eNews April 30
In the News
April 30, 2020
|I. NACM’s April CMI Sinks Deeper into Contraction|
|II. Sample Letter for Creditors to Voice Concerns to Congress|
NACM’s April CMI Sinks Deeper into Contraction
—Michael Miller, managing editor
To say the Credit Managers’ Index (CMI) from NACM is “down in the dumps” is an understatement, yet there are still a few positives in April’s CMI. While not bottoming out at the record low seen during the Great Recession, the current combined score of 40.6 is uncomfortably low. January 2009 is the CMI’s all-time low with a score of 39.7. After a 7.2-point drop in March, before much of the coronavirus impacts were registered in the U.S., April declined even further—8.3 points. Similar to March, most of the drastic declines were seen in the favorable factors, which dropped 14.5 points in April. After only a 1.6-point slip in March, the unfavorable factors sank 4.3 points in April.
The large drop in favorables was again due to sales tumbling to a score of 20 from 39.5 in March. New credit applications and dollar collections continued to fall this month into the 30s. A score below 50 is considered contraction territory. The amount of credit extended was the best-performing favorable factor, but it slipped from the low 50s to the low 40s.
Rejections of credit applications, disputes and filings for bankruptcies each declined in March, but all three stayed in expansion territory (score above 50). Elsewhere in the unfavorables, accounts placed for collection and dollar amount of customer deductions both fell but are near the 50 threshold. However, dollar amount beyond terms plunged more than 16 points and is now about half the score it was in February.
The manufacturing sector followed suit—a rough showing in the favorables that was mainly dragged down by sales. All four factors fell further into contraction, with the overall favorable decline at 13.9 points to 34.3. The unfavorables, however, were a different story with five of the six still in expansion territory despite declines. Dollar amount beyond terms hit 28.6 after falling about 10 points in March.
It was much of the same in the service sector with sales’ staggering drop of more than 20 points this month to 18.6. Dollar collections and amount of credit extended each dropped into the 30s, while new credit applications declined to the mid-20s. On the unfavorables side, rejections of credit applications actually improved, albeit by a tenth of a point. Disputes was the only other unfavorable to remain above 50.
Sample Letter for Creditors
to Voice Concern to Congress
Earlier this month, in the April 16 edition of eNews, NACM provided members with an update from PACE LLP about a pair of bills floating in Congress that would greatly impact collections efforts across the country if the bills are passed and signed into law. Below is a template letter constructed by PACE for members to use to express their concerns about the two bills.
NACM members can find their Congressional Representatives and Senators in the links below to fill in the needed information.
PACE will also be hosting an NACM webinar about relevant issues on Capitol Hill on Wednesday, May 6.
[Senator / Representative]
Room # [Office Building]
On behalf of [business] and our [# of employees], I write to express concern with changes to the U.S. trade collections process that could jeopardize the U.S. product supply chain and the ability of many small businesses to access the product they need to serve their customers. In particular, provisions like those included in S. 3565, the Small Business and Consumer Debt Collection Emergency Relief Act of 2020, while well-intentioned, would have a negative ripple effect across the U.S. trade and manufacturing industries.
Our business is one of thousands that, collectively, are represented by the National Association of Credit Management (NACM). The vast majority of NACM members are small manufacturing or product-based businesses that provide products—from steel to paper products—to retailers and contractors across the country. These products are commonly provided in the form of unsecured credit to businesses, which are paid off when sold.
During this unprecedented pandemic, we have continued to provide unsecured credit in the form of products to support the businesses across the country selling products to the American people. While we take these risks for the benefit of these small businesses, we do so with the expectation that we can recover at least a portion of our assets through the collections process. Provisions like those in S. 3565 would force our business to only provide product to certain low-risk businesses, cutting off supply lines to thousands of small retailers in the U.S.
We realize these are extraordinary times, and we do not wish to bring about any additional hardship to businesses impacted by COVID-19. We also acknowledge that certain limitations on credit collection, particularly protecting consumers, may be necessary and appropriate to deal with this crisis. Despite this, we urge the utmost caution as Congress tackles this complex issue. Eliminating business-to-business collections would only serve to shift the burden from one business onto another. Rather than create a system of winners and losers in the collections industry, we request that you support proposals that keep small business afloat so that the collections process can be avoided altogether.
Thank you for your time and consideration.
Get the Know How You Need to Break Through the Challenges of Global Credit
The completely revised and updated International Credit & Risk Management course features:
- Practical, fresh content designed for global credit practitioners
- Integrated discussions with other credit professionals worldwide
- Online networking to facilitate learning and the exchange of ideas
- integrated webcasts led by experts and practitioners
- Regular comprehension checks
- Instructor guidance and insight
After successful completion of the course and final exam, you will receive the FCIB’s Certified International Credit Professional (CICP) designation. Early rate good until April 10. For more information and to register, please visit FCIB.
After successful completion of the course and final exam, you will receive the FCIB’s Certified International Credit Professional (CICP) designation. For more information and to register, please visit FCIB.
Benefits of E-Invoicing Shine in the Time of COVID-19
—Andrew Michaels, editorial associate
Where would we be without technology? After all, technology is one of the reasons why many people are able to continue their work from home during the coronavirus pandemic. Given the situation, some credit departments are even more at ease now because of their past decisions to utilize software and computer programs, whether it was to process credit applications or send and receive invoices. According to credit managers, electronic invoicing, also known as e-invoicing, has been especially helpful since the beginning of the COVID-19 outbreak, further proving the necessity of technology in the business-to-business credit industry.
