In the News

November 14, 2019

 

The difference between a career and a job drastically shapes the profile of those looking to work at a company, and creditors within a credit department are no exception. Placing value on employees can manifest in different forms—annual raises, praise for good work, etc.—with the companies reaping the benefits of employee retention and higher morale in the workplace. And with these benefits comes higher employee engagement and reduced costs for companies, according to a recent survey by Deloitte.

The typical methods of valuing employees yield positive results, but Deloitte’s 2019 Global Human Capital Trends survey determined internal hiring can boost employee retention and build better leaders. Internal mobility was ranked as “important” by 76% of 10,000 survey respondents from 119 countries. Among the respondents, 20% ranked internal mobility as one of their “three most urgent issues.”

“I am constantly working with my team in the trenches,” said Ty Knox, ICCE, director of credit and risk at EFCO Corp. in a recent interview with NACM about leadership. “... Here, with management, you’re just part of the team. You may be the one leading the ship, but you’re still expected to paddle and get us there.”

Finding talent within a company often goes against traditional corporate culture, according to Deloitte. Employees who have an interest in either another department or higher-up role can sometimes be seen as unfaithful to the company or department, and departments that look to employees in the company for new opportunities may be written off as “poachers.”

When an employee becomes frustrated with the stagnation of a job, the worker typically seeks employment elsewhere: Half of respondents to Deloitte’s survey said “it was less difficult for employees to find a job outside their organization than inside it.”

Shattering the norm of external hiring has its challenges, especially if company culture has its set practices and habits. Deloitte suggests cultivating a “career path” for employees primarily shifting toward a “more-than-a-job” mindset. Deloitte also suggests giving external recruiters access to internal candidates and rewarding managers for hiring within an already existing pool of employees. In the survey, 49% of respondents said “the lack of processes to identify and move employees [was] a top-three barrier for internal talent mobility.”

Getting workers into career-focused thinking not only creates a better working environment within a company but also better leaders on the team—leaders, not just within managers, but within all workers.

“That sense of competition, working to achieve those goals, that really helps lend to that weekly motivation on Monday morning,” Knox said. “That sense of accomplishment kind of re-energizes you. Like, ‘I’ve made that one, now what’s the next thing I can do?’”

As industries and businesses continue to grow, expand and test the waters of technology, one element has constantly faded through this transition. Check usage continues to decline—not just in the consumer world. In a world that used to feature paper billing and check payments, times have changed and now reflect a swing toward faster, safer and more accessible payments.

Homeowners no longer have to send a check in the mail to pay the mortgage or electricity bill. In fact, they no longer have to think about it at all with automated, paperless billing. While not completely there yet, business-to-business (B2B) transactions are starting to take this path of less time spent filling out checks and sending them, taking days for suppliers and creditors to allocate that payment. The payment revolution is here, and while some businesses continue taking checks because it is easier than making the electronic switch, their volume is declining at an exponential rate.

The 2019 Electronic Payments Survey Report from the Association for Financial Professionals (AFP) shows check usage for B2B transactions hit an all-time low at 42%. B2B check usage was at 81% 15 years ago. These findings are in line with what the Federal Reserve has found in their triennial payment studies. The Fed’s 2018 annual supplement for the 2016 study (for both consumers and businesses) showed large-institution check payments declined by nearly 5% from 2016 to 2017, which started with a 3% annual decline between 2012 and 2015. However, the value of check payments increased by 7.5% from 2016 to 2017.

“Although new technology is appealing, treasury and finance professionals tend to stick with what works for them and their vendors,” said Jim Kaitz, president and chief executive of AFP, in a release. “Check and ACH transactions have been around for a long time for a reason. That said, it is encouraging that check usage is in decline, as electronic payments methods are much more efficient and have a much lower risk for fraud.”

Among the reasons for staying with checks and not making the transition to electronic solutions such as ACH were the cost to make the switch and the lack of IT resources. Another issue is getting on the same page as the customer. Convincing business partners to move away from checks was also mentioned. This is one of the reasons why, despite the nine-point drop in check usage in the AFP report, a majority of B2B transactions are made by check. Also, at a new low (36%), was companies receiving checks from business customers.

“Financial professionals believe that within the next three years, a majority of payments to suppliers will be via electronic payments; they feel their organizations will reap the advantages of cost savings from using electronic payments,” according to AFP. “In addition, they believe using electronic payments will help mitigate the impact from payments fraud.”

Every year, economic data shows an increase in spending between November and December—a welcome boost often helping businesses end the year on a high note. However, as late payments are a recurring issue for small- to medium-sized enterprises (SMEs), this rise in spending is particularly problematic when customers close for the holidays, sometimes delaying payments until after the New Year. One of the latest countries to make headlines regarding late payments is Australia, where the impending holidays are creating concerns among SMEs.

According to Illion’s June Quarter Analysis 2019 of Australian Late Payments, one third of SMEs—businesses with less than 500 employees—are struggling with late payments, with payment times reaching yet another historic low in construction and retail. While construction saw payments late by more than 10 days, payments to retail reached nearly two weeks past due. The findings concluded that when an industry is already suffering from late payments—for example, the transportation sector—holiday closures only extend the delay.

