eNews February 27

In the News

February 27, 2020

 

Coronavirus Disrupts US Construction Industry

—Andrew Michaels, editorial associate

Commercial construction in the U.S. has juggled its fair share of problems over the years, most recently, labor shortages and tariffs. Unfortunately, it’s tough to always expect the unexpected as is the case with the fallout from the COVID-19 virus, better known as the coronavirus. With many factories closed or drastically slowing production, those in the construction industry who rely on goods/materials from China are faced with a new challenge.

Nearly two months since the outbreak made headlines, the coronavirus has spread from China to several other countries, including more than 81,000 cases worldwide and over 2,700 deaths. Although China was the first country to see severe economic impacts from the virus, the U.S.—with 57 confirmed cases—is now facing the strain as experts continue to strategize what’s next. Several industries already struggling were the airline, restaurant, oil/gas, computer/phone and automobile manufacturing, with construction recently making the list.

“With China’s manufacturing output declining as factories are temporarily sidelined, it’s likely that U.S. building product supply chains will be affected, with costs potentially moving higher,” Dodge Data & Analytics Chief Economist Richard Branch said in a Construction Dive report.

Supplies are stretched thin, therefore, increasing the demand and price for certain materials. According to freight forwarding company Bansar, the U.S. imports a variety of construction material from China, ranging from bricks and lumber to metal roofing and steel. Based on Branch’s estimate, China is the largest single supplier to the U.S. as 30% of all U.S. building product imports are from China.

The most recent data from the Office of the U.S. Trade Representative states top imports from China in 2018 included electrical machinery ($152 billion), machinery ($117 billion) and plastics ($19 billion). Daniel Pomfrett, vice president of forecasting and analytics at construction cost consultant Cummings, told Construction Dive that supplies currently at stake are steel, copper, aluminum and casework.

At a Bisnow event in Washington, DC, last week, Hoffman & Associates Executive Vice President Maria Thompson said she just started hearing about the coronavirus’ impact on construction when two general contractors had materials stuck in ports. Thompson said many, like herself, were more focused on impacts to labor and are only now beginning to experience issues getting material. Also at the event was FullStack Modular Founder Roger Krulak—a modular buildings factory—who said he believes his company will soon find it difficult sourcing its materials from China.

"Even a slight curtail in a booming construction market is going to cause supply constraints,” he told Bisnow. “From a financing perspective, it's incredibly concerning … [It could mean] construction delays, delays in finishing buildings, delays in certificates of occupancy, increased construction costs.”

Fortunately, there are some companies in the construction industry that don’t anticipate any impact, such as Steel Pipe Supply Company in Manhattan, Kansas. Corporate Credit Manager Scott Munsen said Steel Pipe Supply hasn’t been affected and doesn’t plan to see any in the immediate future.


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Please visit creditcongress.nacm.org for more information and to register. We will continue to update the site with additional information on sessions, speakers, exhibitors and much more.

Please visit creditcongress.nacm.org for more information and to register. We will continue to update the site with additional information on sessions, speakers, exhibitors and much more.

Team discounts (5 or more) are also available for larger member companies.

 

Red Flags Creditors Should Keep in Mind When Determining Fraudulent Activity

—Christie Citranglo, editorial associate

Detecting fraud before extending credit to a new customer can set a precedent for more transactions moving forward. Looking for the telltale signs in the financial statements will make for more secure credit decisions, but understanding the source of the fraud can help creditors determine the best credit decisions to make.

Creditors and other business-to-business professionals typically assume fraud comes from decisions made by the CFO, but this likely isn’t the case. Researchers from North Carolina State University, the University of Missouri-Kansas City and the University of Chieti and Pescara in Italy found CFOs get pressured into denying fraud if they are strapped to meet certain financial goals.

The more pressure the CFO is under, the less likely the CFO will report the fraud occurring at another level within the company. Pressures for the CFO come in a variety of forms, from pressures to meet financial targets to pressure of termination should the CFO not be tenured. With the stress to outperform and keep the company from appearing like it’s struggling, remedying the fraud becomes less of a viable solution and is seen more as a failure.

“What fraudsters are after is money, particularly in banking,” said Ryan Thomas, CEO and managing partner at Louisiana-based Innovative Risk Consultants, in a recent interview with NACM. “The financial services industry is easily one of the most-hacked industries.”

The study also presented a look into the ethical mindsets of CFOs, parsing the different modes of thinking depending on the CFO’s background. CFOs with accounting experience were more likely to admit to fraud, even given the variables of professional pressure. If the CFO had previous experience in banking and finance, it was less likely the CFO would admit to fraud.

When determining the credit risk of a customer, creditors should keep a few red flags in mind. If something in the financials looks slightly off, there is a chance it has not yet reached the CFO—if it has, the CFO may not blow the whistle on the company. Factoring in the levels of pressure the company and CFO may be under will help creditors make clearer decisions. If the CFO is tenured and has a background in accounting, it is unlikely the CFO will be hiding fraudulent activity. But, if the company has been under financial pressure with a fairly new CFO to the job, creditors should be wary of any suspicious findings.

“What we conclude, if you are a stakeholder in the process, an auditor, investor or creditor, be prepared to dig out these red flags yourself,” said Joseph Brazel, a professor of accounting at North Carolina State University and co-author of the study, in a Forbes article. “Because they are unlikely to be reported by management to outsiders.”


mechanics lien, bond services, mechanics's liens

NACM Secured Transaction Services (STS) presents two timely, money-saving live webinars:

Mechanic's Lien & Bond Waivers: Reading and Revising Waivers to Protect Security Rights
March 2, 2020
Speaker: Jim Fullerton, Esq.
Learn to read and revise waivers to protect and preserve your lien and bond secured creditor status. Click here to learn more and register.

