May 25, 2023

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Debt Ceiling Debate: Will the US Default?

Kendall Payton, editorial associate

Treasury officials have warned lawmakers to come to an agreement prior to the X-date of when reserves will run dry. The X-date depends on both tax collections and government payments, and if there is not enough money to provide for the country’s financial obligations, the likelihood of a default is very high.

The country could run out of cash and default on its debts as early as June 1. But when asked if June 1 can stretch to June 15, Treasury Secretary Janet Yellen told NBC the possibility of a stretch is quite low. “We take the debt ceiling seriously as a constraint on our ability to pay bills that are coming due,” Yellen said. “My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid.”

So, what happens next? First, both parties can strike a deal to either increase or suspend the debt ceiling for up to two years. But for this to happen, a negotiation would have to occur this week. And if lawmakers came to a deal this week, it would still take months before stocks and other financial markets regulate.

Second, lawmakers could agree to a short-term debt limit raise to buy more time. Lastly, as June approaches, a settled disagreement can lead to default. By June 8-9, cash is likely to drop under $30 billion, according to analysts from Goldman Sachs. "At that point, we believe there are even odds that the Treasury exhausts its funds entirely,” they wrote.

Some argue that the Biden Administration should ignore the debt ceiling, issue debt and pay the bills. If you do not like executive overreach, then you do not want the administration figuring out who gets paid and who does not, said NACM Economist Amy Crews Cutts, Ph.D., CBE. Cutts said the markets are now showing a bit of nervousness. “Up until now, the stock and bond markets have been adamant about the possibility of default,” she added. “In prior times when we’ve come up to this edge, the markets have gotten a little more agitated or volatile even getting to this point—but some believe there is still enough time for cooler heads to prevail and for a deal to get negotiated.”

Another possibility if the debt ceiling does not raise is a decline in stock and bond markets. “As stock evaluations go down, bond prices will fall and interest rates will rise,” said Cutts. “If markets will charge higher interest rates to the government, it usually lights the fire for those who are saying it will work itself out.”

The debt ceiling has been used as leverage for political gains in the past. The U.S. government hit its congressionally imposed $31.4 trillion borrowing limit in January. “Since the 1950s, both political parties have engaged in legislative battles over the debt ceiling—each using it to paint the other as financially irresponsible—only to reach an agreement before markets began to panic,” reads an article from Time.

The ability to find a solution is limited and job losses are a number one concern if the country defaults. If this happens, the U.S. will most likely prioritize payments and bills based on when they come in, said Ash Arnett with PACE Government Affairs and NACM’s Washington Representative. “Many credit aspects will be impacted,” Arnett said. “If the impacts are not as staggering, the consequences of the default are not enough to politically motivate raising the debt ceiling.”

Political tensions between both parties continue to hold policymakers back from making a decision for the greater economic state of the country. The Republican Speaker of the House is now stuck between a rock and a hard place, or a bipartisan compromise his party will not accept, said Arnett. “The best-case scenario for the U.S. economy as a whole would be if the 14th Amendment is upheld,” Arnett added. “It will dissolve the statutory limit moving toward the debt ceiling, and help prevent default.”

Talks of invoking the 14th Amendment have been considered by the Biden Administration as many believe it would be effective as leverage. When asked during a press conference, President Biden said he will look to use the 14th Amendment if they have the authority. “The question is, could it be done and invoked in time that it could not be appealed, and as a consequence, pass the date in question, and still default on the debt,” Biden said. “That’s a question that I think is unresolved.”

Join NACM Economist Amy Crews Cutts at Credit Congress on Monday afternoon, June 12, for a discussion of the economy and what’s next.

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Are In-Person Customer Visits a Thing of the Past?

Jamilex Gotay, editorial associate

In-person customer visits have existed since the birth of credit management as a method of gathering information, collecting payment and building customer relationships. But with the advances in technology and a global pandemic, in-person customer visits may become a thing of the past.

