eNews May 30, 2019
In the News
May 30, 2019
After four months of fluctuation, NACM’s Credit Managers’ Index (CMI) broke the cycle in May when readings increased for the second month in a row, experiencing gains in both the manufacturing and service sectors. Reaching its highest reading since November 2018, the CMI’s combined score climbed to 55.7 thanks to positive results in the favorable factors.
Over the past six months, combined favorable factors showed little movement, occasionally breaching a reading over 60, only to decrease the following month. However, in May, favorable factors jumped 3.7 points to a reading of 63.8, with the largest gain seen in sales at 65.9. Both the amount of credit extended and new credit applications also increased by nearly five points, while dollar collections improved by less than a point.
Contributions from combined unfavorable factors were sparse in May with a 0.2-point bump. Two of the six unfavorable factors showed improvement: dollar amount beyond terms (3.7-point gain) and disputes (0.1-point gain). Accounts placed for collection fell to 47, further into contraction territory (scores below 50), along with dollar amount of customer deductions (49.3).
“[Accounts placed for collection] is essentially the last stage as far as credit is concerned and signals that something more drastic may be coming, such as bankruptcy,” NACM Economist Chris Kuehl, Ph.D., said. “In contrast to the news on accounts placed for collection, the [dollar amount beyond terms] reading suggests that some companies are catching up with their credit obligations.”
The manufacturing sector thrived in May with a reading of 55.4 as a result of the 4.2-point jump in the favorable factors. A number of credit managers increased their amount of credit extended (64.6) in addition to modest gains in sales and new credit applications. Dollar collections (60.5) also increased by about two points. There was little change in the sector’s unfavorable factors, where only disputes (48.2) and dollar amount beyond terms (51.8) improved. Accounts placed for collection, disputes and dollar amount of customer deductions remained in contraction territory.
For the second month in a row, the service sector’s readings (55.9) showed better results, albeit slightly less than the manufacturing sector. Sales skyrocketed more than five points to 68.5, the highest reading since September 2018. Following closely behind was new credit applications and the amount of credit extended. Dollar collections was the only favorable to worsen in May but maintained a reading in the high-50s. The service sector’s unfavorables increased more so than those in manufacturing, bordering contraction at 50.1. Credit application rejections, dollar amount beyond terms and dollar amount of customer deductions grew, as accounts placed for collection, disputes and bankruptcy filings dropped.
“There are signs that some of this momentum will certainly carry forward through the bulk of the summer,” Kuehl said. “If there are warning signs ahead, they seem to be toward the latter part of the year.”
—Andrew Michaels, editorial associate
Network and Learn With Credit Professionals in Your Region
NACM's fall 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 Credit Conference
September 11-12, 2019
Orlando's Banquet & Event Center
Maryland Heights, MO
Hosted by: NACM Connect - Gateway Region
All South Credit Conference
September 22-24, 2019
Hyatt Regency San Antonio Riverwalk
San Antonio, TX
Hosted by: NACM Southwest
Western Credit Conference and CFDD National Conference
October 23-25, 2019
Sheraton Portland Airport Hotel
Hosted by: NACM Commercial Services in partnership with CFDD National
For more information and to register, contact the local Affiliate or visit nacm.org/regional-conferences.
Amid the stream of headlines and calls with customers, the trade war between China and the U.S. has stirred tensions and ignited controversial discussions about international trade. The end of the trade tensions between the two economic powers will not likely be resolved in the near future, and while the anticipation of the end result has left economists and credit managers alike apprehensive, understanding the root of the war provides valuable insight into what may happen next.
During the educational session, “The Dragon and the Bear Market—What to Do When the Trade War Comes” at NACM’s 123rd Credit Congress in Aurora, Colorado, Kevin S. Wiley, Esq., broke down the nuances of the Chinese and American tensions, digging deep into the roots of the animosity between the two countries. Wiley touched upon several points of contention during his session, notably the loss of U.S. manufacturing and the rise of populism across the world.