Georgia Materialman’s Liens: How to Deal with Lien Waivers
March 11, 2020
Speaker: Emory Potter, Esq.
This webinar will focus on lien waivers in the state of Georgia, deal with conditional versus final lien waivers, affidavits of nonpayment and the effects of same. Click here to learn more and register.

Mechanic's Lien & Bond Waivers: Reading and Revising Waivers to Protect Security Rights
March 2, 2020
Speaker: Jim Fullerton, Esq.
Learn to read and revise waivers to protect and preserve your lien and bond secured creditor status. Click here to learn more and register.

Georgia Materialman’s Liens: How to Deal with Lien Waivers
March 11, 2020
Speaker: Emory Potter, Esq.
This webinar will focus on lien waivers in the state of Georgia, deal with conditional versus final lien waivers, affidavits of nonpayment and the effects of same. Click here to learn more and register.

 

Late Payments Devasting UK SMEs

—Michael Miller, managing editor

Working in the credit industry comes with some risks. One of the biggest risks is the potential for late payments. New research from U.K.-based financial services firm Tide shows small- and medium-sized enterprises (SMEs) are spending too much time and money tracking down these late payments. Tide’s study found, on average, SMEs in the U.K. are pursuing five late invoices at a time. These outstanding bills account for an average of 8,500 pounds and 1.5 hours per day—900,000 hours total for SMEs each day.

“It has been known for a while now that late payments are crippling SMEs, with the government having tried a number of times to address the issue,” said Tide CEO Oliver Prill in the report. “It is, however, shocking to see exactly how much time SMEs, and particularly the self-employed, are wasting by having to chase clients to pay promptly. Cash flow is crucial for SMEs, and just a few late payments can tip them into danger of becoming insolvent.”

London-based SMEs are hurt the worst by late payments, tracking as many as seven invoices at a time spending two hours per day. Scotland businesses average six outstanding invoices, while South Wales SMEs are only looking at three invoices at a time on average. Prill added the use of technology tools to assist with credit applications and invoices can improve business processes and allow SMEs to focus on growing the business rather than administrative tasks and banking.

According to the survey, SME leaders and decision-makers are spending 12 hours per week on unprofitable admin tasks, or 30% of the work week. “SME owners and leaders are master jugglers, they are proficient at undertaking multiple tasks at once and aren’t afraid of working long hours to fit everything in; however, there is a concern that the time taken on admin will have a negative impact on the growth and success of a business,” Prill said.

Meanwhile, U.K. payment solutions provider takepayments reports cash flow/late payments are the top concern for businesses in 2020. Nearly a quarter of small business owners/decision-makers reported the threat, while pricing was No. 1 at 27%. Almost 50% of respondents said their small business is constantly chasing late payments, while more than half reported late payments have a worrying impact on cash flow. On top of this, two-fifths mentioned they have a limited knowledge of invoicing, which can hinder the payment process.


Online Courses

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This course satisfies one of the two required CBF courses. Visit the Credit Learning Center (CLC) or contact the NACM Education Department at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

This course satisfies one of the two required CBF courses. Visit the Credit Learning Center (CLC) or contact the NACM Education Department at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

 

 

Technology’s Effect on Global Automotive Supply Chains

—Mark A. Aiello, Esq.

Like it has for many industries, technology is changing the game for the automotive sector—and the effects are now being felt down companies’ supply chains. As the intense focus on autonomous vehicles and electrification shows no signs of abating, automotive companies have a lot to think about as 2020 unfolds.

Warranty issues should top that list. The shift from human drivers to some level of autonomous driving means companies must rethink how they deal with warranty risks, beginning at the contracting phase. It is also crucial that all involved parties clearly document their responsibilities for testing systems. It is vital to establish the limits of these responsibilities at the component, system and vehicle level.

At the same time, licensing strategies must evolve—even as OEMs have the opportunity to lower intellectual property costs—and the advent of smart technology means vehicles will collect more personal data, requiring strong data protection policies. The global automotive cybersecurity market is expected to grow at an unprecedented rate. It has never been more important to develop robust cybersecurity policies in connection with the design goals of the products. Breach of applicable agreements, documentation of root cause(s) and documentary evidence supporting the damages are critical should litigation arise in the event of a malicious attack.

Finally, automotive companies are not immune from fluctuating commodities markets, international trade issues and government regulations involving new technologies. According to the Electronic Components Industry Association: “…The imposition of tariffs on electronic components will have global consequences for businesses and consumers alike, adding friction and costs to the supply chain that can hinder economic growth for all involved.” [1] Looking forward, automotive companies have a number of avenues they can pursue to shift tariff risk. For example, parties to a supply contract may specifically assign the tariff risk to the seller, by listing the price as inclusive of all “taxes, imports, duties and tariffs.” Alternatively, the parties to a supply contract may simply require the buyer to pay any tariffs. Other supply chain contracts may include a more open-ended pricing provision, which requires the parties to engage in good faith negotiations regarding price increases if tariffs are imposed.

For more detail on how emerging technologies are impacting global automotive supply chains, head over to Foley’s white paper on the “Top Legal Issues Facing the Automotive Industry in 2020.”

Mark A. Aiello, Esq., is a partner and co-chair of the firm’s Automotive Industry Team. He is recognized by Chambers USA as a leading lawyer nationwide who represents companies in the automotive industry.

[1] https://www.ecianow.org/stats-insights

 

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