According to an eNews poll, more than half (63%) of credit professionals no longer conduct customer visits as part of their credit investigation. But for the 37% of credit professionals who still visit customers face-to-face, they say the value gained is unmatched.

Advantages of In-Person Customer Visits

Melvin Ucelo, CCE, CICP, global credit manager, Franklin Electric Co. Inc. (Fort Wayne, IN) involves his sales team as an extension of credit for important and risky accounts across North America, Africa and Asia. Visiting customers in person also allows you to see how they run their business and where they spend their money. For example, if a customer’s building is run down, it could be a sign that the business is struggling. “They help me gather customer information and business intelligence data and I do my own research,” Ucelo said. “Later, we look over what we found and make a strategy to gather information for the future.”

You can use in-person customer visits as a means to collect payment from delinquent or past-due accounts. “It’s good to sit down with leaders of that organization to help resolve payment disconnects,” said Lee Tompkins, RGCP, director of credit and collections at MPW Industrial Services, Inc. (Hebron, OH), who’s conducted in-person customer visits for the last eight years. “Maybe they’re not paying you because you didn’t invoice them correctly or have a cash flow problem.”

In-person customer visits help build and maintain customer relationships that can also help you in future situations. “We visit customers in person more because we’re trying to eliminate the negative perception of the credit department,” said Anne Scarcella, CCE, CCRA, credit manager at Crawford Electric Supply, Inc. (Spring, TX). “We want to gain their confidence in that we’re treating them fairly and abiding by the credit policy. We also conduct visits for growing customers and new businesses.”

If you wait until something goes wrong to do an in-person customer visit, it is too late. Customer visits provide you with an opportunity to connect that virtual technology cannot. You can visit customers to show your appreciation. “You always hear about when things go wrong, but calling attention to customers that pay us timely or have met outstanding goals, strengthens the customer relationship,” Tompkins said. “They can also take you on a tour and introduce you to their team that can help answer your questions.”

Limitations of In-Person Customer Visits

Unless you have the appropriate budget, in-person customer visits are a significant travel expense. According to data from Startup Bonsai, the average U.S. business traveler will spend around $949 on airline fees, accommodations and other expenses, making the average cost of domestic travel to be $111.7 billion annually.

But visiting local customers is not as pricey as visiting international ones. In fact, Ucelo’s company spends between $50,000-$100,000 on international travel for in-person customer visits. That isn’t considering customers who make last-minute cancellations or push meetings that can increase travel expenses.

Although COVID-19 is not as urgent as it once was, risks of traveling abroad are still top of mind for credit professionals. Outside factors such as weather, travel restrictions or geopolitical tension can determine how important the customer visit is and what rules need to be followed.

How to Prepare

In order to best conduct a thorough in-person customer visit, credit professionals suggest:

Communicate. Make sure that you and your customer are on the same page for the reason you’re visiting and what to expect. This means knowing who you’ll be meeting, where and when. Showing up unannounced will only discourage them from participating.

Make a checklist. This can be anything from observing the building, surroundings, cars in the parking lot, staff, inventory buildup and anything gives you an idea of the customer’s financial state. I’m conscious of their office, like the phones ringing, if there’re cars in the parking lot and how things are running,” Scarcella said. “People can look big and fancy online but seeing it in person can give a much different visual impression.”

Ask questions. You want to ask plenty of questions about how their organization works, like if there is a shared service center where the payments are made. “I have customers in certain industries with a physical location in one spot but the actual cutting of the check is done offshore or overseas,” Tompkins said.

Be flexible. “There’s the potential for a customer to cancel a meeting at the last minute or push you off,” Tompkins said. “Try not to get upset and reschedule. Meanwhile, stay in the area as long as you can so that you can meet them where they are. If you have to spend a whole week there at a hotel, then that’s what you have to do.”

