In the News

October 31, 2019

 

The Credit Managers’ Index (CMI) from NACM rebounded in October as credit managers reported better conditions in several factors across the board. However, the overall, combined improvement is not without its caveats. The combined CMI score improved half a point to 54.6. “Like much of the recent economic data, there are signs of concern showing up but nothing to suggest a serious slowdown or reversal,” said NACM Economist Chris Kuehl, Ph.D. “This up and down activity has started to become routine. This time, the data seems to have been affected by just a few factors—trade wars, tariffs and the upcoming holiday season.”

Despite the one-point rise in the combined favorable factors, sales and new credit applications took a dive. Dollar collections and amount of credit extended were the saving graces, each increasing to a score above 60 for the first time since August. The combined favorables as a whole increased back over a score of 60 as well. Unfavorables only moved the needle slightly, up two-tenths of a point. The reading is still in expansion territory (score above 50) at 50.9, matching readings seen in November 2018 and August 2019 but just shy of the yearly high of 51 in February. Accounts placed for collection and disputes are the only two factors in contraction territory. Dollar amount beyond terms shot to its second-highest score in the last 12 months at 52.

The manufacturing sector did not impress as much as the service sector in October, the second straight month of decline. That has now happened three times in 2019. Even with the drop in October, the sector is still firmly in expansion territory at 53.9. Sales and new credit applications again fell, while dollar collections remained the same and amount of credit extended improved. “The stumble that manufacturing seems to have taken is thus far not a catastrophic one,” Kuehl said. “It seems more than a little artificial given the overall confidence level of the consumer and the fact that inflation has not triggered the Fed to try to slow down the economy.” Favorables increased slightly, but it was the unfavorable factors that took a sharp turn. Disputes sank roughly four points, and accounts placed for collection and bankruptcies also declined. Rejections of credit applications was the only factor to improve in October.

The service sector led the way in October, tying its third-largest increase in the last 12 months. The service index increased from 53.9 in September to 55.3 in October. This is because the opposite is true here with dollar collections skyrocketing forward more than seven points and an increase in amount of credit extended. However, sales and new credit apps still declined. “This is the period that has long been referred to as the Black Quarter,” Kuehl said, “as this is when the retail community will make the bulk of its income.” Unfavorables showed a 1.3-point jump to 51.4—three straight months in the expansion zone—helped by dollar amount beyond terms re-entering expansion territory. Accounts placed for collection improved but stayed below 50, and dollar amount of customer deductions decreased yet remained above 50.

Providing customers with payment options outside of checks continues to be a challenge for credit departments—be it because of a lack of customer compliance, limited access to options outside of checks, etc.—leading to slower payments and sometimes elevated costs. While checks remain the standard for many companies, turning to ACH and credit card payment options can provide credit departments with faster access to cash.

Corporate Credit Manager Kim Lancaster, CCE, CICP, and Robin Lopez, vice president of accounting, at Standard Supply said the company accepts various forms of payment from their customers—from checks to credit cards to ACH—but the costs of accepting payment from customers via credit card began to cost the company significantly. Before a recent law passed in Texas, Lancaster and Lopez accepted credit cards without surcharge fees. Once they were able to charge a flat surcharge fee, Standard Supply saved about $90,000 in 10 months.

“Our expenses kept increasing every year, and it was becoming such a number that we couldn’t ignore it anymore,” Lopez said. “It wasn’t just, ‘Oh, that’s the cost of doing business,’ it became, ‘that’s feeding into the profitability of the company because of that cost.’”

Working with Billtrust Solutions, Lopez and Lancaster can now grant their customers more options while speeding up the payment process and cutting down on costs. Lancaster and Lopez speculate this will help move customers away from mailing checks and push them toward either ACH or credit card payments—without the added caveat of overhead costs on Standard Supply’s side.

“More and more A/R departments are under pressure to control costs,” said Senior Vice President Corporate Segment Mitchell Rose of Billtrust. “The growth in credit card usage has resulted in higher fees. The Billtrust portal allows businesses to surcharge their customers paying by credit card, thus offsetting these fees.”

Lopez and Lancaster said customers have generally not pushed back or objected to the 3.5% flat surcharge. Standard Supply presents its customers with the option to pay via credit card with complete transparency about the surcharge. If the customer is reluctant to pay the fee, the creditor then presents the option for ACH payment, which does not have any extra costs and provides the company with cash more quickly. The credit department at Standard Supply also remind their customers about potential airline miles or rewards gained with the 3.5% fee.

As payments continue to innovate, Lopez noted that customers using credit cards “is not going away anytime soon.” Taking advantage of payment solution software offset the costs for Standard Supply—costs that will also not be going away anytime soon.