According to Wiley’s presentation, since 2008, jobs in fields such as health care and food service have each increased by at least a million, whereas manufacturing and construction jobs have each declined by around a million-and-a-half. This downward trend of manufacturing jobs began in the 1960s as labor productivity rose.
With less U.S. manufacturing, Wiley said two schools of thought exist in regard to a loss of manufacturing in the U.S.: “decline of U.S. manufacturing caused by the ability to purchase cheap goods and the desire for cheap labor,” and, “decline of U.S. manufacturing caused by automation and improved labor productivity.”
In addition to these schools of thought about manufacturing, political trends have been shifting as far back as 1984, with Wiley citing the trade war with Japan up until the U.K.’s Brexit vote in 2016. Populism has been on the rise the past handful of years, notably with the elections of Nicolás Maduro in Venezuela, France’s Emmanuel Macron and Donald Trump in the U.S.
Extremist leaders propel countries to take extremist actions, another potential cause for the trade war between the U.S. and China. Trump has touted the “America First” slogan since his campaign, turning any potential trade allies away.
Wiley concluded his session by noting the end of the war has no clear date. He said China sees itself as “a peer competitor, politically, economically and materialistically,” but a relationship between the two economic powers will still likely be present in some capacity.
—Christie Citranglo, editorial associate
Get Your Freshly Investigated Credit Report—Tomorrow
Order what you need, when you need it, with FCIB Next-Business-Day Credit Reports.
FCIB offers a quicker delivery speed for credit reports in more than 60 countries. Our next-business-day credit reports are freshly investigated, concise and cost-effective without the expense of a high-volume contract.
Get the business and credit details to set credit limits quickly, including:
- Key corporate facts from the local registry
- A robust predictive credit risk rating
- Maximum credit recommendation
- The latest filed financial statements
Sometimes you just can't wait days to make a credit decision.
Two companies in Iowa are at odds over a construction project in Wapello County. The former St. Joseph Hospital in Ottumwa, the project in question, is facing a nearly $1.6 million mechanic’s lien.
The current property owner is listed as 312 East Alta Vista LLC, a subsidiary of Blackbird Investments. Elder Corporation walked off the project in August 2018 after it claimed it had only been paid $1.1 million of the more than $2.7 million that had been billed. The contract price was for nearly $3.4 million. According to a statement from Blackbird President Justin Doyle, the unnamed contractor has been paid $1.37 million, and the firm will not pay for work that has not been completed.
Demolition was expected to resume last month with a new company at the helm. Blackbird planned to build roughly 70 homes at a cost of $16.5 million at the site of the former hospital, the Des Moines Register states. First furnishing for Elder was in December 2017, and last furnishing was in August 2018.
Each states’ lien laws can be tricky if glossed over and not studied in depth. Iowa is no exception to the rule, being one of only a couple states with an online lien registry that results in construction parties within the supply chain doing different items during the lien process on a residential project. A subcontractor, which is defined by the state as anyone furnishing material or performing labor to a building or improvement who doesn’t have a direct contract with the owner, must post a preliminary notice to the mechanics’ notice and lien registry.
Prior to a subcontractor’s preliminary notice, the general contractor or owner-builder is required to post a notice of commencement of work to the registry within 10 days of commencement. If the notice of commencement is not posted within the 10 days, a subcontractor can post it along with its preliminary notice.
General contractors and subcontractors have 90 days from last furnishing to post a lien to the mechanics’ notice and lien registry internet site and give the written notice to the owner. Liens can be perfected after the 90-day period; however, liens will only be enforced to the extent of the balance due from the owner to the general contractor, leaving construction creditors in a risky situation if they wait too long. Lien claimants can also take legal action to enforce the lien within two years from the expiration of the 90-day last furnishing period.
—Michael Miller, managing editor
Believing Everything You Hear Can Cost You
It may appear that some companies offer you a low rate for Notice-to-Owner services. But is the advertised price the true invoice cost? Let's see ...
