Credit Association Merge

With a keen eye on the future, NACM Commercial Services and San Diego Wholesale Credit Association (NACM San Diego/Colorado/New Mexico) have combined their strengths and expertise creating one of the largest affiliates in the NACM (National Association of Credit Management) network. The merger was completed and became effective on Thursday, May 9, 2019.

Corporate headquarters will be based in Portland, Oregon, with additional offices located in Spokane, Washington; San Diego, California; and Denver, Colorado. Jennifer Walsh, President and CEO of NACM Commercial Services, will serve as president and CEO of the newly combined organization. Gregory Garner, President of San Diego Wholesale Credit Association, will serve as vice president-California for NACM Commercial Services.

“We celebrate a new era, a step into the future,” Garner said. “The credit management field is incredibly fluid. NACM and its Affiliates must be poised to support the ever-changing needs of our members. Blending the talents and strengths of these two successful NACM Affiliates will enhance the experience for all members and may well represent an exciting model for the next generation.”

Combined, the organization establishes an impressive footprint in the Western United States. Designated NACM areas of responsibility include California, Oregon, eastern and southern Washington, greater parts of Idaho, and all of Montana, Wyoming, Nevada, Colorado and New Mexico. Core focus will continue through the broad offerings of major business credit reporting bureau products; local, regional and national industry credit groups; continuing education by way of seminars, webinars and accredited courses; as well as professional collection agency services with collectors physically positioned throughout the region.

“This merger comes after extensive due diligence with a common goal of building member opportunities in all regions,” Walsh said. “We have strategically placed personnel in key regional locations to assist in building a strong local presence and thriving credit community to support member companies. At all turns, the consideration of our membership came first. We’re well positioned to bring added features focused on automation and technology for the credit professional. The combined company will have the scale, breadth and capabilities to compete more effectively in the expanded region.”

Mark Balstad, NACM Commercial Services Board chairman, said, “The Board is excited to bring these two entities together focusing on building a more robust network of credit professionals in the B2B environment who are well informed, better educated and a full resource in their credit positions.”

About NACM Commercial Services:
NACM Commercial Services is one of the largest and oldest Affiliates in the NACM network. Founded in 1896, it is recognized as a premier provider of commercial credit management services supporting credit grantors throughout the United States.

Third-Party Vendors Can Threaten Data Security Without Proper Precautions

When a building is guarded by security, visitors often see many of the safety features at the front door, such as metal detectors or key cards. However, this doesn’t mean there aren’t other ways someone can break into the building, so additional tools (e.g., security cameras and locks) are used ensure the building and its contents are secure.

Like a secure building, most credit departments have security measures in place to protect customer data and other internal information from cyberthreats, but what about third-party vendors? What precautions do third-party vendors take to keep other companies’ data out of the hands of cybercriminals? According to a March report by eSentire cybersecurity company, third-party vendors can be risky if partnering companies don’t complete due diligence.

Among the survey’s 600 IT and security professionals, eSentire found 44% of respondents experienced “significant, business altering data breaches” at the hands of a vendor, which included disrupted operations, increased operational complexity and cost, reputational damage, and financial losses and penalties. To avoid these situations, roughly 60% said they have implemented third-party policies to keep data safe, with 81% believing in the effectiveness of the policies.

“As trusted partners, third-party vendors often become the overlooked or unwitting accomplice in criminal activities,” eSentire stated in the report. “As privacy laws and cybersecurity regulations continue to increase accountability around data confidentiality and protection, we wanted to know how seriously firms take the risks associated with third-party vendors, and their vendors’ vendors.”

When asked about their respective company’s security, credit managers may not know the ins and outs of how data is protected. Many of these questions may be directed to their IT departments, but the majority of credit managers do agree their companies require them to be knowledgeable about cyberthreats, whether its via phone, email or another form of communication from the outside.

“We have our own IT department [and] we just went through migrating our systems over to a cloud-based storage,” said Emrick Bruce, CBA, credit manager at Chaney Enterprises in Gambrills, Maryland. “We don’t have formal training, but there’s always something talked about it, whether it’s where to store and how to store information, or where and how long we should keep a file.”

Sharing information is a whole other ballgame, Bruce noted. Although his company works with several third-party vendors—he primarily works with a collection agency and an attorney—Bruce said he was already familiar with that vendor’s work prior to developing a business relationship. The two parties have since come to “a mutual understanding” that any shared information will be protected.

“I believe we take the right precautions,” Bruce said. “I’ve seen their operations and how they work, so that’s why I feel comfortable. It’s not just some office with 300 people tossing information around. It’s very low key and secure.”

Credit managers can come to a similar agreement by learning about the vendor’s history with other customers as well as how they keep data secure. It’s as simple as setting up a meeting, Bruce said.

—Andrew Michaels, editorial associate