“I think there’s this misconception, honestly, that nobody is doing it. … I think people are a little more skeptical, like, ‘Are our customers going to leave, are they going to be mad, what’s going to happen?’” Lopez said. “But we decided to just see what happens, and we addressed only the few who were concerned, and everyone else was just fine.”

Owners and contractors alike have a responsibility to work together to complete a construction project. If a weak link presents itself, it could not only spell trouble for all parties, but also the project’s success. When a single-site project becomes a multi-site project, recent findings indicate project owners and contractors must double down on this teamwork, specifically communication and coordination, to ensure they reach the project’s desired outcome.

According to Dodge Data & Analytics and Sevan Multi-Site Solutions’ report, “Challenges and Opportunities in Multi-Site Construction SmartMarket Insight,” communication early on doesn’t appear to be a problem as 70% of owners and contractors “agreed that making time for program-level scope/schedule coordination early in a multi-site program improves scope clarity, quality, schedule and budget.” On the other hand, a lack of communication could be an issue in the long run.

Multi-site projects already present a fair amount of challenges. Rather than working in one location with a single-site project, multi-site projects span more than one location. The report defined a multi-site project as “a series of small projects across hundreds of locations,” using the example of large retail stores that are installing new signage across the country. Given such complexities, poor communication and coordination can wreak havoc on the owner-contractor relationship.

Dodge and Sevan studied nine potential impacts that can affect a multi-site project, but some of the more surprising findings lie within how owners source firms for their programs, including the attractiveness of multi-site projects to contractors, owner-contractor long-term relationships, tag-teaming future plans and site bundling. Some findings were unfavorable, showing how the responding owners and contractors aren’t quite on the same page.

For example, answers from owners and contractors differed in regards to what makes multi-site projects attractive. While the majority of owners (56%) said they have a high or very high awareness of why their projects are attractive to contractors to bid, a mere 16% of contractors agreed. Instead, nearly 50% of contractors said owners have a medium awareness, with 35% saying owners have little to no awareness.

The majority of contractors also said owners have little to no awareness of the importance of good bidding documents in situations where they intend to buy primarily on price as well as forming and sustaining long-term relationships with contractors and suppliers. However, more contractors said owners’ awareness increased with the importance of communicating future plans on construction programs and bundling sites to make work more attractive.

“The importance of clear and open communication early in a program cannot be over emphasized,” Executive Vice President of Sevan Multi-Site Solutions Steve Kuhn, said in a press release. “Taking the time to truly understand the goals of the other side is essential to creating better outcomes and minimizing unmet expectations. It is only through frank and open dialog that both owners and contractors can truly appreciate the goals and challenges faced by each other.”

Do you think there is a difference between “furnishing” labor and “performing” labor? (Is there a difference between Godiva chocolate and Palmer’s?) Well, the Court of Civil Appeals of Oklahoma recently held that “furnishing labor is not the same as performing labor” for purposes of filing a mechanic’s lien.

In Advanced Resource Solutions, LLC v. Stava Building Corp., a temporary staffing company filed a petition against a client, which was a construction subcontractor, asserting that it had provided client with laborers for a commercial construction project on an open account, invoiced client for the labor and that client had failed to pay for the services. The temporary staffing company then executed and filed a materialmen’s lien. The general contractor ultimately posted a bond to discharge the lien and filed an action for accounting against the staffing company.

The Court of Civil Appeals held that the temporary staffing company was not a “subcontractor” in the commercial construction project and, thus, was not a proper lien claimant under statutes on mechanic and materialmen’s liens. The court noted there was a distinction between a contractor and a subcontractor under the relevant statutes since the legislature did not include in the subcontractor statute those persons who “furnish labor.” The court reasoned:

[T]he record provides that [the staffing company] entered into a contract with [the subcontractor] to provide it with temporary laborers, i.e., licensed apprentice and journeymen electricians, for use on its various commercial construction projects. The contract does not refer to a particular project. Rather, [the staffing company] is supplying [subcontractor] with laborers on an open account. Thus, [the staffing company] has not entered into a contract to perform any act with regard to the Walmart Project.

This case demonstrates once again that words matter. For this appellate court, the single phrase “furnish labor” was missing from the relevant subcontractor statute where those same two words appeared in the contractor statute. Since words matters, the court invalidated the lien of a temporary staffing company who furnished labor.

Reprinted with permission.

Matthew DeVries, Esq., is a construction lawyer with Burr Forman, LLP, a Southeast regional firm with 360 attorneys and 19 offices. Matt is the founder of www.bestpracticesconstructionlaw.com, and may be contacted at (615) 724-3235 or This email address is being protected from spambots. You need JavaScript enabled to view it..