At Star Rentals, Senior Credit Manager Heidi Lindgren-Boyce, CCE, said her department started using e-invoicing well before the coronavirus after customers were requesting the service. Star Rentals’ customers set up for e-invoicing receive their invoices the day after the rental closes and don’t have to deal with lost or delayed mail. In return, Lindgren-Boyce said customers are paying all of their invoices more promptly rather than missing invoices and/or making claims that they didn’t get an invoice.
COVID-19 has made it particularly difficult for the company’s customers that don’t use e-invoicing, she noted, many of whom are now adopting the tools.
“We have seen a number of ‘snail mail’ customers now requesting e-invoicing due to stay-at-home orders and no one coming into offices to collect mail,” she said. “We like this because it costs virtually nothing to email invoices compared with printing costs, paper, envelopes and postage to [physically] mail invoices.”
One of the many companies promoting e-invoicing is Fiserv, where credit professionals can access “digital bill payment and presentment solutions that are intelligent, intuitive and interactive.” Not only does the service make it easy to pay bills online on the same day or next day, the company states, but it also protects against fraud.
A further result of COVID-19, Lindgren-Boyce said is that many customers are no longer able to come into their offices to print and sign checks. So, Star Rentals strongly encourages the use of ACH to pay electronically.
“We’ve had an upsurge with customers paying with credit cards from home,” she added. “We would not normally allow certain tier-level-priced customers to pay via credit card, but we’re accepting them from all of our charge customer accounts unable to pay via ACH until things are able to return to relative normalcy.
Regardless of the platform credit departments choose, Lindgren-Boyce said credit departments must pre-verify customer email addresses and that the customer’s anti-virus program doesn’t block or quarantine e-invoices.
“Make sure your customer actually wants them emailed,” Lindgren-Boyce said. “About 35% to 40% of our customers still want our invoices mailed. Don’t assume they’re set up for emailed invoices or even want them emailed.”
Construction Credit is Complicated
What's required to maintain and enforce lien and bond rights is complicated, especially when selling in multiple states. Some vendors give away basic lien and bond information for free. That can be helpful, but be warned that there are no shortcuts to fully understanding the complexities of a state's lien and bond statutes.
The STS Lien Navigator digs deeper to provide the answers that will help guide you through the entire process. It's that depth and attention to detail you may not know about that makes the difference. The STS answer line is also available with your Navigator subscription.
For the easiest, most cost-effective professional answer to your construction credit questions, get the help you need with the Lien Navigator.
For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.
For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.
30 Questions to Ask Now Before Extending Credit
—Kenneth A. Rosen, Esq.
Now is the time to be extra vigilant and to carefully watch over the creditworthiness of your customers. Assume that all of your customers are in, or soon will be in, financial distress. If they have not called you yet to seek relief, they probably will do so very soon. It is understandable. Almost all companies are partially or fully shut down. And, the ones that are still fully (or close to fully) operational, have their own customers stringing out payment.
Before you extend more credit or agree to term out existing debt, certain questions should be asked in order to properly evaluate your risk. You do not want to be the vendor that provides more collateral for a customer’s bank lender. You do not want to extend credit only to find yourself participating in a bankruptcy or workout at a later date. And, if you already have extended credit, you do not want to be treated inferior to other creditors. So, ask these questions and do not be afraid to probe deeply. If you cannot get answers, there is a reason! It is OK to say that the time is not right for you to give credit if you are not receiving satisfactory answers. It is always a good idea for your customer to know that you will not be taken advantage of.
- Are you current with your rent?
- How many months are you in arrears?
- Have you sought relief from your landlord?
- If so, what relief did you seek and what was the landlord’s response?
- What percentage of your payables are over 60 days old? Over 90 days old?
- Have you sought to term out or discount any accounts payable from your vendors?
- Have any vendors sent demand letters or filed legal actions?
- Have you asked for relief from your bank?
- What relief have you requested from your bank?
- What has been the response of your bank?
- Are you in default to your bank?
- If you have an ABL (asset-based lending) facility, have advance rates been reduced?
- Are you in breach of any loan covenants?
- Have you signed a forbearance agreement with your bank? Have you been asked to do so?
- Have you been asked to sign a pre-negotiation agreement with your bank?
- Has the bank asked you for additional collateral?
- Are any of your customers seeking to return goods to you?
- Have any of your customers sought retroactive discounts on previously purchased goods?
- Have you agreed to purchase on consignment from any of your vendors in the preceding 60 days?
- Have you given a security interest to any vendors in the preceding 60 days?
- Have you asked any vendors to hold up deliveries in the preceding 60 days?
- Have you engaged an attorney or financial advisor to assist you in dealing with the current economic situation?
- How do your current inventory levels compare year-over-year (YOY)?
- How does your current aggregate A/R compare YOY?
- Have customers been cancelling purchase orders? What is the aggregate dollar amount of dollars that have been cancelled in the preceding 60 days?
- Have customers asked to hold back shipments on pending orders?
- What expenses and costs have you eliminated recently? Aggregate annual dollar amount?
- How many employees have been furloughed, terminated or laid off recently?
- By what aggregate dollar amount has executive compensation been reduced? By what percentage amount has executive compensation been reduced?
- Have you applied for funds under the Federal government CARES Act program? If so, how much did you apply for and have you received a response?
The views expressed herein are not necessarily shared by other persons at Lowenstein Sandler LP. Each case is unique as the law is subject to interpretation.
Kenneth A. Rosen, Esq., partner at Lowenstein Sandler LP, is chair of Lowenstein’s bankruptcy practice.
NACM/FCIB Webinars—Information, Ideas and Innovation
Without the Inconvenience