Some companies charge you a priority fee. WE DON'T!
Some companies charge you more for larger projects. WE DON'T!
Some companies charge you for incomplete information. WE DON'T!
By the time you add on all the hidden fees, you'll find that NACM Secured Transaction Services is NOT more expensive!
To learn more, call Chris Ring at 410-302-0767 or visit nacmsts.com.
The recent case of In re: Tsawd Holdings, 2019 Bankr. LEXIS 1181 (D. Del. Apr. 12, 2019) arose out of the bankruptcy filing by a national chain of sporting goods stores. In 2006, The Sports Authority Holdings, Inc. and its affiliates (collectively the “Debtor”) entered into a secured term loan (the “Term Loan”) with Bank of America (“BoA”) as administrative agent for a syndicate of lenders. As security for the loan, the Debtor granted the lenders a security interest in all of its inventory, including after-acquired inventory.
BoA perfected the security interest in the Debtor’s inventory by filing the necessary financing statements and, later, continuation statements. In 2015, Wilmington Savings Fund Society, FSB (“WSFS”) took over as successor administrative agent to BoA for the loan. The parties amended the related financing statements on December 31, 2015, to reflect WSFS as the secured party of record.
Meanwhile, the Debtor entered into a relationship with Sports Dimension to sell Body Glove apparel products on consignment. This type of consignment transaction falls within the scope of UCC Article 9 and is deemed a purchase-money security interest (“PMSI”) in inventory.
Sports Dimension filed a financing statement to perfect its PMSI in the consigned inventory on January 25, 2016. At the same time, it sent notices to the holders of conflicting security interests. Despite the UCC3 Assignment listing WSFS as assignee, however, Sports Dimension sent the PMSI notices related to the Term Loan only to BoA and not to WSFS.
About a month after Sports Dimension sent the PMSI notices, the Debtor filed a voluntary petition for bankruptcy under Chapter 11. A dispute arose between Sports Dimension and WSFS regarding priority in the Debtor’s inventory. Sports Dimension claimed it held a perfected PMSI in the consigned Body Glove inventory and proceeds arising from the Debtor’s post-petition sale of those goods. WSFS disputed Sports Dimension’s claim to the inventory.
The Debtor brought an adversary action against Sports Dimension and asked the court to decide the competing claim of the parties. Sports Dimension and WSFS then made cross-motions for summary judgment on their claims.
The issue of priority boiled down to the sufficiency of the PMSI notice sent by Sports Dimension to BoA. In support of its claim, WSFS pointed out that it had already amended the financing statement to list its name and address as the secured party before Sports Dimension sent the notice. WSFS asserted that Sports Dimension failed to provide notice to the appropriate address and, accordingly, failed to satisfy the requirements to obtain a PMSI in inventory.
The court agreed with WSFS. There was no evidence that BoA forwarded the notice to WSFS. Moreover, Sports Dimension didn’t offer any legal authority for the claim that the PMSI notice to BoA was effective for purposes of notice to WSFS. Therefore, the court ruled that WSFS was entitled to the disputed inventory and proceeds because it had been first to file its financing statement and no PMSI exception to the general priority rules would apply.
The takeaway from this case is that secured parties should err on the side of caution when determining which parties should receive such notices. As an exception to the general priority rules, a PMSI in inventory requires the secured party to strictly comply with the PMSI notice requirements. Any deviation could result in an insufficient notice. If the secured party fails to sufficiently comply with the notice requirements, it will lose PMSI priority and find its security interest subordinate to that of the secured party that was the first to file on the collateral.
Reprinted with permission.
Paul Hodnefield, Esq., is associate general counsel for CSC®, where he advises the company regarding UCC and other public record transactional services. In addition to his duties at CSC, he currently serves as co-chair of the ABA Joint Task Force on Filing Office Operations and Search Logic.
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
- 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.