“In terms of the timing of late payments, the problem is worse between Christmas and New Year’s,” PYMNTs stated in its analysis. “… Payments for the transport industry are late by about 9.7 days, which means it takes these firms about six weeks to get paid. Reports noted that late payments have a negative impact on cash flow, as smaller logistics and transportation firms must grapple with ongoing fuel and maintenance costs.”

Yet, it isn’t only the holidays that make it hard for SMEs to get paid. Dedicated to helping suppliers get paid faster, Previse released its analysis of more than 10 million invoices in the U.K., where 50,000 SMEs close every year because of slow payments. Based on big business spending more than £24 billion, Previse reported small suppliers are getting paid about a month later than larger suppliers.

“We know that slow payments are a system-wide disease in our economy,” Previse CEO and cofounder Paul Christensen told The Fintech Times. “This analysis shows, however, that the smaller a supplier you are, the tougher it is to get paid what you are owed on time. This is critical because these are exactly the suppliers most vulnerable to slow payments.”

Respondents to the FCIB International Credit and Collections survey for the U.K. seemed to agree with the country’s slow payments debacle. A quarter of respondents in March 2019 said payment delays were increasing, an occurrence that continued in August 2019 when 28% said the same. The majority of respondents (29%) said the cause of payment delays was due to customer payment policy, followed by billing disputes, cash flow issues and the inability to pay.

“Do appropriate due diligence before providing unsecured credit,” one respondent said. “Add a clause in your sales contract that will allow you to change the payment term when a customer's creditworthiness deteriorates.”

Signing the Family Farmer Relief (FFR) Act of 2019 was like opening a pressure release valve. American farmers have suffered increasing financial stress this year from numerous sources, so a change in the law,-making Chapter 12 available to more farmers is likely to push the number of bankruptcy filings higher.

Legal Changes

The FFR has already taken effect, more than doubling the debt limit used to determine whether a family farmer is eligible to seek relief under Chapter 12. Now a family farmer may have aggregate debts of up to $10,000,000 and still take advantage of the Bankruptcy Code’s provisions designed to make it easier for family farmers to reorganize their finances. Chapter 12 was enacted in 1986 and was criticized for having a debt limit so low that it excluded a significant percentage of American farmers whose business operations are larger and more highly leveraged than those of prior generations. The definition of “family farmer” now reads:

 

"... individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $10,000,000 and not less than 50% of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50% of such individual's or such individual and spouse's gross income …"

This change comes on the heels of another farmer-friendly change in the Family Farmer Bankruptcy Clarification Act of 2017. Before the 2017 change, any capital gains tax owed by a Chapter 12 debtor for sale of property used in farming operations was entitled to payment priority ahead of general unsecured creditors and could not be discharged. For many farmers with substantial capital gains tax liability, the law effectively made it impossible to get a Chapter 12 plan confirmed. The legislative fix made it possible for a family farmer to pay capital gains tax claims on a pro rata basis with other unsecured creditors over the life of the Chapter 12 plan and discharge any balance remaining at the successful conclusion on the plan.

Weather Conditions

Prevalent drought conditions are contributing to the strain on American farmers. For instance, according to the U.S. Drought Monitor released by the U.S. Department of Agriculture on October 10, 2019: Four states are experiencing drought affecting at least 25% of their corn crop production (Indiana 25%, Ohio 26%, Texas 31% and Kentucky 66%). Five states are experiencing drought affecting over 20% of their soybean crop production (Indiana 27%, Ohio 24%, Kentucky 66%, Louisiana 46% and North Carolina 23%). Seven states are experiencing drought affecting over 40% of their cattle inventory (Texas 43%, Kentucky 63%, Tennessee 47%, Virginia 72%, Alabama 56%, Arizona 89% and Georgia 99%). In other areas of the country, record flooding has eliminated the prospect of a profitable year for farmers and ranchers. Those facing poor crop yields and considerable cash flow problems may find the lure of relief offered by Chapter 12 too strong to refuse.

Trade War

Even with the U.S. Department of Agriculture’s market facilitation program, nearly all sectors of U.S. agriculture are being affected by retaliatory trade tariffs. According to news sources, U.S. farmers faced losing their fourth-largest export market after China cancelled all purchases of U.S. agricultural products in reaction to the threat of tariffs on Chinese imports. Fortunately, on October 7, 2019, President Trump signed a U.S.-Japan Trade Agreement that will lower tariffs next year and help U.S. farmers and ranchers compete on a more level playing field in Japan, but the positive effects of this deal may come too late to stave off bankruptcy for some. For those who choose to file Chapter 12, looming uncertainty about foreign markets will complicate the already difficult task of forecasting income and expenses for the years their bankruptcy plan will be in effect.

Takeaway

Creditors and vendors who work with farmers are already watching their accounts closely for signs of distress. Modifying terms to provide more time for repayment isn’t always prudent, and the law does not support efforts to block a bankruptcy filing or impose penalties solely because of a filing. You can, however, consider adding collateral or guarantees to support repayment, and if you find yourself the recipient of a notice of Chapter 12 filing, retain experienced counsel who will help you protect and enforce your rights.

Lisa Sumner, Esq., a partner with Nexsen Pruet, is a commercial litigator focusing her practice on creditors' rights. She represents creditors on a variety of issues including defense of preference and fraudulent transfer claims, lender liability claims and enforcement of claims and liens in bankruptcy. She may be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..