Future of In-Person Customer Visits

Most credit professionals agree that in-person customer visits will decline with the rise of technology but little is said about it being completely gone. “I don’t really think visits from a credit perspective will change in the future,” said Alicia Johnson, CCRA, credit supervisor at Cleveland-Cliffs Steel (Burns Harbor, IN). “Although they are valuable, we might see less and less of them as people are adapting to technology and getting more comfortable with putting their trust in us.”

There is talk of virtual visits potentially replacing in-person customer visits, but at what cost? “Virtual meetings are fine but people get burned out or people talk over each other,” Scarcella said. “The technology is great for when you can’t travel but it’s impossible to replace it with a one-on-one connection.”

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State and Federal Infrastructure Funds Set to Increase This Year

Kendall Payton, editorial associate

The Bipartisan Infrastructure Deal passed in 2021 provided a multibillion-dollar investment of roughly $1.2 billion into infrastructure and waterways, repair and maintenance backlogs, reductions in emissions and other low-carbon technologies. This deal has greatly impacted the construction industry and economy today.

States are expected to increase highway and bridge capital spending by 10% in FY 2023—growing from $108 billion to $121 billion, according to a report from Headlight. Largest funding increases are expected in Idaho, Hawaii, Arizona, Florida, Illinois, Kentucky, Kansas, South Dakota and Maine, per the report.

Many think of infrastructure being limited to roads and bridges, but it also includes other aspects such as education and healthcare. The Infrastructure Bill has kept the economy moving forward, said Chris Ring of NACM’s Secured Transaction Services. One part of the relief package is dedicated to school projects in order to spark an uptick in school investment projects over the summer. But supply chain and labor shortage issues created several challenges for districts that needed to spend funds federally by set deadlines.

“Elementary and Secondary School Emergency Relief (ESSER) funds were able to upgrade HVAC systems to have better filters for air quality inside schools,” explained Ring. “Those funds are due to be released this summer, but it’s a matter of those funds actually moving forward and reaching fulfillment.”

Congress approved the pandemic ESSER funds in 2020 and 2021, however, it can take months to years to plan and execute construction projects. “The money has been very beneficial to allow us to complete projects that we hadn’t even thought about before the money became available,” said Martin Romine, director of finance for Zuni Public Schools. “We’re hopefully making a difference in how kids view school and in their enthusiasm levels about coming to school, because we’re doing things that haven’t been done before.”

In 2022, funds for shovel-ready projects were sent out immediately. These are projects that have already been approved to move forward, but are awaiting approval to go from the federal to state levels. With major infrastructure investments, these projects are expected to receive approval quickly as funding increases for the FY 2023. The federal investment is driving 75% of revenue growth in state DOT budgets, with most growth seen in federal reimbursement to states, per Headlight.

Can technology add to the increases in infrastructure funds? Many infrastructure sectors also may see an impact and shift through technology. Technology use can save time and reduce unnecessary costs as well. One example is the use of drones to conduct bridge inspections—and these tools can help construction workers create electronic models of any infrastructure and minimize errors. Overall, some construction professionals believe technology use can help lead to a better impact for infrastructure projects and add to fund increases in coming years.

You also can join our Construction Credit Thought Leadership Discussion group to network with others in the industry.


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Telling an Accurate Credit Story with Metrics

Jamilex Gotay, editorial associate

Key performance indicators (KPIs) are a set of quantifiable measurements used to gauge a company’s overall long-term performance. KPIs help determine a company’s strategic, financial and operational achievements, especially compared to those of other businesses within the same sector. With the various forms of KPIs available, companies can improve their performance and meet long-term goals. A wide range of formulas exist to measure the ever-expanding list of tasks that fall under the responsibility of credit departments.

The formulas used to measure efficiency have not changed, but the strategy to drive improvement using metric findings is different today and will continue to evolve. Metrics help define the grey areas within which credit professionals often work. Metrics help tell a clear story about different parts of the order-to-cash process and tracking meaningful metrics can unlock success by helping the credit team reach goals, gain recognition and run at the highest efficiency.

Common Metrics in Credit:

  • Days Sales Outstanding (DSO)
  • Total AR aging
  • Overdue %
  • Best Possible DSO

Although these KPI metrics may be highly effective and used in credit, there are some problems of which credit professionals may or may not be aware, including:

  • Very hard, if not impossible, to really understand performance and movements
  • Very limited operational insight
  • Normally limited to AR/collections
  • Timing typically limited to month-end
  • Often limited review process

The biggest proponent is the difficulty in understanding performance and movements. “We might have an increasing level of disputes where we’re now allowed to remove disputes from the AR data,” said Christian Terry, chief executive officer at POP OTC (London, UK) during an NACM webinar, Introducing Weighted Average Days: Order to Cash KPIs You Never Knew You Needed. “When a whole chunk of AR is missing from reports, you can have an increase in write-offs or a change in credit policy. There can be a whole lot of aged debt that we’re not seeing and overtime.”

Problems with DSO

65% of credit departments surveyed by NACM use DSO to measure performance despite its limitations. DSO, a metric that measures the average number of days it takes a business to receive payment for goods and services purchased on credit, is not as favored within the credit department because it is highly influenced by sales.

The key is proving to upper management how highly DSO is driven by sales with extending credit terms. You can do this by showing them how terms impact the DSO number in your scorecard or dashboard. The lower the DSO, the fewer days it takes the company to convert credit sales into cash and the freer its cash flow. The higher the DSO, the longer it takes the company to convert credit sales into cash, which slows cash flow.

Importance of KPIs

KPIs should be at the forefront of credit professionals’ minds if they hope to improve the performance of their credit department. Every metric should drive an action in the credit department, otherwise it is meaningless. Use the results to steer the credit team in the right direction and prioritize tasks, just as you use the dashboard of a vehicle. For example, when the gas gauge gets low, you stop to fuel up. When the odometer reaches a new high, you change the oil. When the check engine light comes on, you take your vehicle to a mechanic. What resources do you rely on in credit to chart a new strategic route?

A way to motivate your team to achieve those goals is to use an objective and key results (OKR) framework, where leaders define objectives as statements that describe what should be achieved or improved. Teams then compose focused, quarterly targets, department by department, to advance objectives.

According to Oracle, KPIs are key to measuring the success of OKRs, while OKRs inform which KPIs to track. They list the key differences between the two below:



KPIs are measures, usually expressed as formulas, that track metrics to gauge performance.

OKRs are more qualitative and methodology-based versus a formula.

KPIs are points to reach and bells to ring. They are often not connected to how the overall business is improving.

OKRs tie daily efforts directly to specific objectives set by leadership.

KPIs are often positioned as a measure to score or rate individual employees.

OKRs are designed to engage and direct employees without fear of repercussions. They fit with a “fail fast” culture.

KPIs tend to be inward-facing.

OKRs drive toward aspirational changes and improvements that will be visible to the customer or impact the customer experience.

KPIs set demonstrably attainable goals.

OKRs set reachable, but more ambitious, goals that often require teams to be creative.

KPIs are useful for measuring progress on programs already in place.

OKRs tend to be about significant changes, new initiatives or larger visions.

KPIs have standard formulas and can benchmark a company against peers, answering whether it is best-of-breed or behind the pack on each metric.

OKRs help close the gap with or increase the lead over rivals.

To learn more about metrics, be sure to download our latest white paper on Beyond the Numbers: The Art of Measuring Modern Credit Department Performance.

You also can join our Metrics Thought Leadership Discussion group to network with other metrics-minded credit professionals.

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  • JUNE
    3pm ET

  • Speakers: Bruce Nathan, Esq., Mike Papandrea, Esq.,
    Andrew Behlmann, Esq., Lowenstein Sandler LLP

    Duration: 60 minutes